R. I. P. MADE IN INDIA
Red tape, labour issues, declining competitiveness and reckless imports have strangled the manufacturing sector. Will it ever make a comeback?
In 2008, when Sajjan Jindal- led $ 5.5 billion JSW Steel conceived a Rs 35,000- crore, 10- milliontonne steel plant in West Bengal, it planned to source the chief raw material, iron ore, from neighbouring Odisha. But the plans went awry as the Odisha government proposed a new tax on mining profits and decreed that half the iron ore produced be invested in the state. “This speaks volumes of the absence of clear policies either in auction or allocation of resources,” recounts Seshagiri Rao, joint managing director, JSW Steel. This April, after five years of wait, JSW finally decided to shelve the project and put all future greenfield plants on hold.
Caught in red tape, confusing land laws, uncertainty in fuel and raw material supply, labour issues and declining competitiveness, manufacturers of steel, textiles, electrical goods, consumer durables and machine tools, among others, are finding it increasingly unviable to operate in the country, forcing them to shelve plans or explore avenues abroad. To add to the woes, the new Land Acquisition Bill that envisages high compensation and near total consent from affected parties is expected to raise real estate prices by 30 per cent and cause big delays, doubling project costs.
Industrial production growth slipped to 2 per cent in April on account of dismal performance of manufacturing. Growth in manufacturing output has turned negative since May this year, falling by 2.2 per cent in June. In August, HSBC’s Manufacturing Purchasing Managers’ Index fell to 48.5, led by a decline in new orders, the lowest since March 2009 and the third successive month of decline. According to the Centre for Monitoring Indian Economy, new investment proposals in the manufacturing sector slipped by 47 per cent in the April- June 2013 quarter to Rs 54,400 crore compared to a year ago.
Manufacturing has been in such a free fall that of the Rs 1 lakh crore in potential investments from January 2012 to date which India lost, nearly three- fourth was from two large manufacturing projects, after the $ 84- billion ArcelorMittal and $ 61- billion Posco scrapped their steel projects in Odisha and Karnataka, respectively, in July citing delay in land acquisition.
Pullouts Across the Board
Plans of Vedanta Aluminium, part of the $ 14- billion Vedanta Resources Plc, to mine bauxite in Niyamgiri hills in Odisha also came unstuck after 12 village councils rejected the proposal at a referendum on August 19, saying the mining activity would infringe on their religious and cultural rights. Whirlpool of India, part of the $ 18- billion Whirlpool Corporation, said in August that it is deferring its plans to expand capacity at its Puducherry, Faridabad and Pune plants, while in July, Zuari Fertilizers and Chemicals
has put off plans for a Rs 5,000- crore urea plant in Karnataka due to land acquisition issues. The auto sector, grappling with slow demand, has been cautious with its expansion plans too. Bike maker Bajaj Auto deferred a plan to set up its fourth manufacturing facility in Mundra in Gujarat in 2011, while rival Hero MotoCorp reportedly put off work on a plant in South India. Hyundai also deferred plans to set up a diesel engine plant in Chennai, and so did Mahindra & Mahindra ( M& M), which put off setting up a factory in Chennai in 2008. “India should have a cohesive, structured approach to manufacturing if we need to increase the contribution of the sector to 25 per