Despite India's early development strategy of creating a well diversified industrial base focused on manufacturing, acceleration of manufacturing growth and the desired dynamism has thus far remained elusive, according to Exim Bank study.
The share of India's manufacturing sector stands at 13.5% of GDP a level which has remained stagnant over the past decade. India’s share in global manufacturing today is only 1.8%.
India ranks 52nd in terms of manufacturing value added as a percentage of GDP, lower than even Bangladesh. This has had adverse impact on the country's trade deficit with limited ability to export manufactured products, especially the value added high-tech products and excessive reliance on imports for meeting domestic demand. This is in stark contrast to the experience of other Asian nations, particularly China, where manufacturing constitutes 34% of national GDP and accounts for 13.7% of world manufacturing up from 2.9% in 1991.
Taking cognizance of the need to boost the manufacturing sector in India, the Export-Import Bank of India (Exim Bank) has done an analysis of the potential of Hi-Tech exports from India.
The study observes that hi-tech exports from India have been witnessing a significant CAGR of 26% during the period 2007-2011, with exports having touched USD 20.9 billion as compared to USD 8.1 billion in 2007. Pharmaceuticals and electronic goods sectors dominate exports of high-tech products, with the share of electronics in hi-tech exports almost doubling during the 2007-2011 period.
The paradox of heightened demand (both in domestic and export markets) and lagging production, signifies avenues for domestic capacity expansion. This will not only lead to augmenting exports but also reduce the country's dependence on high-tech imports, thereby rendering the country’s trade deficit more manageable.
The Exim Bank study elucidates select measures that may be considered to enhance hi-tech exports from India. These, inter alia, include setting up a credit facility by the Government on the lines of the Brazilian BNDES model exclusively for investments in hi-tech industries and providing preferential corporate income tax treatment for units manufacturing hi-tech products and meeting certain pre-defined criteria as is the case in China for their High-New Technology Enterprises.
The study has also examined successful development models of Chengdu in China and Colorado in USA, which despite being landlocked (away from ports by about 800 kms) have been able to become successful hi-tech manufacturing hubs. These have, over the years, increased their exports significantly, provided additional employment and generated higher tax revenues than neighboring regions that have not adopted a hi-tech manufacturing strategy. These two examples indicate that hi-tech manufacturing is region-neutral and does not require large land area.
The Government has put a renewed focus on manufacturing with the National Manufacturing Policy envisaging increasing the share of manufacturing to 25% of GDP by 2022. The study opines that giving thrust to value-added hi-tech exports needs to be an integral component of the strategy to achieve this target.
Source : myiris.com