India readies to take on China as New Manufacturing policy gets in-principle approval

In a move that will have far reaching repercussions in improving India’s industrial competitiveness, the government has given in-principle approval for the radical National Manufacturing Policy.

The policy, as originally set out by the ministry of industry and commerce, aims at emulating China’s spectacular success in emerging as the global manufacturing hub and aims to drastically cut down the bureaucratic interference in industrial activities.

“The draft National Manufacturing Policy was given in-principle approval at a meeting of the High Level Committee on Manufacturing, held under the Chairmanship of the Prime Minister and attended by the Finance Minister, Commerce and Industries Minister, Deputy Chairman, Planning Commission, Ministers for Environment and Forests, Corporate Affairs, and the Chairman of the Economic Advisory Council,” said a statement from the ministry of commerce and industry.

The policy was always seen as extremely ambitious on the part of the commerce and industry minister, particularly as it suggested drastic cuts in the mandate of the officials in environment, labor and tax ministries and departments. The latter have been discussing the policy for nearly six months now.

The policy seeks to make India a friendly manufacturing destination by removing a large number of restrictions that are in place at present. For example, it moots setting up new Zones or mini-cities where a central participatory body of the industries will administer most of laws. The biggest ‘pain point’ laws of the country today are its environmental laws, labor laws and tax laws.

Under a new proposal contained in the new policy, a body comprising of the industrial unit representatives will be allowed to assume a joint responsibility for ensuring that pollution is controlled, labor laws are obeyed and taxes and levies are collected and paid to the government. The new policy also seeks to relax the current provisions, especially with regards to hiring and firing of labor.

National Investment and Manufacturing Zones (NIMZs), however, will not be quite the like the SEZs, which are primarily oriented towards encouraging manufacturing for exports. The NIMZs will be focused towards encouraging manufacturing for the domestic market and will not have as many tax cuts as the SEZs.

India is ranked almost at the bottom by the World Bank in its ease of doing business index, primarily due to a intimidating array of permissions, clearances, no-objection-certificates, filings, licenses and levies that stare at every industrial or commercial venture.

India has a minuscule 15% of its total production coming from manufacturing and the new policy aims to take it up to 25% by 2025 — the ideal level according to it. It also wants to create 100 million additional jobs by 2025, sucking up nearly all of the extra hands that will join the workforce by then.

All the obstacles before the policy has not been overcome yet. According to the statement, the PM, while noting the importance of industrial growth, also emphasized the importance of environmental and labour welfare concerns.

“He directed that these issues may be further discussed at the Ministerial leve. He further directed that this consultation process may be completed within one month, so that the National Manufacturing Policy can be brought before the Cabinet and the final Policy announced, which will send a positive message to the investing community,” the statement said.