How can the government revive manufacturing?


After decelerating for five quarters, the growth in gross domestic product (GDP) recovered to 6.3% in Q2 of 2017-18 on account of a rebound in manufacturing. The projected growth at 6.5% in 2017-18 is premised on high growth in services in the next two quarters, though manufacturing growth may remain subdued. Our assessment also suggests manufacturing growth will remain subdued until 2018-19. Achieving 7.5% plus growth after 2018-19 will require a series of measures for manufacturing.

The need for policy interventions:

  • Building skills among the large population of minimally educated workforce,
  • enacting laws that focus on improving workforce relations together with greater flexibility,
  • improving infrastructure including development of world class clusters,
  • reducing uncertainties and providing stability and predictability in regulatory, legal, environmental, taxation areas and
  • providing access to capital at competitive prices

Conceived programme:

  • Silicon manufacturing for fabrication must be revived.
  • This will ensure competitive domestic production of chips, leading to a reduction in imports of electronic items that has been increasing, as well as improve security.
  • Electric vehicles are an area where evolution of technologies gives us options and public investment in this area should not restrict choice.

The global economy is witnessing a revival:

  • The US, Europe, China, Japan and South-East Asian economies are exhibiting growth.
  • The exports to these countries would help in improving capacity utilization and a restart of the investment cycle. 

Exports and reducing the liquidity crunch:

  • The procedure in goods and services tax (GST) refunds for input tax credit and other processes by Directorate General of Foreign Trade (DGFT) in exports could be allowed on a self-certification basis to reduce the liquidity crunch.
  • Banks should reassess working capital requirements for exports and meet them on a priority.
  • Items for which merchandise export incentive scheme (MEIS) was not granted so far may be revisited and attention may be focused on assistance to states for export-related infrastructure through assistance to states for development of export infrastructure and allied activities (ASIDE) type schemes, financial and technical assistance to export industries to improve their standards and application of trade defence measures wherever permitted.
  • The inverted duty structure must be attended to and negotiations of items getting hit under current free trade agreements (FTAs) should be focused upon.

Measures for Banking:

  • The autonomy of bank management, enhancement of banks’ professional capabilities, increased use of technology to reduce costs, improved whistle blower system and getting government equity holding below 50% are other necessary measures for confidence-building for lending.

Measures for MSME:

  • The MSMEs’ financing has suffered.
  • Structures within banks must be regrouped to create specialization at zonal or regional level for appraisal and grant of loans to this sector.
  • Branches will then monitor only the performance of these loans.
  • An increased use of ratings, credit insurance, and reasonable choice by creditor committees in the IBC proceedings for MSMEs are necessary.
  • Other intentions such as self-certification and steps for seamless graduation must be implemented.


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