Local manufacturing has got a boost from government initiatives like the production-linked incentive (PLI) schemes, government and industry officials said and suggested additional measures like GST rationalisation, strengthening the debt resolution system, improving credit access for smaller enterprises, encouraging product design and securing favourable free trade agreements to further enhance ‘Make in India’.
Speaking at the inaugural edition of The Economic Times India Ascends, defence secretary Rajesh Kumar Singh (earlier secretary, Department for Promotion of Industry and Internal Trade, or DPIIT), said the PLI schemes announced for 14 sectors to increase local production of mobiles, automobiles, electronics components and pharmaceuticals among others, and has had a significant impact on the country’s manufacturing landscape.
There are around 755 beneficiaries of the PLI schemes and around INR 1.5 lakh crore incremental investments of the targeted INR 3 lakh crore have already come in, he said. There is a production increase in terms of sales of INR 12.5 lakh crore and employment generation has been about 1.05 million people, both of which are a third of the original target.
“Exports are INR 4 lakh crore already, mostly through mobile and through Apple,” Singh said. “So, some sectors have moved much faster, mobiles in particular.”
While 4-5 sectors including medical devices and bulk drugs are doing very well, “some are lying behind, including steel and textiles, but hopefully they will also catch up,” he added.
The Budget 2024-25 has announced a six-month window for a comprehensive review of the customs duty structure wherein various industries can look forward to addressing the issue of duty inversion.
Moving forward, India needs to look at other policy incentives to maintain the momentum which has been put in place, Singh said.
“Other unfinished agendas that remain include GST rationalisation, strengthening our bankruptcy code, strengthening our NCLT (National Company Law Tribunal) system so that ease of exit, which is as important as ease of entry, is improved,” he said at the session which was moderated by Kathir Thandavarayan, Partner, Deloitte.
For the micro, small and medium enterprises (MSME), Singh said their constraint is primarily credit availability. Banks, which have healthier balance sheets and digital infrastructure to assess credit risks and creditworthiness, can help meet this credit gap.
“Those are the areas where I think the government can continue to provide solutions to ensure that this buildup of momentum in the manufacturing sector can be sustained over the next few years,” he said.
Concurring that MSMEs are key in developing the manufacturing ecosystem, Zarin Daruwala, CEO of Standard Chartered (India and South Asia), said the credit gap in capital requirements of MSMEs is to the tune of $500 billion.
“Having said that, for banks, access to GST records is really helping in better credit assessment,” she said. “It was difficult (earlier) because you had to rely on books of MSMEs, which necessarily were not having the kind of transparency that you needed. So that clearly is something that is (helping), MSME lending has stepped up for every bank.”
Schemes like Export Credit Guarantee supporting small exporters additionally are helping build scale, Daruwala said.
Santosh Iyer, managing director of Mercedes Benz India, said in the automotive sector, while there is a lot of headroom to grow due to India’s low vehicle penetration – only 24 out of 1,000 people own vehicles here versus 500-600/1,000 people in developed countries – it is also important to look aggressively at exports to truly achieve scale in manufacturing.
“We have a matured auto industry and it can only grow when we are able to participate in the global market and start feeding the global market,” Iyer said.
To be sure, the auto component industry exports parts worth $21 billion annually, but India’s share in global advanced auto parts business currently is modest, at less than 3%.
While opportunities are opening up amid the transition to emerging technologies like electric, connected, autonomous in the automotive landscape globally, and due to global players charting out alternate sourcing bases post the pandemic; Iyer said India also needs to have a consistent taxation regime to attract viable investments in the manufacturing ecosystem.
Sunil Vachani, executive chairman of Dixon Technologies, said in addition to indigenous manufacturing – which is set to get an additional boost from the INR 45,000-crore PLI scheme being considered for the electronics component sector – there is a need to build capability in product design.
“I think the second step is going to be the Design in India, because we have a huge strength in designing of products,” Vachani said. “If we can design the products that we manufacture, we’ll improve our margins. We’ll make this whole thing sustainable. Also, I think we will become globally competitive.”
A national land allocation policy to establish mega factories would also support development of the manufacturing sector and increase its share in the gross domestic product (GDP), he held.
Jayant Patil, member of executive committee of management and advisor to the chairman and MD of L&T, said in the defence sector, indigenous manufacturing will indirectly contribute higher to the national GDP going ahead.
“Essentially, the way the Aatmanirbhar Bharat, which the government is very rightly focusing on, is extremely important. It is certainly in my industry’s way… It’s a profitable business,” he said.
