INDIAN MANUFACTURING SECTOR - NEED FOR A POSITIVE ENVIRONMENT FOR GROWTH

The Indian Economy, the Government, the public at large and specially the people who are in industry, manufacturing sector, service sector or any other arena of business activity ,all are deeply concerned with poor growth rate of manufacturing sector during last 2 to 3 years and specially in 2012-13.

The silver lining is the fact that the Indian industry and businesses have matured in terms of commitment and capability to compete in terms of quality, size, new products and innovation during last 2 decades. The large corporate sectors have done extremely well in last 2 decades in terms of growth and in terms of financial resources except the recent issues off slow growth in a large number of areas. Large industrialists and entrepreneurs are also not coming forward to undertake large projects in the manufacturing sector.

An interaction with top management of number of banks, during last 6 months has provided a very serious feedback that there are no significant or material credit proposals being received by them for setting up or diversification or expansion of manufacturing units. Most of the proposals being received by the banks relates to real estate developments, housing, highway construction and power sector. Even the power sector and highway projects are moving very slow and a large number of these projects are stand still for policy constraint or lack of coal linkage or lack of clarity about recover ability of power sales revenue or due to issues on toll collection and similar other matters. The financial closure in case of even infrastructure projects are becoming difficult due to uncertainties.
The small and medium enterprises (SME Segment ) of manufacturing sector have still deeper issues. There is a lot of lip service that the policy makers have serious will to promote the SME . The policies are also being made to this effect. The implementation issues are, however, very serious, to discuss some of them:

• Land: Availability of reasonable cost land with adequate infrastructure facilities is a big issue. It is important to develop industrial estates in various areas of the country and even barren land can be used by State Government Agencies or under PPP model to develop industrial estates with developed roads, sewerage , waste disposal, water and other facilities which are important to set up manufacturing units.
• Power: Availability of uninterrupted low cost power has to be ensured.
• Man power : Availability of trained manpower with adequate technical education and practical exposure can create a strong backbone for growth of industries and will also provide large scale employment.
• Finance: SME sector also suffer from lack of financial resources. It is important to provide equity support by banks and other financial institutions and also at the instance of the government Institutions. Even the term loan and working capital facility are available only against collateral security except for very small requirements. The government need to structure a scheme to insure credit risk of the financing institutions up to a loan amount of Rs 5 crore provided to genuine proposals of SME sector, which can provide a big imputes to growth. The increasing requirement of retail sector can also met by SME in a more effective manner.
• Low cost funds: The SME sector need low cost funding at less than 10% per annum. In the present circumstances the limited money which is available to small scale and medium enterprises is costing 14% to 24% per annum. It is important to make the industrial units economically viable and competitive so that they can create large competitive manufacturing bases and can also develop as ancillary units, to support large projects.
• Government initiative and monitoring: The State Governments and Chief Ministers can take a lead to attract industrial activities in their respective States in a completely planned manner. The central government and the entire framework of the financial sector can provide necessary facilities and financial supports.
• Tax Laws: Taxation Laws are another major dampener. It is very important to reduce the rates of indirect taxes including VAT and Service Tax. The direct tax slabs also need substantial up-gradation. What is most important is to create a positive litigation free environment. The domestic transfer pricing legislation and several other similar irritants, bureaucratic process and litigative attitude is largely responsible for a poor business environment in the country.
• The Prime Minister and his team need to fully support the initiative of the government machinery including top level bureaucrats at the central level as well as at the State level to have a long term vision and program for a big leap in the manufacturing sector. The procedures need to be cut and a single window clearance in a time bound manner is needed. The delegation of powers should be wide with all necessary positive discretion with officials.