The worst may not be over yet for the Indian manufacturing sector. Lack of growth in the manufacturing sector continues to be the Achilles´ heel of the Indian economy, according to Finance Minister P Chidambaram. Emphasising the need to focus on manufacturing and exports, Chidambaram announced a goal to increase the share of manufacturing in GDP to 25 per cent and to create a hundred million jobs over a decade, in his interim budget speech.
It is an ambitious goal, the return to growth of the manufacturing sector being dependent on an improvement in the overall economic environment. A positive step in that direction was the announcement to reduce the excise duty from 12 per cent to 10 per cent on all goods falling under Chapter 84 and Chapter 85 of the Schedule to the Central Excise Tariff Act, for the period up to 30 June 2014. In his budget speech, Chidambaram also mentioned that domestic production of specified road construction machinery should be encouraged and proposed to withdraw the exemption from CVD on similar imported machinery.
Stress on local manufacture is yet another positive step in the right direction. It may, however, not yield immediate results for an industry that is in dire need of uplifting. With the presence of almost every global construction equipment manufacturer in India, stress on local manufacture will yield results only if the other factors - growth in infrastructure, easing of inflation and interest rates - contribute towards the creation of a favourable economic environment. The more immediate effect could therefore be attributed to the reduction in excise duty. Reduction in excise duty will lead to pre-buying and provide a much needed positive boost, the cascading effect of which is certain to touch the suppliers and other elements of the manufacturing sector; enough to bring some cheer back to the badly bruised sector.
Inflation and high interest rates continue to be a matter of worry and could withhold the return to the growth track. They could also limit the development of overall economic environment making it tough for component manufacturers and SMEs to sustain things, to leverage their strengths and grow. Rapidly changing market scenarios have already led to an amount of unpredictability, presenting unprecedented opportunities as well as challenges.
The need is to overcome challenges and tap the opportunities. The depreciation of the rupee, for example, is an opportunity that has to be tapped to the fullest. It has turned India into a lucrative sourcing destination for manufacturers the world over. Many manufacturers are turning their attention to India over China, to an industry that has earned a reputation for its inherent strengths and abilities.
What makes the need to tap such opportunities vital is the unpredictable environment leading up to the elections. Growth after all, may not return in a hurry. What the new government will do to uplift the manufacturing sector is tough to predict at this moment in time. It is therefore, the inherent strengths of the manufacturing sector that will help the suppliers and component manufacturers afloat in search of an environment that is conducive to growth, and where there is an opportunity to grow and sustain.