Union Budget 2014: Manufacturing sector's expectations

Union Budget 2014: Manufacturing sector's expectations

                        The Union Budget 2014-15 will be presented on 10 July, 2014 by the new BJP-led government, which secured more than 300 seats of the 543 parliament seats on promise of providing relief to common man by reducing inflation, along with economic growth.

Finance Minister P. Chidambaram on Feb 17 in his nearly hour-long interim budget speech, while talking about the state of the economy, summed up: “Manufacturing is the Achilles heel of the Indian economy”.

Manufacturing sector of India has been worst and stuck there for a while. After recovering to a growth of 9.2 % in 2009-10 and 2011-12, growth in the industrial sector, comprising manufacturing, construction services, mining, and electricity, slowed to 3.5 % in 2011-12 and to 3.1 % in the current year. The manufacturing sector is the most dominant sector within industry and it declined to 2.7 % in 2011-12 and 1.9 % in 2012-13 compared to 11.3% and 9.7 % in 2009-10 and 2010-11.

The decline in the manufacturing sector has been driven by low domestic demand. High interest rates reduced consumer spending while slow decision-making by the government and land acquisition issues stalled projects progress and held back investment in the sector, thereby reducing chances for growth. "More than consumer spending, which is a significant portion, confidence level has an impact in India. That confidence level is low. The captains of industry are all waiting and watching," says S.V. Sukumar, Partner at KPMG India. The manufacturing sector has been dragging down the overall economy. It has been worst time for manufacturing since 1999/2000.

Growth in jobs in the manufacturing sector is anticipated from the coming budget. The finance ministers of the past have emphasized that the manufacturing sector needs to grow from the current levels of 16-17% of GDP to a healthier 25% which will help in bringing growth in the economy to healthy 8% per annum.

This new government made promises about the immediate importance of skills development and paying work through jobs and self-employment. The National Skill Development Corporation (NSDC) has played a vital role in skilling industry to take off and produce results in the longer term. By setting up of Sector Skill Councils, encouraging private initiatives in the skilling industry and providing starting points for research in skill development – Such work by the NSDC helped in building a sustainable public-private skilling industry. But, NSDC is close to reaching out to only 2 million people and still has a long way to go to achieve 150 million target. The target would increase to 350 million by 2022 and the government is already well short of achieving the current target.

Due to this, industrial growth is slowing down and a gap between skills required and skills available is widening. A concerted and speedy effort of skilling workers and developing the economy is needed, so that we skill our people in terms of quality and quantity.

We also need a better connect between training and paying work (jobs or self-employment), so that youth get paying work after coming out of the training. The new step of independent ministry combining skills development and entrepreneurship is on the nail.

And if this ministry works in tandem with MSME and finance ministries, a lot of employment can be generated.

Amendments in the archaic apprenticeship regulations are well needed. Industries have by far the largest capacities of training - both in terms of equipment as well as trainers with relevant expertise.

The government should also turn focus towards stalled projects in infrastructure sector due to land acquisition bill and archaic taxation system. The government should cut a clear path for implementation of Goods and Service Tax (GST). Retrospective taxation should be removed to attract better investment in the country.  Amendments to new land acquisition bill will make government and companies to acquire land easily from farmers and will speed up the implementation of stalled projects. Projects worth billions of dollars, including South Korean steel maker Posco’s $12 billion (around Rs.72, 000 crore) factory in Odisha, have not been even started because land acquisition problems.

"The government should focus on improving core infrastructure like rail, roads and ports. That, in turn, will kick-start manufacturing in core areas like cement and steel," argues SV Sukumar, partner and head of operation and supply chain, KPMG in India.

To make India a manufacturing hub and meeting the burgeoning demands of technological products, the Government should provide an effective single window clearance mechanism to the initiatives taken in Electronics/Semi-Conductor manufacturing sector to further increase production in technological products.

We hope that the budget announcement will prioritize fast-track skill development and create the sync between skill training and jobs. The budget proposal should also prioritize impetus for job growth to provide a vibrant job market to an adequately skilled workforce.

"This article is written by Kalpendra Manu, a PGDM student of 2013 batch  He can be reached at pgp13026.kalpendra@iimraipur.ac.in "