India has a large number of policies and schemes for promotion of industries initiated by different ministries/departments of the Government of India. While some of these policies concentrate on the development of Indian industries in general, others may focus on specific sector. Some of these schemes also promote development of industrial cluster. Apart from the centrally sponsored schemes, individual states also have their own industrial policies to support the development of industries and clusters. Despite having such a large number of schemes and policies for promoting industries, the performance of India�s industrial sector has remained dismal. The contribution of the sector towards India�s GDP has also remained low and has infact come down in the last two years compared to that of the services sector (For reference see fig 1.1).
Source: Economic Survey (2013-14), http://indiabudget.nic.in/es2013-14/echap-01.pdf
Given this backdrop, it is important to understand why the Indian industrial sector has lagged behind despite having such favourable policies.
A quick look at the different centrally sponsored policies and schemes such as the SEZ Policy, National Manufacturing Policy and the Foreign Trade Policy (2009-2014) of the Ministry of Commerce and Industry, the Integrated Textile Parks Scheme of the Ministry of Textiles, the Mega Food Park Policy of the Ministry of Food Processing Industry, etc. show that often there is a lack of both intra-ministerial and inter-ministerial coordination while formulating a scheme. This curtails the scope of dovetailing the benefits of different schemes. For example, the Chapter 3 benefits[i] of the Foreign Trade Policy are extended to Export Oriented Units but not to the SEZs. This acts as a disincentive for units locating inside SEZs.
Lack of co-ordination is more prominent among central and state governments. Often state governments are not aware of the central government schemes. This creates a serious problem for the industry since state governments are responsible for providing key facilities like water, electricity, pollution clearance, state level tax benefits and can also play a key role in getting land for the industry.
Also, while all the schemes talk about giving grants or fiscal incentives to the industry, not much importance is given to providing business and trade facilitation. While it is true that the incentives are generally given to cushion the high cost of borrowing in India, it should be kept in mind that high cost of borrowing cannot be cushioned by incentives alone. Moreover, often fiscal incentives are WTO actionable. Hence, the focus needs to be on reducing cost of borrowing rather than giving incentives. Additionally, the schemes should be designed and marketed in such a way such that ease of doing business and not fiscal incentives becomes the key attraction.
Overall India has almost 300 industrial incentive schemes both at the central and state government levels. Some of these schemes provide complementary benefits. Presence of such a large number of schemes confuses the industry and they are not able to take the right decision. As a result inspite of giving good benefits many of the schemes remain unutilised. Also, absence of strict monitoring authority may increase the scope of misuse of the benefits. Therefore, the central government along with state governments should be more proactive in increasing proper utilisation and monitoring of the schemes.
Owing to India�s huge domestic market, at present the entire policy focus is to attract market seeking investment. There is a need to change the perception to integrate India with the global value chain. Prime Minister Narendra Modi�s �Make in India� campaign has started to ward changing this perception. In this campaign the PM has already made a pitch to global MNCs to come and manufacture in India to supply to the rest of the world. The campaign promises to improve India�s position in Ease of Doing Business indicator. While these are steps in the right direction it is important to give a serious though to the issues discussed above for development of manufacturing and industries in India.
[i] Chapter 3 benefits include schemes such as Served From India Scheme (SFIS), Vishesh Krishi and Gram Udyog Yojana (VKGUY), Focus Market Scheme (FMS), Focus Product Scheme (FPS)