<div>The Union Budget holds significant promise for the manufacturing sector, which is evident from the steps outlined to increase the contribution of manufacturing in India’s gross domestic product (GDP). The finance minister rightly pointed out that at 17 per cent of GDP, which is 1 per cent lower than last year, India’s manufacturing sector has considerable distance to cover. And for sustainable economic growth, the manufacturing sector must be at the forefront. <br /><br />A key factor that drives global investment in manufacturing is local demand — not just need, but need coupled with the ability to pay. The fact is that while India has a large population and therefore a large ‘need’, the ability to pay is still modest and therefore ‘demand’ is relatively weak. In absolute terms, even a 1 per cent growth of the US economy is equivalent to a more than a 10 per cent growth of our economy and for a manufacturer, the US market offers far better profitability. <br /><br />The most significant challenge that our economy faces is sluggishness of demand. This is particularly in the case of capital goods due to almost stalled investment in the infrastructure sector. The Economic Survey estimated total stock of stalled projects at Rs 8.8 lakh crore or 7 per cent of GDP.<br /><br />While the country as a whole has grown substantially, the manufacturing sector remains tepid, registering only a 1.2 per cent growth during the current fiscal. The Budget tries to find the right way to build and leverage domestic demand by making domestic manufacturing more attractive. This is a better path as opposed to imposing import barriers. Further, exports too will need to be supported by competitive financing as that is what competing countries are offering. <br /><br />The Budget clearly provides a roadmap for demand generation, which in turn will attract investment, create jobs through manufacturing and entrepreneurship, all of which play a vital role in the success of the Make in India campaign.<br /><br />That the government is focusing on revitalising the public-private partnership model for infrastructure development and is projecting itself as an equal partner in risk will encourage private sector participation in key sectors. After all, it is infrastructure that will provide the requisite boost to manufacturing. Rationalisation of taxation and phased reduction in corporate tax are welcome steps. The positive sentiment should result in more investments.<br /><br />With a much higher share of revenue now being given to the states, they should be prodded to allocate sufficient funds for infrastructure development. Better coordination is needed among states and between states and the Centre for driving big projects to completion. The allocation of Rs 70,000 crore for infrastructure sector and tax-free bonds for rail and road projects will spur growth in core sectors. <br /><br />The other crucial aspect is our ability to innovate and design locally. Most of the products, particularly capital goods, are designed outside India. While as a country we have done well to adapt and use the latest technology, we have done little to develop it ourselves. We have been unable to even build in a substantial manner on technology that has already been transferred. We continue to rely on foreign technology. <br /><br />Innovation is a prelude to manufacturing; that’s why ‘designed in India’ is in many cases more important than Make in India. Indian brands can occupy the world stage only if they are designed in India. Innovation, research and development, all need the right talent. It is heartening to see a concerted effort towards encouraging innovation and skills with the announcement of Atal Innovation Mission and setting up of educational institutions. Brand India can succeed only if Indian firms invest in manufacturing. Indian firms in turn can sustain investment in manufacturing only if they invest in innovation, design and technology. <br /><br />The author is President & CEO, GE South Asia<br /><br />(This story was published in BW | Businessworld Issue Dated 23-03-2015) </div>
