The government has started work on giving a policy boost to the manufacturing of aircraft, ships and railway components under the ‘make in Indi’a’ drive with the goal of attracting investments and to speed up job creation, three people informed about the discussions said.
The idea is to create a policy package for these sectors which could include production linked incentives and viability gap funding. With the political leadership busy in elections and a code of conduct in place, officials are doing the groundwork on proposals which could be taken up after the national polls, said one of the persons quoted above.
Giving a boost to manufacturing to propel India into a middle-income economy and then to a developed one is part of the economic agenda of both the ruling BJP and the opposition Congress party because of the sector’s potential to create jobs.
For the ruling party, it is central to its 100 day agenda it plans to implement if voted back to power, said the person quoted above. “Production linked incentives for these sectors are being explored,” said the person, who spoke on condition of anonymity.
Manufacturing remains key to India’s growth strategy as the agriculture-based economy transitioned to a services-led one without the second phase of development—manufacturing led growth – failing to take off in a big way in spite of successive governments trying to raise the share of manufacturing in the economic output.
Though about 55% of India’s workforce is engaged in agriculture, it accounted for only about 17.5% of gross value added in the economy at current prices during FY24. “A significant expansion of manufacturing activities is required in the country to pull out people from low-paid agriculture jobs to relatively better paid employment,” said Devendra Kumar Pant, chief economist at India Ratings and Research.
PLI schemes to boost manufacturing
A slew of production-linked incentive (PLI) schemes tailored for manufacturing import substitution products, components and large-scale manufacturing of high-end trains, metros, ships and domestically built passenger aircraft are in the offing, said a second person, who also spoke on condition of not being named.
While the plan for infrastructure push in manufacturing may be taken up immediately after the elections, programmes on making India a global hub for manufacturing high-end and technically superior products would be implemented in phases with partial government support in the form of viability gap funding (VGF).
This would help to create centres of excellence in manufacturing in various critical infrastructure products, while projecting India as an attractive alternative to traditional manufacturing powerhouses. One of the plans is to have a PLI scheme for train component manufacturing.
Setting up of component economy system is expected to boost the rolling stock manufacturing in the country. A PLI scheme is also under consideration for producing shipping-grade containers. Heavy earth moving machinery (HEMM) and underground mining equipment segment are other segments where PLIs are being explored.
As part of the plans to develop India’s blue economy and achieving self-reliance in ship building, the government may also offer VGF for building river and sea vessels, said a third official, who also spoke on condition of anonymity.
Fiscal incentives worth around ₹5,000 crore may be offered for developing the ecosystem for building inland vessels in the country to support movement of cargo on national waterways. Capital support may also be considered for producers of sea bound vessels at a later stage.
At present 14 PLI schemes with an outlay of ₹ 1.97 trillion are under implementation for five years from FY22.
To plug into global supply chains and to stimulate local production, India is exploring free trade agreements (FTAs) with several countries. Finalizing the India-UK FTA is a priority for the government after the polls. An India-Oman FTA is also expected to be signed after the polls. New Delhi is aiming to conclude most of the chapters of trade pacts with Sri Lanka, Peru, South Korea, ASEAN Trade in Goods Agreement (ATIGA), as well as a comprehensive economic cooperation agreement (CECA) with Australia soon after the elections. In the last four years, India has signed FTAs with Mauritius, the UAE, Australia, and the EFTA countries (Switzerland, Norway, Iceland, and Liechtenstein) in fast-track mode. The eighth round of negotiations with the European Union for an FTA is likely to kickstart in May or early June.
Emails sent to the spokespersons for the ministries of finance, commerce, shipping and railways and to the Prime Ministers Office seeking comments for the story remained unanswered at the time of publishing.
