Manufacturing manna

For instance, in IIP, manufacturing accounts for 79.36 per cent of the weight. Within the IIP growth of 11.4 per cent, it is manufacturing that has done well. September 2006 on September 2005, manufacturing grew at 12 per cent and for April to September 2006, manufacturing grew at 12.1 per cent. One can disaggregate this manufacturing growth further, in which case, one finds that everything except capital goods has been growing fast. And disaggregated differently, everything other than jute and vegetable fibres and 8220;other manufacturing8221; a residual category has done well. The impressive growth is broad-based and hence the question, Are we witnessing a manufacturing revival?

Let8217;s be pedantic once again and quibble about data. Manufacturing has registered and unregistered categories. For registered manufacturing, annual data are collected through the Annual Survey of Industries ASI and this is part sample survey and part census. Data on unregistered manufacturing surface once every five years, through a survey. Plus there are SSI small-scale industry and IIP sources. In August 2001, the National Statistical Commission submitted a devastating critique of India8217;s statistical system and all four sources of manufacturing data 8212; ASI, unregistered manufacturing, SSI censuses and IIP were hauled over the coals. There are time-lags and sampling and non-sampling errors. Units that shouldn8217;t be included they have closed down are included. Units that should be included are excluded. Different databases of unregistered census or survey manufacturing vary widely. Perhaps understandable, because differing concepts and definitions are used. This is compounded by the lack of adequate data on SSI and unorganised traditional industries. Finally, other than the problem that the IIP represents only 80 per cent of manufacturing, there are problems associated with low response rates, small samples, unsatisfactory weights and non-representation of the unorganised sector. As a generalisation, manufacturing data are therefore somewhat satisfactory for registered manufacturing and extremely unsatisfactory for everything else. But having said this, one doesn8217;t get the sense that this manufacturing growth is in the realm of lies, damned lies and statistics.

Manufacturing8217;s not industry8217;s share in GDP is now around 18 per cent and no one denies it should be higher. But how high should it be? It is impossible to answer this question, and comparisons with China aren8217;t fair. Targets of 30-35 per cent float around, although people don8217;t always explain whether they mean manufacturing or industry. Shares in GDP are a function not only of what absolute growth in manufacturing is, but also of what happens to services. Unless one conjures up a dismal service sector scenario, and that is unlikely, manufacturing and industry picks up what agriculture loses. In the GDP share, it takes manufacturing 20 years to pick up five percentage points. Therefore, even a share like 25 per cent should be great. Instead of shares in GDP, it is better to have absolute manufacturing growth rate targets of something like 12 per cent. Are we there, or is this a flash in the pan?

The hurdles in the way of 12 per cent growth have been documented often enough. Some are specific to sectors, others are generic. In the generic lot, there are issues connected with indirect taxes including compliance costs, procedural hassles, interest rates and availability of capital, physical infrastructure especially roads and power, labour laws and procedures not just the Industrial Disputes Act and lack of skills. Which of these has changed dramatically enough to jack up growth? Road connectivity has improved, and the performance of railways. But these are probably not that important. Perhaps even more significantly, capital has become cheaper, from around 2001.

This facilitated restructuring, although that began in the second half of the 1990s, and also contributed to greater investments, though not always of the greenfield variety. Stated differently, Indian manufacturing has simply become more competitive. The paranoia over the Chinese threat has disappeared. Not that manufacturing can ever be competitive across the board. The shake-out is not yet over. But there are companies that are now globally competitive and are moving to global scales of operation. This is reflected in export performance. Forget export of services and consider export of goods alone, in which almost 75 per cent consists of manufactured exports. From April to September 2006, over the same period last year, exports of goods have increased by 37.3 per cent in dollar terms.

I am inclined to think that at least 3 per cent of the growth in manufacturing is because of this export performance. If we take this away, manufacturing growth will drop from 11 per cent-plus 8 per cent-plus. If Indian manufacturing has demonstrated that it is capable of taking on the world and is doing so well in global markets, imagine what would happen if we could ease some of those domestic constraints. Indeed, it is because of constraints like physical infrastructure that the south and west and coastal regions perform better. If we had reliable state-level export data, one could probably establish that western and southern growth is largely because of exports. Let8217;s export manufactures. But let8217;s import some better procedures and infrastructure, physical and social.

The writer is secretary -general, PHDCCI