The spectacular victory of the BJP in the states of West Bengal, Assam, and Puducherry puts on the party the extra burden of reviving the states. With Finance Minister Nirmala Sitharaman, banking on domestic consumption and its sheer absorbing capacity, boosting the economy may work to a limited extent. She requested industry captains to step up and capture the domestic demand currently met by foreign markets. “Business are importing a lot of tools which are intermediary, so there is some more agility which I expect from the Indian industry”.
The recent observations of the FM to step up manufacturing to counter imported goods and stop valuable foreign exchange outflow is well-timed. However, considering this fiscal, economists are of the opinion that rural income and consumption and crop yields may decline due to week rains and possible El Nino impact. There is thus a need to go deep into the problem, for which the government has to be specific and come out with an action plan in clarifying the challenges faced by Indian manufacturers and what could be done to start producing import substitution products in the country.
India’s share of global manufacturing has remained stagnant at around 2.8 per cent for a decade, which indeed is quite low for a country aspiring to gain developed status while China has occupied a share of 30 per cent. Reports indicate that the production linked incentive scheme launched by the government has primarily attracted assembly operations rather than high-value manufacturing. Most of these assembly units are dependent on import of components from China. Thus, increased exports of the country mean increased imports from China. Modi has failed to build the indigenous base in India though some progress has been made.
Indian industry relies heavily on Chinese inputs which include electronic parts, EV batteries, solar modules, APIs and speciality chemicals that are hard to replace at scale. As a result, analysts rightly point out that even as India tries to grow exports, its supply chains remain tied to China which is undoubtedly far ahead in technology and efficiency.
Meanwhile, reports indicate that foreign investors pulled more than $20 billion out of Indian equities in the first four months of this calendar year, surpassing last year’s record annual exit. The exodus has been exacerbated by a hawkish stance from the US Federal Reserve, which has held rates making the US Treasury yield more attractive alongside a strengthening US dollar. If deprecation pressure persists, the RBI may have to explore steps to curb oil-related dollar demand in the spot market, restrict gold imports and tighten monetary policy. The surge in oil prices above $120 per barrel may lead to inflation concerns intensifying.
The declining rupee, which is now around Rs 95 per dollar, has been an area of concern with cost of imports rising added to the increase in the price of oil and gas as well as subsidies on fertilisers and industrial raw materials with the onset of the West Asian conflict and uncertainty around the US-India trade deal. Thus, the country enters the fiscal year “at the intersection of domestic resilience and external turbulence”, as per a government report with the future looking not quite encouraging.
Even the IMF has warned that risks for the country are tilted towards high inflation, wider fiscal and external deficits and slower growth, specially is energy and fertiliser supply disruptions persist. The crude oil basket averaged $113 per barrel in March, just under $115 per barrel through April end.
It can be discerned that the lack of manufacturing boost may obviously be related to lack of technological upgradation and ensuring economies of scale, on the one hand, and the inflow of financial support and participation, on the other.
Most analysts are of the opinion that India’s competitive power and global influence is fast slipping and has very little assertive power. In evolving our economic strategy, it is necessary to bring about changes in policy-making along with technological innovations as well as economic efficiency for India’s emergence as a key player in the global arena.
INFA
