Thursday, June 12, 2008

Industry for 12% manufacturing growth

by Jo Black

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has worked out a 10-pronged strategy to ensure 12% manufacturing growth in the current fiscal year, suggesting the government should remove constraints on industry and agriculture and also reduce tax incidence on household purchases to less than 20%, from over 45% now, to spur up demand.

In addition, it has also sought the withdrawal of hurdles on investments that run in thousand of crores in power, telecom and other core infrastructure sectors, by way of according them necessary clearances within a maximum period of 45 days.

Thirdly, the Chamber holds that since half of manufacturing output come from small and medium sector including village and tiny units, the government should also trim the plethora of controls and regulations that currently restrict the growth of this sector.

The aforesaid suggestions have been incorporated in the ASSOCHAM latest Study on Strategies for Improving the Growth of Indian Manufacturing Sector, already submitted to the Prime Minister by its President, Mr. Venugopal N. Dhoot, also emphasizes that growth in private consumption expenditure, currently at around 6.5% should be taken to 7.5% to spur up demand.

The study points out that although the annual income of an average Indian is growing by Rs.1800 annually its benefits are not resulting in increased savings because the government takes away over 45% on household purchases in terms of indirect taxes alone.

This certainly helps the government but hurts the people and therefore, the tax incidence on household purchases should be brought down to less than 20%.

The importance of achieving 12% growth in the manufacturing sector is extremely critical to ensure that India consistently achieves plus 8% GDP growth, even though in the month of March 2008, the manufacturing growth has slackened to 2.9% from over 14% in the same month last year and industrial production fell to about 3% from more than 11% in March 2007.

According to the ASSOCHAM Study, the GDP for the fiscal 2007-08 would hover around 8.1% against the earlier projections of close to 9% since industrial production has come down mainly on account of poor manufacturing.

In the industrial production, the weightage of manufacturing is the highest and naturally it’s a matter of concern that neither our industry nor manufacturing is doing as per expectations.

Its implications are resulting in poor employment opportunities for both skilled and semi-skilled workforce which will naturally hurt the GDP.

The study further points out that though the fiscal situation has steadily been improving but the plight of the common man continues to worsen as the growth has yet to be inclusive.

The Chamber has further pointed out that demand also comes from additional employment and income.

Overall economic policy should subserve the cause of employment generation.

At the same time, ASSOCHAM feels that employment growth should come from productivity growth.

Employment sans productivity growth is not sustainable. As a matter of strategy, the government should continue to encourage development of employment-intensive sectors such as housing and real estate, retail trade, agro processing, consumer durables and FMCG, etc.

While a lot of development has taken place, such development is confined mainly to metropolitan areas.

This needs to be encouraged to spread to smaller towns, so that the benefit of growth reaches people.

ASSOCHAM would suggest that a differential interest rate policy may be introduced, whereby housing loans of Rs.5 lacs or less may be provide at a lower rate of interest.

It is possible to have a cross subsidy kind of situation, where people with very high purchasing power may be made to bear higher interest rates.

On the issue of supply side constraints, the study notes that supply side constraints are structural and debilitating.

Constraint of infrastructure support is well recognised, and needs no further emphasis.

What is important is to clear all hurdles so that investments in the pipe line, particularly in the power sector, should be expedited and all clearances, leading up to execution of the projects should be given within framework of 45 days.

If the manufacturing sector has to grow 12% a year, power generation must have a sustain growth of 10% a year.

 

 

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