FICCI (FEDERATION of Indian Chamber of Commerce and Industries) said that the strong rupee has not only affected the manufactured goods’ exports but also led to a surge in imports of manufactured goods in the last two years. “Rupee appreciation has made the imports cheaper and increased the competition for domestic manufacturing sector which is already suffering due to slow growth in exports and higher interest rates,” said Habil Khorakiwala, president, FICCI.

 

It observed that a strong growth in imports as a result of rupee appreciation has been witnessed in some manufacturing sectors, which has slowed down the growth in these manufacturing sectors. Imports in last two year have grown very fast in sectors like machinery, machine tools, transport equipment, iron and steel, non-ferrous metals, paper manufacture and manufacture of metals.

 

Commenting on the corporate sector performance, FICCI has noted that the performance of the manufacturing sector was the poorest amongst other sectors like services and mining for the July-September 2007 quarter. Net sales of manufacturing sector grew by 9.2 per cent in quarter ending September 2007, whereas it witnessed a growth of 24 per cent in services and 15 per cent in mining.

 

In such a scenario, it will not be appropriate to reduce the custom duty on manufactured items in the coming budget, which would lead to further surge in imports of manufactured goods, FICCI emphasised.

 

It further said that inadequate growth in the manufacturing sector would have its adverse impact on employment generation. In order to achieve inclusive growth, manufacturing sector has to absorb large number of people who would be moving out of agriculture in pursuit of higher incomes. Manufacturing sector would have to carry the major burden of increasing employment opportunities in the Eleventh Plan directly or indirectly, said FICCI. For this it is important that manufacturing sector grows at a sustainable rate of over 12 per cent per annum.

 

Already, noted, that there are signs that manufacturing sector’s share in employment has fallen marginally over the period, as per the latest data available. According to NSSO (National Sample Survey Organisation), the share of manufacturing sector declined from 12.1 per cent in 1999-2000 to 11.7 per cent in 2004-05 in employment, whereas that of service sector continues to increase. In view of the low elasticity of employment in the manufacturing sector (capacity to absorb workforce with growth), it is important that the sector grows consistently at a high rate of over 12 per cent per annum for adequate employment generation in the sector and for increasing its share in the employment, FICCI emphasised.

 

It was also stated that already India has reduced its peak tariff from 25 per cent in 2003-04 to 10 per cent in 2007-08, which was the reflection of its radical unilateral tariff liberalisation. Further duty reduction could significantly slow down the growth in manufacturing sector by increasing competition for domestic manufacturers.