Manufacturing Policy Aims To Protect Small-Business Interests, Focus On Value-Added Goods.

After Prime Minister Manmohan Singh called India's widening trade deficit vis-A -vis China 'untenable', the government has decided to factor the lop-sided trade basket into its manufacturing sector strategy.

In 2010, India's trade deficit with China was over $20 billion, equating its exports to China. The two nations are targeting bilateral trade of $100 billion by 2015 - up from $60 billion in 2010.

But the current situation where India imports high-value goods and capital equipment and exports raw materials like iron ore and cotton to China is unsustainable, as the PM stressed. Even the National Security Agency (NSA) recently raised the dependence on imports of capital goods, like power plants, from China as a security threat.

"There was a time when we couldn't afford imports," said a senior government official. "If the trend with China persists, we may again be unable to import," he warned.

To avoid such an eventuality, India's manufacturing policy will focus on producing what the world and the country need - more value-added goods and protecting job-creating small scale industries that can't compete with cheap Chinese goods, respectively.

The Prime Minister's high-level committee on manufacturing is expected to meet soon to reconcile three manufacturing policy blueprints on its table - a draft by the industry ministry, a strategy fleshed out by the National Manufacturing Competitiveness Council and a plan being worked out by the Planning Commission .

The issue of curbing cheap Chinese power plant imports, which has been hanging fire for over a year after an expert group led by Commission member Arun Maira suggested urgent action, will now get dovetailed into the manufacturing policy review by the PM.

Heavy industries minister Praful Patel, who is responsible for domestic power equipment production, is learnt to have spoken to Maira about the issue recently. L&T Power president Ravi Uppal said the NSA's concerns on Chinese imports are valid and time is running out.

"We should have acted before. The government should have allowed local manufacturers to create capacities to meet the domestic demand for power. Letting the Chinese free is like killing the baby in the cradle," Uppal told ET.

In power equipment alone, orders worth $50 billion have been placed with the Chinese for plants to generate 80,000 MW of equipment - 80% of the power capacity creation target for the XIIth Five-Year Plan.

"It is not just power equipment that we are importing a lot from China - there are other capital goods like telecom equipment, railway rolling stocks and so on," said a senior official working on the manufacturing plan. "This is not economically sustainable and certainly undesirable in the security context," he explained.

Job creation is as important a consideration as ensuring a trade balance.

"If all our needs are met by cheap imports, small scale industries won't be able to create jobs. Our silk weavers are dying because they can't compete with Chinese silk. So we have to create jobs, create depth and be competitive," he said.

Source : economictimes.indiatimes.com