NEW DELHI: The Union government will boost manufacturing, a key driver of economic growth that has slowed significantly, by announcing changes to clustering factories near major infrastructure projects and taxes and customs duties in the upcoming budget. We aim to revitalize the area.
Two officials familiar with the government’s thinking said the manufacturing cluster would be strategically linked to major infrastructure projects in the logistics sector, such as roads, rail and ports, and would create significant employment. These hubs are aimed at increasing the contribution of manufacturing to India’s overall gross domestic product, they said, but declined to be identified.
According to the first preliminary estimates released, India’s manufacturing industry, which accounts for about one-sixth of the country’s GDP, will grow at a slower pace, from 9.9% in fiscal 2024 to 5.3% year-on-year in fiscal 2024-25. It is expected that this will happen. The Ministry of Statistics and Program Implementation made the announcement on Tuesday.
“There is talk about revitalizing manufacturing and there are plans to strategically locate clusters near infrastructure hubs, which will not only create jobs but also position the country as a global manufacturing hub.” one of the officials said.
“By linking manufacturing clusters with major infrastructure projects, we aim to create a seamless value chain that will attract domestic and international investment and provide a significant boost to the economy.”
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The second official cited above said the government may also consider easing procedural hurdles, correcting tax anomalies and recalibrating customs duties in the 2025-26 budget.
“In line with the government’s broader efforts to strengthen India’s manufacturing ecosystem, the government is committed to expanding and deepening domestic production, reducing import dependence, and promoting value addition in sectors currently dominated by assembly of imported components. “We are considering measures (from a policy perspective) to support this,” the official said.
Clusters: A boost for small businesses
Reviving manufacturing activity, which fell to a 12-month low in December, is essential to reinvigorating India’s economic growth. The government expects India’s GDP growth to slow to 6.4% in FY25, slowing to a four-year low from a blistering 8.2% pace in FY24.
The Production-Linked Incentive (PLI) scheme, which is one of the government’s major initiatives to boost domestic manufacturing apart from ‘Make in India’, has struggled to meet production targets to qualify for benefits. companies facing a slowdown.
Industry experts say the cluster approach to manufacturing, where firms and industries are part of an overall system, has strong theoretical underpinnings and solid empirical evidence across countries, making it the most It added that the beneficiaries would be micro, small and medium enterprises (MSMEs).
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Manoranjan Sharma, chief economist at Infomerix Ratings and former chief economist at Canara Bank, said, “Clustering facilitates the division of labor among geographically proximate companies among a large number of competing producers, thereby increasing It has the potential to foster innovation.”
“A full-service approach to the needs of diverse MSMEs requires extending banking services into clusters by adopting a four-C approach: customer focus, cost management, cross-selling and risk containment,” he added. Ta.
“Identifiable locations/product groups are (usually) associated with historical accumulation of skills and availability of low-cost, abundant resources such as handlooms, carpet weaving, coir, pottery, cane, bamboo, metals, and leather. It is developed based on gender,” Sharma said.
A Treasury spokesperson did not respond to email inquiries.
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Commitment to ports
Among the sectors, industrial clusters along the ports will be developed as important manufacturing hubs producing a variety of products apart from shipbuilding factories.
Some of the proposed new manufacturing clusters are Kandla and Deendayal ports in Gujarat, Jawaharlal Nehru Vadavan port cluster in Maharashtra, Kamarajar port in Tamil Nadu and West Bengal. It is close to ports on the east and west coasts, including Haldia Port.
In September, the Mint reported that the government is also preparing to roll out a comprehensive strategy to position India as the world’s top maritime power. Under this plan, the Center plans to develop mega shipbuilding parks on both sides of the Indian coast.
Shipbuilding initiatives include the development of industrial corridors in ports, which will also feature intermodal transport connectivity in these areas, creating fertile ground for the development of other manufacturing facilities.
One such initiative is INR30,000 crore includes construction of a mega shipbuilding project at Kandla port in Kutch, Gujarat. A new cargo terminal will also be located outside Kandra Creek. INR27,000 crore will add 135 million tonnes per annum (mtpa) capacity to Kandla port.
Similar developments are being considered at other major ports in the country, with a focus on manufacturing a wide range of products.
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state cluster
The United States Mint reported on January 8 that the federal government is working on a blueprint for developing manufacturing hubs in the underdeveloped northern states, including through incentives for industrial areas.
India’s top five industrialized states (Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh) will contribute over 54% of the country’s total manufacturing gross value added (GVA) in 2022-23 did.
Today, India has interstate manufacturing clusters covering sectors ranging from automobiles and textiles to pharmaceuticals and electronics.
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Some of India’s major automotive clusters are located in the metropolitan areas of Chennai, Pune, Gurugram-Manesar and near Sanand in Gujarat. The major textile hubs are located in Tirupur (Tamil Nadu), Ludhiana (Punjab), Surat (Gujarat) and Bhiwandi (Maharashtra).
India’s electronics and IT hardware manufacturing clusters are mainly located near Bengaluru, Noida, Chennai and Sriperumbudur (Tamil Nadu), while major chemical and petrochemical clusters are located in Vadodara, Jamnagar, Ankleshwar and Vapi. (both in Gujarat) and Mumbai.
The major manufacturing clusters for the gems and jewelery sector are located in Surat, Mumbai and Jaipur, while the engineering products and machinery industry is thriving in Coimbatore, Rajkot (Gujarat) and Pithampur (Madhya Pradesh).
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