The 2005 budget focused on manufacturing, including reductions in peak customs duties, the introduction of VAT, lowering of corporate tax rates and streamlining processes to facilitate investment.

Manufacturing is growing at around 9% a year, while consumer durables are growing at close to 15% a year. Indian industry can build on its expertise in textiles, steel, cement, telecoms, automobiles and auto components, biotechnology and pharmaceuticals.


In terms of exports, the end of the multi-fibre agreement represents a great opportunity for India as long as the inflexible labour laws can be circumvented.

The government, in effect, has done this by agreeing to the creation of special economic zones, which will benefit manufacturers in other industries as well.

In pharmaceuticals, India is already the fourth-largest producer of medicines in terms of volume. It has the largest number of pharmaceutical plants approved by the US Food and Drug Administration outside the US itself, and is set to benefit from the contract manufacturing market, due to grow to $900m for Indian companies by 2010, said Pratyush Sinha, secretary at the department of chemicals and petrochemicals in the Ministry of Chemicals and Fertilisers.

The introduction of a product patent regime in January this year means foreign manufacturers will feel more comfortable contracting out production to local companies staffed by highly qualified but cheap graduates.

This is India’s great advantage: an educated, growing workforce cum consumer market. This workforce also means the government’s aim of doubling the country’s share of world trade in four years does not seem farfetched. Trade is only 10% of GDP. Companies like Moser Baer, which produces data storage media, should help close the gap.

But as Narayana Murthy, chairman of the board of Infosys, revealed: “Today the Indian IT industry is predominantly focused on cost, and, as a result, faces the danger of commoditisation. The industry must invest in brand-building and work towards offering more varied services and end-to-end solutions to clients.”

He also noted that with an average investment of less than 1% in research and development, Indian IT companies need to close the gap with foreign competitors through innovation networks between institutes, IT companies and research firms.

Whatever the importance of manufacturing, many believe services will continue forging ahead. Subramian Ramadorai, chief executive of Tata Consulting Services, India’s biggest outsourcer, was adamant services would remain the most dynamic sector of the economy over the next 10 years: “Absolutely. Unquestionably. No doubt.”

Karina Robinson