National Manufacturing Policy 2012: Main Features

The Cabinet approved the revised proposal of the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry to put in place a National Manufacturing Policy on October 25, 2011. The Cabinet in its meeting held on 15″ September 2011 considered the National Manufacturing Policy and directed that the policy may be considered by a Group of Ministers (GOM) for further harmonizing the differences in some inter-ministerial positions notably relating to Ministry of Labour and Employment and the Ministry of Environment and Forests. The GOM in its meeting held on 14th October 2011 has resolved the relevant issues. A revised note incorporating the recommendations of the GOM was approved on October 25, 2011.

The Planning Commission released the draft, the first ever in India in 2012. The objective of the National Manufacturing Policy is to boost the country’s share of industrial production, employment; development of world-class infrastructure and investments in India’s manufacturing space. This policy was long overdue because India needed to boost its GDP level to double digit primarily with the help of manufacturing sector so that economy is diversified, productivity increases and jobless growth does not take place. In the past there were industrial policies beginning from 1956 to 1977, 1980, 1985 and last major industrial policy in 1991 which broadly guided the development of manufacturing sector as well. But this was first time that India announced a separate manufacturing policy (2012).

Main features of the National Manufacturing Policy

Increase share of manufacturing in GDP

 Indian economy became a predominantly service economy after the mid 1980s skipping the second stage of economic transition that requires that manufacturing sector takes over the primary sector. This had a repercussion for both growth and employment. Manufacturing’s share in India’s GDP has been stuck at 16% since the 1980s. The policy aims to increase the share of manufacturing in the country’s GDP from the current 16% to 25% by 2022.

Increase share of manufacturing in employment

India is passing through a phase of demographic dividend so it is important to create productive employment to the burgeoning population of young labour force. The National Manufacturing Policy aims to create 100 million additional jobs in the next decade. It also proposes to focus on employment intensive industries, capital goods industry, industries with strategic significance and those in which India enjoys a competitive edge and the SME sector. Employment intensive sector include textiles and garments; leather and footwear; gems and jewellery; and food processing industries. It also puts emphasis on capital goods industries like machine tools,:  heavy electrical equipments; heavy transport, earth moving and mining equipments. Further, it also suggests promotion of strategic industries such as aerospace; shipping; IT hardware and electronics; telecommunication equipment; defence equipment; and solar energy. The NMP also envisages focus on industries in which enjoys comparative advantage such as automobiles; pharmaceuticals; and medical equipment.

Focus on Small scale industries

The NMP has given special emphasis on Small and Medium Enterprises (SME) segment of manufacturing in particular. It envisages variety of financial and development incentives that have been envisaged therein. The need for special focus on the segment arises from the fact that currently, 8% of overall GDP, 45% of manufacturing output and 40% of the country’s exports originate in more than 26 million SME units across the country. These SME units are engaged in the production of more than 6000 products, 22% of which are food products, 12% are chemicals and chemical products, 10% basic industry metals, 8% metal products, 6% each of electrical and machinery parts and rubber and plastic products (36% of miscellaneous products).

Industrial training and skill formation

Since the NMP is concerned about increasing employment in the manufacturing sector, it finds that one of the main reasons of stagnant employment is lack of skill and training of the labour force. For this it envisaged putting emphasis on industrial training and skills development programmes. NIMZ, the SPV will undertake skill up gradation in co-ordination with the National Skill Development Corporation (NSDC). Further, the policy seeks to expand the network of ITIs. There were only 8306 ITIs / ITCs (as on July 15, 2010) with a capacity of training 1.16 million persons per year. The 11th plan envisaged setting up of 500 new ITIs in industrial clusters/SEZs and 1000 new ITIs in other areas based on demand via the PPP route. So, to encourage the private sector to set up their own institutions, the government will provide weighted standard deduction of 150% of the expenditure (other than land or building) incurred on Public Private Partnership (PPP) project for skill development in the ITIs in manufacturing sector in separate facilities in coordination with NSDC.

Establishment of National Investment and Manufacturing Zones (NIMZ)

The cluster approach of Industrialization creates conducive environment and ecosystem for Industrial development. China was the first country in world to experiment with the Idea and became the manufacturing hub of the world. In this light the draft NMP envisages establishment of National Investment and Manufacturing Zones (NIMZ) in India equipped with world-class infrastructure that would be autonomous and self-regulated entities developed in partnership with the private sector. Each National Investment and Manufacturing Zone was proposed to have 5,000 hectares of land. Land will be selected by State Governments. Preference would be given to uncultivable land. Both state and central Government would fund trunk infrastructure. The NIMZ would be managed by special entity.

National Investment and Manufacturing Zones (NIMZs) will be developed as integrated industrial townships with state-of-the art infrastructure and land use on the basis of zoning; clean and energy efficient technology; necessary social infrastructure; skill development facilities, etc., to provide a productive environment to persons transitioning from the primary sector to the secondary and tertiary sectors. These NIMZs would be managed by SPVs (Special Purpose Vehicles) which would ensure master planning of the Zone; pre-clearances for setting up the industrial units to be located within the zone and undertake such other functions as specified in the various sections of this policy. To enable the NIMZ to function as a self governing and autonomous body, it will be declared by the State Government as an Industrial Township under Article 243 Q(c) of the Constitution. NIMZ would be different from SEZs in terms of size, level of infrastructure planning, and governance structures related to regulatory procedures and exit policies.

 A NIMZ will be notified by the Central Government, by notification in the Official Gazette. The Department of Industrial Policy and Promotion will act as the nodal agency for the central government in matters pertaining to the NIMZs.
The administrative structure of NIMZ will comprise of a Special Purpose Vehicle, a developer, State Government and the Central Government. Every SPV shall be a legal entity by the name of the NIMZ. This SPV can be a company. The CEO of the SPV will be a senior Central/State government official. This SPV will prepare a Master Plan for the Zone. It will prepare a strategy for development of the Zone and an action plan for self regulation to serve the purpose of the policy. It is left to the State Government to adopt a model that it considers most workable. The State Government may keep the ownership of NIMZ itself or transfer the ownership to a state government undertaking. The state Government may have joint ownership with a private partner and adopt any other appropriate model.

Exit policy and labour reforms

One of the reasons of slow growth of manufacturing sector in India is rigid rules with regard to exit and labour employment and retrenchment (hire and fire). The NMP policy embodies an easy exit policy and single window clearance in zones. It envisages flexible labor laws and simplified & expeditious exit mechanism for sick units.

Simplify rules and regulations

The policy notes that on an average, a manufacturing unit needs to comply with nearly 70 laws and regulations. Apart from facing multiple inspections, these units have to file sometime as many as 100 returns in a year. This kind of compliance burden puts-off young entrepreneurs and they are not willing to take up an entrepreneurial role. As a result, a large number of people who could have been self employed and would contribute to further employment and enhance economic activity, end up accepting jobs much below their potential. NMP proposes to make regulations more industry friendly. It suggests rationalization of business regulations to reduce burden of procedural and regulatory compliance on businesses. There is also proposal for relaxation in environmental regulations. Compliance burden on industry arising out of procedural and regulatory formalities will be reduced through rationalization of business regulations.

The role of State Governments

The NMP suggests that Central/ State Governments may provide exemptions subject to fulfilment of conditions as provided in the statute. SPV may act as a facilitator in this regard. Mechanisms may be developed for cooperation of public or private institutions with government inspection services under the overall control of statutory authorities. In respect of laws and regulations pertaining to environment, Central/State Governments may delegate the power as allowed by the relevant statutes to an official of the State Pollution Control Board (SPCB) posted in the zone. The Environmental Clearances for NIMZ units under the EIA Notification, 2006 shall be considered on a high priority, and the units thereon will be exempted from public hearing provided under the EIA Notification, 2006 in cases where such estates have undergone public hearing as a whole. Further, facilitative instructions and guidelines may be issued at the Central and State level from time to time aiming at promotion of NIMZ investment while safeguarding environmental integrity.

Financial and monetary incentives

The NMF envisages financial and tax incentives to small and medium enterprises. The policy is in favour of fiscal sops to boost manufacturing. It envisages reimbursing small & medium enterprises the funds used for technology purchase. The policy suggests incentives to states for infrastructure development as well as for Green Manufacturing. The NMP proposes to make industrial land (land acquisition) available through creation of land banks by states.

The Government in March 2013 issued norms for setting up of National Investment and Manufacturing Zones (NIMZs) with a host of benefits, including exemption from capital gains tax. NIMZs will be eligible for viability gap funding, which cannot exceed 20 per cent of the project cost. As per the norms, the developers of NIMZs will be allowed to raise funds through external commercial borrowings (ECBs) for developing the internal infrastructure of NIMZs. A scheme for a job loss policy will be put in place to enable units to pay suitable worker compensation in the eventuality of closures, through insurance.

Role of research and innovation

Innovation will be encouraged for augmenting productivity, quality, and growth of enterprises; and Effective consultative mechanism with all stake holders will be instituted to ensure mid-course corrections. The policy proposes establishment of a Technology Acquisition and Development Fund (TADF) for acquisition of appropriate technologies including environment friendly technologies; creation of a patent pool; and development of domestic manufacturing of equipments used for controlling pollution and reducing energy consumption.

Operation, Monitoring and Review of the TADF will be done by the Green Manufacturing Committee. Green Manufacturing Committee will comprise representatives from the concerned Ministries/Departments of the Central Government and relevant sectoral experts from outside government. GMAC will give incentives for Green Manufacturing. Technology Acquisition and Development Fund will also function as an autonomous patent pool and licensing agency. It will purchase Intellectual Property (IP) rights to inventions from patent holders. Any company that wants to use the IP to produce or develop products can seek a license from the pool against the payment of royalties. This company may then produce the product for use in specified geographical areas subject to meeting agreed quality standards. The TADF would reserve the right to license more than one company for a particular patent.

Foreign investments and technologies will be welcomed while leveraging the country’s expanding market for manufactured goods to induce the building of more manufacturing capabilities and technologies within the country.

The National Manufacturing policy envisages a holistic policy for the promotion of the manufacturing sector in the country. Today more than 75 of our exports are manufactured products. We are also one of the biggest market of consumer goods- both durables and consumables. However, the share of domestic production in the manufacturing sector in the GDP is very small given the size of domestic market and export potential. In white goods and electronic products we are at best assemblers or low end technology based producers. It is expected that if the National Manufacturing policy is implemented in India in right earnest, India would achieve all its gaols simultaneously- double digit economic growth, productive employment for its burgeoning working population and export potential.