With manufacturing hubs around the world facing rise in costs, India is presented with an unparalleled opportunity to capture a large share of the global manufacturing pie. However, a poor ranking on the ease of doing business and corruption indices coupled with poor infrastructure and complex regulations relating to land acquisition, labour and taxation continue to hold the country back from realising the full manufacturing potential.
In FY14, growth in the manufacturing sector fell to a negative 0.7 per cent, significantly below its five-year average of 5.6 per cent. The sector suffered heavily as the government struggled to meet its fiscal consolidation objectives and reduced spending, ongoing projects faced hurdles and the private sector postponed its investment plans because of uncertain economic and political conditions. Its share in the GDP declined from 15.8 per cent in FY13 to 14.9 per cent in FY14. What impacted the sector further was the slowdown in construction activity leading to underutilisation of capacity in the steel and cement sectors and contraction in mining activities over the last few years.
Despite the sluggish economic growth so far, Indian manufacturers are hopeful that the present government at the Centre will initiate necessary measures to boost the sector.
According to a recently released study titled ‘Indian Manufacturing Barometer 2014 – Turning the corner’ by the Federation of Indian Chambers of Commerce and Industry and PwC, business leaders across the manufacturing sector in the country are far more optimistic about the performance of their companies this year as compared to the last year. It said the Indian manufacturing sector’s renewed optimism stemmed from the decisive mandate given by the people for a development oriented government, easing of the global economic scenario and the announcements made by the new government of intent to facilitate new investments through the ‘Make in India’ campaign and also remove obstacles to business performance.
Among the business leaders surveyed for the study, 94 per cent described themselves as somewhat or very optimistic about the Indian economy over the next 12 months, 55 per cent said they were planning a major investment, 35 per cent planned to add full-time equivalent employees and 37 per cent said margins had increased in the last six months. While nearly half the companies surveyed expected margins to improve over the next one year, most were not intending to increase workforce and instead planned to invest in new products, capacity additions and market expansions. Indian manufacturers expect that like last year, investments in foreign markets will continue to drive growth in FY15. More than half the companies surveyed planned to explore expansions in new overseas markets in the next one year.
The survey revealed that unavailability or high prices of raw materials and energy would be the major barriers for the manufacturing sector during the next 12 months.
The manufacturers surveyed for the study sought simplification of export-import policies and related documentation, access to low-cost finance for exporters, rationalisation of the tax structure and implementation of GST in order to improve competitiveness. In addition, they stressed that modification of land acquisition rules, speedier clearances and licensing, and amendments to labour laws were crucial factors for facilitating investments. Some of the manufacturers wanted the government to review free trade agreements since the agreements for certain target markets were unfavorable to Indian exporters.
The survey for the FICCI-PwC study was conducted between July 15, 2014, and November 15, 2014. The sectors covered were auto ancillaries, building construction materials, capital goods, chemical engineering, metals, plastics and packaging and textiles.