K’taka tops in manufacturing excellence with best manufacturing process ratio at 2.63: ASSOCHAM study

“Karnataka has the best manufacturing process ratio of 2.63 with maximum value of goods being converted into finished goods valuing over Rs 2,000 crore,” noted the study titled ‘Manufacturing Excellence and Emergence in India: The state level analysis’, conducted by the chamber’s Economic Research Bureau and released at a press meet addressed by ASSOCHAM Karnataka Region Development Council chairman, Mr R. Shivakumar along with national secretary general, Mr D.S. Rawat in Bengaluru.

Of the total live investments attracted by states across India worth Rs 169 lakh crore as of FY16, Karnataka accounted for 6.3 per cent share with Rs 10.7 lakh crore worth of investments attracted by the state in different sectors.

In terms of manufacturing sector, while states across India attracted investments worth Rs 34 lakh crore as of FY16, Karnataka accounted for over 10 per cent share with investments worth Rs 3.4 lakh crore with only Maharashtra (12.8 per cent) and Odisha (12.7 per cent) being ahead of it.

Manufacturing sector also accounted for about 32 per cent share in total investments attracted by Karnataka. Within manufacturing, the state attracted maximum investments in metal and metal products which accounted for over 68 per cent share followed by construction materials (10 per cent), chemical and chemical products (8 per cent), machinery (4 per cent), food and agro (3.5 per cent) and transport equipment (3.4 per cent).

Karnataka is also ranked third across top states in India in terms of low ratio of interest cost i.e. 0.11 for total interest paid in current year for loans outstanding in previous year. Only Odisha (0.08) and Chhattisgarh (0.11) are ahead of the state in this regard.

While the study noted that overall, Karnataka has performed decently on different parameters like – growth in number of industries (#5), capacity utilisation and capital structure (#6), input cost (#7) and road density (#10), however, the state needs to focus on improving efficiency along with low employee cost and higher rail density.

With a ratio of 1.29, Maharashtra has emerged on top with growth in terms of entrepreneurs memorandum (EM) part-II filed by micro, small and medium enterprises (MSMEs) at District Industrial Centres in 2014-15 over 2012-13.

“Though Maharashtra has been at par with Karnataka but if the state continues to focus on promoting ease of doing business, it can emerge as a potential investment hub for various sectors,” the report asserted.

The ASSOCHAM Economic Research Bureau (AERB) had considered various parameters like number of factories, output value, working capital, net fixed capital formation, fixed capital, finished goods, capital invested, total inputs and others to ascertain the states’ performance in terms of manufacturing sector.

Highlighting the methodology, the study stated that all states were divided into two three major categories according to geographical conditions, viz., north-eastern, Himalayan and mainstream states. Mainstream states were further divided into two sub-categories, namely, excellence and emergence.

Further, the data was taken for each state from sources like Annual Survey of Industries, Ministry of Statistics and Programme Implementation, Government of India website for a five year period between 2009-10 to 2014-15.

The study also highlighted various challenges being faced by India’s manufacturing sector – competitive cost and technology being offered by countries like Bangladesh, China, Indonesia, Korea, Singapore and Taiwan.

While development process in other countries follows a transition from agriculture to manufacturing and then towards services sector, however India’s growth has been services sector-led as such there have always been concerns about sustainability of such a growth.

Highlighting the importance of increasing share of manufacturing sector in India’s gross domestic product (GDP) to absorb a young workforce as bulk of population relies on agriculture for employment.

“The Union Government must address issues relating to poor product quality, infrastructural bottlenecks and inadequate efforts at research and development from a holistic macro perspective as they have collectively taken a toll on India’s manufacturing competitiveness,” the study said.

Considering that majority of investment projects in the manufacturing sector are stuck in different stages of implementation, ASSOCHAM has time and again suggested the Union Government to develop a strong plan to prioritise speeding-up the process by creating a target-oriented roadmap.

At the same time it stated that private investors must also be held accountable and be penalised if projects get delayed or stuck due to improper planning, change of ownership, lack of finance, absence of co-ordination with contractors and other related issues.