CONCERNED over the slow growth rate of the manufacturing sector in the current year, industry in Punjab is against the reduction of customs duty on manufactured goods in the coming budget. The strong rupee has not only affected manufactured goods’ exports but also led to a surge in imports of manufactured goods in the last two years.
The appreciation of the rupee has made imports cheaper and increased the competition for domestic manufacturing sector, which is already suffering due to slow growth in exports and higher interest rates. Manufacturing sector's share in employment has fallen marginally over the period. According to the National Sample Survey, the share of the manufacturing sector declined from 12.1% in 1999-2000 to 11.7% in 2004-05 in terms of employment, whereas that of the service sector continued to increase.
“Any further custom duty reduction
would neutralise the impact of measures implemented for reviving the growth of the manufacturing sector. The decline in the manufacturing sector growth is also attributed to the increase in interest rates in recent months, which has reduced the demand for consumer goods, as a result of which consumer durable sector witnessed a negative growth (-1.28%) in the first half (April–September) of this year,” said VP Chopra, president, Federation of Punjab Small Industries Association.
India has reduced its peak tariff from 25% in 2003-04 to 10% in 2007-08, due to its radical unilateral tariff liberalisation. Further duty reduction could significantly slow down the growth in manufacturing sector by increasing competition for domestic manufacturers.
Imports in the last two year have grown fast in sectors like machinery, machine tools, transport equipment, iron & steel, non-ferrous metals, paper manufactured and manufacture of metals.
In April-July 2007 , import of some of the important manufactured items like iron, steel, paper, machine tools, transport equipment and non-electrical machinery have witnessed high rate of growth compared with the same period last year.
Net sales of manufacturing sector grew 9.2% the in quarter ended September 2007, whereas it witnessed growth of 24% in services and 15% in mining.
It is felt that inadequate growth in manufacturing will have an adverse affect on employment generation. To achieve inclusive growth, the manufacturing sector has to absorb a large number of people, who would move out of agriculture in pursuit of higher incomes. The manufacturing sector will have to carry the major burden of increasing employment opportunities in the Eleventh Plan directly or indirectly. For this, it is important that manufacturing sector grows at a sustainable rate of over 12% per annum.