With a strong focus on ‘Make-in-India’, the government needs fresh policy initiative in areas of heavy industry, electronics, MSME, export and import
The massive election mandate for the Bharatiya Janata Party (BJP) and its partners in the National Democratic Alliance (NDA) provides Prime Minister Narendra Modi with a great opportunity to implement the government's unfinished economic agendas, especially the one connected with the vital 'Make-in-India' programme. Prime minister achieved outstanding performance in the social sector. The government took a great leap toward financial inclusion. The inflation rate has been one of the lowest in recent memory. However, not enough attention was provided to make the prime minister's dream 'Make-in-India' programme a success. The programme is vital to strengthen the economy that will automatically address important issues such as unemployment, growing import-dependence on manufactured products, illegal and subsidised import threats to MSMEs, growing deficits in the balance of trade and balance of payments, and Rupee stability.
Few will disagree that the country's overall economic scene is hardly bright. In the last five-year period, industrial growth showed the worst performance, often hovering around the negative zone. During last March, the industrial growth rate dropped (-) 0.1 per cent. Fresh domestic industrial investments have been negligible. Manufacturing and core sectors of the industry are major laggards. Despite massive growth in private educational institutions, employment opportunities have been shrinking for want of local industrial growth and expansion. India's crude steel production fell by one per cent to 9.412 million tonnes during March 2019, showed a World Steel Association (worldsteel) report.
The Federation of Automobile Dealers Associations' (FADA) monthly vehicle registration data for March 2019 was quite depressing. The last financial year saw vehicle sales drop by eight per cent with total retail sales accounting for 16,82,656 units compared to the 18,21,538 vehicles sold in FY 18. FADA says that there was de-growth in almost all categories. India's GDP growth slipped to 6.6 per cent in the third quarter of FY19. The economy had grown 7.1 per cent in the second quarter and 8.2 per cent in the first quarter, logging 7.6 per cent for the first half.
The manufacturing sector's share of GDP rose just 1.5 per cent in the last three years to stand at only around 18 per cent. Investors complain that higher taxes, lack of efficient infrastructure and regulatory red tape make India a difficult place to work. According to Nielsen, even India's fast moving consumer goods (FMCG) industry is likely to grow at a slower pace at 11-12 per cent in 2019, almost 2 per cent lower than that in 2018. The FMCG industry is expected to grow at 12-13 per cent during the April to June quarter of the calendar year 2019. The first month of 2019 saw growth in the eight core sectors of the economy crash to a 19-month low at 1.8 per cent, slipping below the 2.8 per cent growth in December.
The core sector growth continued to go down for the third straight month in January, as the two largest contributing sectors, electricity and refinery products remained in the negative zone. Data released by the commerce and industry ministry showed that the eight segments — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — cumulatively grew 4.5 per cent in April-January of the last financial year. Contributing 40 per cent to the total industrial production, the output of the core sectors was brought down by the sudden contraction in electricity generation.
On the other hand, exports are continuously failing to bridge the import gap, which is growing faster. India's trade deficit reached a record high of $176 billion in 2018-19. Although it is for the first time the outbound trade remained above $300 billion for two consecutive years, exports failed to touch the government's internal target of $350 billion. A continuous import shoot-up, which grew at double-digit levels for six of the last 12 months, took cumulative imports to a soaring high of $507.44 billion. The government's hurried move to go for digital economy without a sound domestic electronic production policy is costing the country's economy and local employment opportunity dearly. In FY 18, electronic goods accounted for 11.91 per cent of all imports, making it the third largest contributor to the country's overall imports after crude oil and gold. On a cumulative basis in FY 19, the share of electronic goods in overall imports stood at 11.85 per cent. The trend is simply alarming.
Without any further delay, the government needs to frame a comprehensive industrial policy, supported by new policy initiatives in the areas of heavy industry, electronics, MSME, export and import, with a strong focus on 'Make-in-India'. The private sector has failed to set up a world-class semiconductor manufacturing company in the last 25 years. The government should either set up a public sector company to manufacture micro-chips or allow full freedom to any of the global semiconductor leaders such as Intel, Samsung, Qualcomm, Texas Instruments and Toshiba to set up a factory soon in India on mutually agreed terms.
Semiconductors are very important. As electronic devices proliferate, the companies that make semiconductors continue to prosper. In fact, they are among the most successful companies in the world. Because semiconductors are hidden away in phones, tablets
and computers, many of their manufacturers are relatively underexposed. They quietly do business with companies that manufacture devices. The companies mentioned earlier are giants in the industry.
The Modi Government enjoys excellent relationships with the US, Japan and South Korea. That should help fulfil the country's long-pending ambition to become a semiconductor giant. A comprehensive new industrial policy is urgently needed to make the 'Make-in-India' dream a success. Top bureaucrats in the relevant ministries should work together with NITI Aayog in this regard. Hopefully, it will solve at least a good part of the country's economic problems. The country urgently needs a new economic policy and a new direction for the domestic industry.
(The views expressed are strictly personal)
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