India’s GDP high on selling, low on manufacturing

Author: 
Nantoo Banerjee

The government is believed to be ready to shortly wheel a new industrial policy. Such an idea is pending with the authorities for quite some time. The latest reform initiative by the government is being pitched as potentially the biggest overhaul of industrial policy in about three decades and will come just ahead of the coming national election. However, it is not clear why it could not come much earlier. Recently, the government had also set up a task force on imports.
And, now, to come is a new industrial policy. Maybe, these new initiatives have something to do with the lack of domestic and foreign investors’ response to the government’s so-called ‘Make-in-India’ drive. India is not manufacturing enough. It’s GDP is growing largely on trade and commerce. This is a wrong way to grow the economy in a country like India boasting over a billion consumers. While imports of manufactured products are killing local jobs, the expansion of domestic trade is creating mostly poor quality, low salaried and temporary employment. Salesmen are galore. Production and manufacturing men are fewer. India has not set up a large new industrial manufacturing unit for a long time. Several existing ones have fallen sick and are facing bankruptcy proceedings.
According to the 2017-18 Economic Survey, the services sector, with a share of 55.2 per cent in India’s gross value added (GVA), continued to be the key driver of India’s economic growth contributing almost 72.5 per cent of GVA growth in 2017-18. The services sector growth is welcome. But, only if that grows alongside the growth of the manufacturing sector and not at the latter’s cost. Industrial manufacturing, a key economic foundation for any large country, is still quite weak in India. This sector’s contribution to the country’s GDP is hardly growing. This is mainly because it lacks a strong and proper policy push.
India’s growth story will be of true value to the nation if it makes the country internationally competitive. Both the agricultural and manufacturing sectors must produce goods that are globally competitive in terms of quality and prices. The industrial and technological research needs to be strongly incentivised to attract investment in such important areas and produce results. The industrial base has to be made a lot stronger. All these need to be driven by the Department of Industrial Policy and Promotion (DIPP) and not by the union finance ministry or the department of finance. Historically, DIPP has been playing a second fiddle to the finance department when it comes to incentivising domestic production and enhance its competitiveness.
By using its annual taxation and fund allocation handles, the finance ministry seems to take a great pleasure to directly decide on the questions of domestic production and imports and set priorities. This is despite the fact that DIPP is officially responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives. Incidentally, nowhere in the world are large economies controlled and guided by their finance ministry as it is in India. The practice needs to be drastically altered. Let DIPP, with inputs from sectoral think-tanks sitting at NITI Aayog, decide on the actions and initiatives required to make India a top industrial,  manufacturing and exporting nation in line with such leading economies as China, Japan, Germany, France, Sweden and South Korea.
The proposed industrial policy is reportedly aiming at faster regulatory reforms and lower power tariffs to make businesses more competitive and help them create more jobs. The proposals include establishment of an overarching body with representation from the Centre and states similar to the existing Goods and Services Tax (GST) Council to enable swift decisions on key changes such as the revamp of labour laws, taxation provisions and land leasing. Paradoxically, the share of the industrial sector of India’s GDP is critically low, only around 29 percent at current prices. Of this, the manufacturing sector’s contribution would be even lower. In China, the world’s second largest economy, the industrial sector’s contribution to GDP is as high as 44 percent.
It is said that the new industrial policy will be focussed on three props — competitiveness, sustainability and inclusion. DIPP is convinced that the cost of doing business must come down if the industry has to become competitive. The proposed policy favours a direct benefit transfer (DBT) for electricity for households and agriculture. This, in turn, will result in lower tariffs for industry. Industrial power tariffs are high as they subsidise electricity supply to homes and farms. Such a practice is unsustainable if the industry has to be price competitive on a global platform. Let the subsidy come from the government and distributed to household and agricultural consumers on a DBT basis.
The earlier the government declares the new industrial policy the better it is to bring some life to the government’s much vaunted ‘Make in India’ and ‘Startup India’ programmes, aimed at boosting domestic entrepreneurship, manufacturing and, also, new jobs. The proposed Centre-state body under the new industrial policy will be chaired by the union commerce and industry minister with state industry ministers as members. This is to ensure a synergy between the centre and states on the new industrial policy and its speedy implementation.  Importantly, the new policy seeks to create a framework that will encourage industrial research and development by establishing a regular interface between academic institutions and businesses. DIPP is said to be all for a revamp of the intellectual property rights regime so that innovators have a greater say. It has already taken one full year since DIPP had posted a draft industrial policy, with inputs from various stakeholders, for public comments. It’s now time to act fast on them to formulate and announce a new industrial policy for the country. (IPA)

Friday, 31 August, 2018