Saturday, July 15, 2006


The Government of India is keen to achieve a level of 12% cumulative industrial growth. The feasibility of the aforesaid target and its sustainability on year to year basis would depend upon the manner in which various impediments in the industrial growth are tackled effectively by the government the private sector and other stakeholders.

Various Issues identified by the Industry
Among st the numerous issues identified by industry, the following require immediate attention:

The growth of railways, roads, ports, power, telecommunication and other areas in infrastructure sector is crucial. The current Government spending on infrastructure is not even 10% of what is spent by China (About 100 billion $ p.a.). At least 12% of GDP has to be invested in infrastructure by the Government, in addition to the investment to be made by the private sector. The Government is expressing its inability to allocate required resources. The annual budgetary figures indicated that currently more than 90% of annual tax revenue is being spent by the Government on interest and repayment of principal for domestic and international borrowings of the Government. The Government needs a very comprehensive debt restructuring exercise including one time settlement, with a commitment of not to borrow further except under severe resource crunch. This can be achieved only with comprehensive reduction of revenue expenditure and unplanned expenditure by the Government. Simultaneously, it might be necessary for the Government to consider sourcing additional funds for infrastructure from deficit financing. The risk of a steep inflation could be managed by growth and additional supply of resources arising out of additional infrastructure. The burden of a very large bureaucracy should be reduced by cutting the size of bureaucracy by at least 75%. The surplus human resources thus need available could be deputed for implementation of commercial infrastructure projects.

Power Sector
The creation of additional capacities for generation, transmission and distribution of power is most crucial impediment in the industrial growth. The State Governments need to remove all obstacles in implementation of private sector projects, create a free market for power trading and give time bound real single window clearance. The Governments can also incubate power projects obtain all clearances and then make the projects available through transparent auction mechanism for Public-Private Partnership (PPP). This would be in addition to major investments to be made by public sector. Private sector investments can at best contribute 10% - 20% of required investment levels in view of long gestation period and financial risks.

Funds Availability
Non-availability of risk capital as well as mandatory requirement of collateral securities by the banking sector, are major impediment in the growth of small and medium industrial enterprises. Financial Sector Reforms are required to channelize adequate resources towards industrial growth.

Skilled Manpower
The industry is facing an acute shortage of desired quality and quantity of skilled manpower. The privatization of ITIs is a good proposal. The Government needs to spend substantial resources on vocational education. The Government should provide adequate fiscal incentives, including giving
150% weighted deductions on all contributions / capital expenditure in the field of vocational education and complete exemption from all taxes to pursuade private sector to come forward and invest in education. Reforming the curricula and with added impetus on skill based academics from secondary school education on wards is the need of the hour and shall go a long way in harnessing
youthful energies to grater national productivity.

The mining sector needs to be deregulated offering private sector participation in a transparent manner.

Indirect Taxes
The National VAT, to cover excise duty, service tax, State VAT and all other indirect taxes is to be brought in at the earliest. CST needs to be abolished on a fast track.

Labour Reforms
The labour laws need to be more flexible. At the same time the interests of labour is to be protected in a genuine manner. The complex labour laws should not be allowed to become impediment in the growth of employment opportunity. The industry has offered 100 days job guarantee scheme in lieu of liberal labour law regime.

Tax Incentive
The industrial growth needs to be incentivise by reduction of incidence of all indirect taxes (including Central and State) below 16%. The need and greed of the Government to levy more and more taxes
has to be addressed very carefully, efficiently and effectively.

Long-term Debt Market
Long-term Debt Market is not only to be deepened but also new financial institutional framework is needed to generate long-term funds for infrastructure and industrial projects. The banks do not have an appetite and resources for such lending. In case the aforesaid issues are addressed effectively by the Government and industrial sector jointly in a cohesive manner, the country can easily achieve the growth rate of 12% for the manufacturing sector and 10% for the overall industrial sector.

Core competencies
We urgently need to delve into the exercise of identifying our core competencies on macro level and leverage these towards achieving our industrial growth targets.

Integration of Rural economy with the mainstream industry
Rural economy's importance in national growth can never be undermined. Ethnic and cottage industry based in rural areas of the country must be encouraged to integrate on commercial concepts. Large scale replication of attractive and famous, ethnic and artistic works to make them available
at every nook and corner of the world at rock bottom prices could be an alternate to this direction. Large and medium industries be approached through chambers of commerce and such other associations to find out ways to synergize their business models to encourage and integrate the rural and cottage industry.


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