Blaming the high cost of capital as the main reason for the economic slowdown in recent years, finance minister Arun Jaitley on Monday called for an urgent cut in interest rate.
"The cost of capital, I think, in recent months or years, is one singular factor that has contributed to the slowdown of manufacturing growth itself," Jaitley said while addressing a high-profile workshop on the government's signature 'Make in India' programme.
The finance minister also questioned RBI governor Raghuram Rajan's criticism of 'Make in India', saying it was about manufacturing quality products at low costs, and not about whether they are sold in India or abroad.
"Whether Make in India is made for consumers within India or outside is not so relevant. The principle today says that consumers across the world like to purchase products and hire services that are cheaper and are of good quality," Jaitley said.
Earlier this month, Rajan had sounded a word of caution about the 'Make in India' campaign, saying it follows an export-led growth path similar to China that is now showing signs of going awry. He suggested that it should rather be 'Make for India' with a focus on manufacturing products for the domestic market. "India is different, and developing at a different time, and we should be agnostic about what will work, Rajan had said.
Stressing on the importance of domestic manufacturing, Jaitley said: "... if we lose out on cost, quality then we would be threatened with a situation wherein we would become a nation of traders rather than a nation of manufacturers".
His comments come in the wake of factory output falling by 4.2% in October year-on-year, against a 1.2% decline in the same period last year.
"If credit offtake is slow, infrastructure creation becomes slower, manufacturers find it difficult to afford costly capital because it is going to add to each one of their costs. And, therefore, this is one area where each one of us has to be concerned about," Jaitley said.
Expressing hope, Jaitley said growth will be "much better" in 2015-16. "The last two years witnessed an economic slowdown. This year may be somewhat better, and next year will be much better," he said.
The finance minister also pledged to remove entry barriers to business and ensure a competitive tax regime to push manufacturing growth under 'Make in India'.
"We have to put the house in order... The entry point into the manufacturing sector itself has to be eased. Our initial barriers have to be lowered and perhaps even removed. If we keep the doors closed investments won't come in," he said.
The finance minister's views were echoed by commerce minister Nirmala Sitharaman, who said India is among the few countries for which the International Monetary Fund has upgraded its growth outlook. IMF has projected a GDP growth of 5.6% for India in 2014-15.
Highlighting several steps taken by the government to cut red tape and rationalise existing rules including the use of information technology to make governance "effective and user friendly, she said: "A strong manufacturing sector has the potential to take our economic growth to a higher trajectory, provide jobs to our youth and fulfil their aspirations."