Survey calls for incentives package for manufacturing industry

February 19th, 2008 - 5:43 pm ICT by admin  

New Delhi, Feb 19 (IANS) India’s manufacturing sector, which saw slackened growth last year due to rupee appreciation and hard interest rates, needs to be provided an incentive package to sustain its growth, an industry survey has said. The government should take some effective steps to induce demand for products, as falling demand is seen as one the most important reasons for the sector to slow down, and reduce several duties through certain fiscal measures, the survey conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci) said.

The sectors that have witnessed massive slowdown are textiles, processed foods, electric fans, dyes, polymers, hardware, components for agricultural industry, grinding machines, castings, pharmaceuticals industries and steel, among others.

As much as 50 percent of the firms surveyed indicated slowdown in their production in the last few months, while others reported slowdown in investments.

Production of machinery components and sub-assemblies for automobile, agriculture, auto and other engineering industries experienced 20-25 percent fall in production, electric fans by 10 percent and processed foods by 10-12 percent, the chamber said.

Sales of castings, processed foods and machined components fell to 64 percent, 8 percent and 19-20 percent, respectively.

Thus, Ficci has suggested certain short- and long-term measures to be formulated by fiscal measures by the government.

It has also recommended reduction of interest rates and customs duty to induced investment and production, besides relief to rupee-hit exporters and availability of raw material at competitive rates.

Citing reasons for the slowdown, Ficci said high interest rates have not only led to increase in the cost of production for manufacturers but have also impacted the demand for their products. This has led to plummeting profit margins.

“Currently, the benchmark prime lending rates (PLR) range between 12.75 percent to 13.5 percent. In fact, credit availability has become a major problem for the manufacturers in view of high interest rates,” the survey said.

Another major reason has been the strengthening of rupee that appreciated by 13 percent in last 12 months against the dollar.

“Rupee appreciation has brought down the export realisation, affected profit margins significantly and has resulted in loss of export orders for Indian exporters,” the industry body said.

High cost of raw materials has also contributed to the slowdown.

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