'Make in India' campaign eyed to jumpstart manufacturing sector

Incentives for manufacturing-focused firms' hubs likely.

All eyes are on the Indian government’s upcoming rollout of measures to jumpstart the manufacturing sector, under the ‘Make in India’ campaign.

According to a research note from DBS, the announcements targeted at domestic and foreign industrialists, are expected to cover micro and broad themes, with major incentives likely for firms which set up manufacturing hubs in the economy.

Early indications suggest that project clearances are set to become time-bound and run as a single-window system, as clearances gradually become web-based.

About 25 key thrust areas like electronics, auto, pharma sectors etc. will be prioritised as anchors of the new manufacturing policy. Efforts will be directed at simplifying labour and environmental regulations. FDI limits in select sectors might also receive a relook.

Here’s more from DBS:

In the backdrop, Supreme Court's ruling for the coal industry highlighted the economy’s resource crunch. In a sharper than expected verdict, the court scrapped all but four of the 200+ coal mine permits awarded between 1999-2010.

These permits had been declared illegal in a previous ruling. Notably, only a quarter of these 218 mines were operational and made up less than 10% of the domestic coal production.

To that extent, immediate hurt to the sector is mitigated, helped also by the six-month breather granted by the court to continue production (subject to penalties).

In addition, with the lifting of the verdict uncertainty, the onus is now on the government to swiftly reallocate the cancelled mine permits. The operational mines can be re-auctioned after the six-month breather ending in Mar2015.

In the interim, some knock-on impact on allied industries and the banking sector can be expected. Coal makes up more than half of the energy consumed in the economy and is a vital input for electricity generation.

Hence, the affected firms’ inability to source alternative domestic supplies will necessitate imports, a negative for the external balance. Annual coal imports had averaged USD 16.7bn in the past three years, nearly double from USD 9.7bn in FY10/11.

At the same time, banks that have exposure to the affected power, cement and steel industries face the risk of higher stressed assets. The total non-performing asset (NPA) ratio for the public sector banks jumped to 4.7% by FY14, from 3.8% the year before.