The government of India is considering bringing in an incentive system based on the level of local content for the manufacturing sector as the country looks at increasing self reliance while enhancing its competitiveness in the global economy.
"There is an opportunity for India to emerge stronger in manufacturing from this crisis (coronavirus pandemic) and the success in mobile phone manufacturing is a good example to follow," said a senior official from the Department for Promotion of Industry and Internal Trade (DPIIT). "Imports can be reduced in a variety of industries especially in the supply chain and the right policy with adequate incentives will help us attract companies looking beyond China. With India's large consumer base as a core, there will be sufficient scale to play with."
The system could be on the lines of the production linked incentive scheme recently announced for large scale electronics manufacturing in the country where an incentive of 4-6 percent on incremental sales of goods manufactured in the country is offered for a period of 5 years.
"For some large sectors, the incentives could also be in the form of graded taxes," the official said.
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The need for self reliance was the central theme of Prime Minister Narendra Modi's address to the nation on Tuesday night where he announced a bumper Rs 20 lakh crore relief package for the industry. While the details of them would only be announced by Finance Minister Nirmala Sitharaman in the days to come, Modi repeatedly said that local manufacturing needed to be encouraged as the economy needed a quantum jump.
"Self-reliance will prepare the country for tough competition in the global supply chain, and it is important that the country wins this competition. The same has been kept in mind while preparing the package. It will not only increase efficiency in various sectors but also ensure quality," Modi said during his 33-minute speech. "The crisis has taught us the importance of local manufacturing, local market and local supply chains. All our demands during the crisis were met locally. Now, its time to be vocal about the local products and help these local products become global."
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While the Indian industry has made rapid progress in developing local manufacturing and supply chains in the last few years, there is scope to enhance this further. A study by Frost and Sullivan on India's appliance and consumer electronics industry says employment generation in the sector can increase by 62 percent in the next 5-6 years by increasing the level of localisation in manufacturing.
"Majority of compressors are imported and it accounts for 23 per cent of EBOM (engineering bill of materials) in room air conditioners. Local production from Highly Electrical Appliances India Private Limited meets less than 5 per cent of the demand as most of its production is exported. If local manufacturers are able to meet the quality parameters, it is likely that OEMs will start sourcing domestically," the report says. "Similarly in the case of PCBs (printed circuit boards) many companies prefer to source from their global location, majorly from China. However, if laminate manufacturing and design activities are moved to India, the whole PCBA value chain can be developed here."
Another industry where localisation can see a significant increase is in the $ 120 billion automobile sector. India imported components worth $ 17.5 billion in fiscal 2019 with more than a quarter coming in from China.
"A significant proportion of the industries in the auto component sector are MSMEs. We are committed to making the Prime Minister's vision of self reliance through localisation, global competitiveness, vibrant local manufacturing, and A robust local supply chain a reality," said Deepak Jain, president, Automotive Component Manufacturers Association (ACMA). "Reforms in land labour, liquidity and laws are critical to make India a driver of global economy." of global economy."