In the next 10 years, India will need to create 10-15 million jobs annually to meet India’s rising population. Manufacturing is of particular importance to India, as the sector is a doorway to economic development. As an example, the Indian auto market is the 6th largest automotive industry in the world and is estimated to create direct employment for over two million people over the next few years. While this is positive, India’s manufacturing sector is under performing significantly compared to other competing economies.
The share of India’s manufacturing sector is roughly 15 % of its GDP and has been declining over the past several years. When compared to Thailand (36 percent), China (30 percent), and Taiwan (30 percent), it is clear that India could draw more investment through adopting business friendly policies that would ease construction of plants and facilities.
In the past, the Council has advocated for the following reforms that can have a direct impact on pushing the needle on manufacturing in India:
- Goods and Services Tax (GST): USIBC is a strong advocate for the legislative passage and implementation of the GST. GST would increase India’s competitiveness in the global manufacturing value chain by streamlining domestic supply chains and reducing unnecessary costs associated with moving products throughout India.
- Labor Laws: Currently in India, 50 central labor laws overlap with over 150 state labor regulations. USIBC encourages a Centre-led initiative to harmonize the labor laws will build investor confidence in India as a reliable source of labor and allow for easier establishment of businesses. Particularly in the case of termination rules, reducing the amount of bureaucratic oversight of the dismissal process is an incentive to expand operations and hire new workers.
- Land Acquisition Laws: Land acquisition in India has proven difficult for many years. Burdensome laws at the state and central governments delay, stall, and prevent the installation of manufacturing plants across the country. The Central government should work with state governments to improve land laws and streamline them with laws at the Centre, while working long term to improve laws at the Central government.
- Licensing: The number of licenses required for business can be over a dozen and, in the case of large manufacturing facilities, many more labor permits are required before operations can begin. Better coordination is needed between the Centre and state governments to prevent delays due to overlapping approval requirements that often rely on another for approval. Providing a unified, single window for business clearances would reduce compliance pressure as well as build certainty across sectors.
- Permitting: There can be as many as 110 clearances required to build a factory. Additionally, companies report delays of up to several years to complete a project. Through the use of streamlined permitting policies, projects which are often delayed would find traction and move to completion. By utilizing a fair and transparent bidding process, India can shift the selection process away from the lowest bidder towards the best value.