Smart industrial cities can propel India towards its export targets

India’s recent policy decision to create 12 smart industrial cities under the National Industrial Corridor Development Programme (NICDP) looks set to transform Indian manufacturing and create significant employment. The policy will play a significant part in promoting India’s export capabilities and also help boost the country’s share in global value chains (GVCs).

Growth in Manufacturing and Construction Sectors

India’s manufacturing sector contributed 14% to nominal gross value added (GVA) in 2023-24, yet it expanded by a robust 9.9% during the year. The construction sector, which accounts for 9% share in GVA, also grew at a similar rate. Government initiatives such as the Smart City Mission, industrial corridor development, National Single Window System and One District One Product Scheme, along with its large allocation of 11.11 trillion (3.4% of GDP) for infrastructure in the Union Budget for 2024-25, have helped boost industrial development. The announcement of 12 industrial townships is in line with this intent and will go a long way in providing businesses with high-grade industrial facilities that will drive their competitiveness in the global economy.

Enhancing India’s Export Capabilities

India’s Foreign Trade Policy 2023 has set a target of $1 trillion in merchandise exports by 2030. The industrial-cities policy will aid the effort to augment the export capabilities of states with relatively low exports. Of the 12 projects announced, four are already under construction, while four are ready for allotment. Together, the 12 cities will span 10 states and six key industrial corridors.

Key Projects Under the NICDP

Built around the PM Gati Shakti pillars, the programme involves five projects in the Amritsar-Kolkata Industrial Corridor, two in the Delhi-Mumbai Industrial Corridor and one each in the Vizag-Chennai Industrial Corridor, Hyderabad-Bengaluru Industrial Corridor, Hyderabad-Nagpur Industrial Corridor and Chennai-Bengaluru Industrial Corridor (Extension). The proposed budget of 128,600 crore is expected to generate direct employment opportunities for I million people and potential job opportunities for 3 million indirectly. It is expected to have significant economic benefits for the regions around the proposed townships.

Boosting Export Potential Across Key Sectors

The project also focuses on enhancing the export potential of states in sectors such as electronics systems, design manufacturing, food and beverages, pharmaceuticals, textiles and apparel, automobiles and auto components, machinery and equipment, and building materials, among others. These sectors have high export potential and the new industrial facilities can enable both large anchor investors as well as smaller ancillary suppliers to set up operations quickly.

Inclusivity and Sustainability in the Industrial-Cities Policy

Altogether, the initiative promises to yield an overall investment potential of 1.5 trillion. Note that while some proposed cities are located in states that could help India exports and enable India to are already high export performers, such as Maharashtra and Telangana, the policy has taken care to also include states with low export shares, such as Bihar, Uttarakhand and Uttar Pradesh. By leveraging each identified state’s distinct export capacities and comparative advantages, the initiative will boost export capabilities across the country.

It is also heartening that the project is designed with sustainability at its core, embodying circular-economy principles and concepts such as walk-to-work. This eco-friendly approach is reinforced by key features, including potable and recycled water supply, environmental clearances and effluent treatment plants. The new townships would thus support India’s climate objectives, particularly the goals of renewable energy sources making up half of India’s installed power capacity by 2030 and achieving net-zero carbon emissions by 2070. The focus on sustainability can also foster green exports and enable India to better meet the environmental standards that global trade partners will increasingly demand.

Public-Private Partnerships and Infrastructure Development

Indian industry needs to participate proactively in building the new cities. Public private partnership models can be tailored for quick construction, especially of multimodal logistics facilities and port links. Inland container depots may be considered, along with state-of-the- art transport facilitation mechanisms. It is essential that the new cities provide quality infrastructure to attract highly skilled tech workers, even as smart digital technologies are leveraged to maximize the competitiveness of manufactured goods.

Supporting Small and Medium Enterprises

The new cities could also offer common facilities for the use of small and medium enterprises, such as effluent-treatment plants, skill development programmes and testing and certification facilities, apart from regulatory approvals. For clusters to arise, attention can be accorded to developing the capabilities of small entrepreneurs. This approach can also shorten transportation times and make supply chains more competitive. Last-mile connectivity and efficient trade facilitation at ports would help too.

Transforming India Into a Global Trade Hub

With multiple objectives being pursued simultaneously, India’s industrial city projects could be revolutionary for exports and economic growth. They have the potential to generate significant direct and indirect jobs, expand local industry, streamline logistics and drive sustainability. The projects should attract foreign investment, enhance manufacturing competitiveness and help establish India as a global trade hub.

In all, this initiative is poised to propel India’s manufacturing growth, achieve its ambitious target of $1 trillion in merchandise exports and cement the country’s position as an economic powerhouse.

This article was written by Mr Chandrajit Banerjee, Director General, Confederation on Indian Industry. It was first published on 3^rd September 2024 in Mint.