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60 LBS Journal of Management & Research www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 open. This is reflected through the following points: • Foreign equity up to 100% is encouraged in several sectors. • Single market-determined exchange rate for the rupee is prevalent. • Use of foreign brand names and trademarks for sale of goods in India is allowed. • Foreign companies are permitted to open branch offices in India. • The entry of multinational companies has increased the level of competition; for example, since 1991 Daewoo, LG, Santro, Samsung, and so on have started plants in India. • There is a favorable attitude of government and other funding agencies. • Facilities for automatic and single-window clearance are available with respect to proposals for 100% export-oriented units. • The Reserve Bank of India gives automatic permission for foreign technology agreements in high-priority industries. The Indian manufacturing sector has to grow much more before its full potential is realized, particularly when the share of manufacturing in gross domestic product has remained between 16 percent and 17 per cent during the last two decades. In order to accelerate its ongoing growth, India needs a robust manufacturing sector. This is because: 1. Contribution of the manufacturing sector to India's GDP has remained stable at around 17% while in China the manufacturing sector accounted for around 35% of the GDP and in the case of Korea it was 31% 2. In order to achieve an overall growth of 8% per annum, it is essential that both manufacturing and services grow at more than 11% even when agriculture growth picks up to close to 4%. 3. Only a sharp increase in the manufacturing sector workforce would take the pressure off the agriculture sector and increase income levels. Agriculture, supporting about 65% of the working population, contributes only 22% of its gross domestic product. A large shift of workforce from agriculture to manufacturing will help improve rural incomes and reduce poverty levels. 4.1f we compare India's performance with that of other major Asian countries we can see that the size of the value added in the Indian manufacturing sector ($ 66 billion in 2000) was less than one fifth of the Chinese manufacturing sector ($ 373 billion) and even less than half of the Korean manufacturing sector ($ 144 billion). Table-2: MANUFACTURING SECTOR IN INDIA AND OTHER MAJOR ASIAN COUNTRIES Value added in manufacturing in 2000($billion) Share of Food, beverages & tobacco (%) Share of Textile & Clothing(%) Share of Machinery & equipment (%) Share of Chemicals (%) India 66 13 11 22 25 China 373 16 11 29 12 South Korea 144 8 8 45 9 Indonesia 40 20 20 17 11 Thailand 39 26 17 10 8 Malaysia 30 8 4 47 7 Source: World Bank Report :2001 -02 on Status of Manufacturing in India and other Asian countries pp:3-5 of the web page
India's Manufacturing Strategy: Global Perspective 61 SHARP SLOWDOWN IN MANU1 The manufacturing sector grew at an average annual rate of 6% in the 14 years between 1990-91 and 2003-04. This was higher than the 5.8% growth in Industry and the 5.7% GDP growth during this period. However, manufacturing sector growth has fallen ACTUREVG SECTOR GROWTH sharply in the last seven years as compared to the first seven years of the reforms period. It has slumped from 7.4% to just4.7% later. • Manufacturingsectorgrowthinthelatterperiodwas lower than the 5.1% growth clocked by industry and the 5.7% growth of GDP during the period. Table-3: SHARP SLOWDOWN IN MANUFACTURING SECTOR GROWTH (% First seven years (1990-91 to 1996-97) Last seven years (1997-98 to 2003-04) Overall period (1990- 91 to 2003-04) Manufacturing 7.4 4.7 6.0 Industry 6.5 5.1 5.8 GDP 7.8 5.7 5.7 Source: Reserve Bank of India Report: 2005-06 pp36 of the chapter on manufacturing. www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 COST DISABILITY FACTORS FACED BY INDIAN MANUFACTURING SECTOR Higher input costs for the Indian manufacturing sector can be attributed to: 1. Cascading effect of indirect taxes on selling prices of commodities, 2. Higher cost of utilities like power, railway transport, water; 3. Higher cost of finance and 4. High transactions costs. FICCI has estimated that additional costs imposed on the manufacturing sector on account of multiplicity and high level of taxes, high cost of capital and poor quality and excessive user charges of support infrastructure services add up-to 12.2% of the cost of production. 1. Cascading effect of indirect taxes on selling prices of commodities • A FICCI study showed that the average total incidence of indirect taxes on the selling price of all commodity groups works out to 36.25%. • Whereas custom duties have been brought down over the years (peak customs duty on manufactured items stands at 20%) the government has been increasing the excise duty burden on the manufacturing sector. 2. Higher cost of utilities High cost of power - Total electricity costs as a proportion of total manufacturing cost is 10.4%. Country Table-4: COST OF POWER SUPPLIED TO INDUSTRY: AN INTERNATIONAL COMPARISON (2001) US $ kilo watt per hour India 0.074 Korea 0.062 Malaysia 0.056 Thailand 0.061 Singapore 0.079 China 0.032 USA 0.040 UK 0.055 Source: The World Competitiveness Yearbook, 2002 pp 237
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