- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
Indian industry, to become a part of the global supply chain, also has to have a high degree of reliability in making supplies
Photo Credit :
Recently the Prime Minister gave a call asking the Indian industry to become Atmanirbhar or self-reliant. The COVID pandemic, and the subsequent Chinese problem, has highlighted the dependence of Indian industry on imports to keep manufacturing lines functioning. Attaining high rates of manufacturing growth, and becoming globally competitive, would be difficult if there is a large import content in manufactured products.
Global competitiveness requires that costs of production in India be lowered to the levels prevailing in the most efficient manufacturing countries. Indian industry, to become a part of the global supply chain, also has to have a high degree of reliability in making supplies. Both objectives would be best served by localisation of imported materials but at competitive cost and quality. Policymakers must understand the importance of helping to lower the costs of production.
India would need to widen and deepen its manufacturing industry, in a competitive manner, to reduce dependence on imports. Subject to technology being available, this requires high volumes of production and a cost-competitive operating environment. In many industries, the volumes of production in India are now large. Pharmaceuticals, automobiles and cell phones are a few examples. The potential for growth for many products is very large. Often the technology required for localisation is with foreign manufacturers. Till now most of them have not invested in India because they found that other countries offered a better environment and they went to countries like China, Viet Nam, Thailand and Indonesia. Facilities in these countries were used to export to other countries including India. It is obvious that if Atmanirbharta is to be achieved, and dependence on exports reduced, India should become a more attractive place for investment by such manufacturers. It is surprising that over the last many decades' policymakers have not attempted to make manufacturing in India lower cost and more competitive. The ‘Ease of Doing Business’ campaign and the numerous reforms undertaken in the last 6 years have been the first effective efforts in this direction. More needs to be done, particularly with respect to reducing the costs of manufacturing and increasing competitiveness.
In my very recently released book ‘Getting Competitive’ I have analysed why India has not become a competitive manufacturing country and made some suggestions on what needs to be done. The root cause of the problem lies with policymakers not understanding that an essential condition for competitiveness and growth was to keep manufacturing costs as low as possible. Policies should have been designed with this objective. Instead, most policies and strategies in the period up to 1991 did the opposite. Even after that government policies largely continued to result in higher costs of manufacturing. In the last 6 years, the environment for doing business has significantly improved but much more needs to be done to reduce costs of manufacturing and to increase demand for manufactured products.
Industrialising India and building a socialist society were two main objectives of government in 1950 and remain valid even today. The error in policies was to try and bring in socialism through strategies and policies for the industry. Industrial growth was to be spearheaded by public sector enterprises. They were also supposed to help in creating a socialist society. Both objectives were not achieved, and these enterprises are one reason for the non-competitive working of the private sector. Many inputs, like electricity, were higher priced for the private industry so that other customers could pay lower prices. With employment generation in government and public enterprises being a priority objective, costs of production were often high and quality inconsistent. Lending costs for the industry were raised as banks were required to give cheaper loans to other borrowers. The result was that manufacturing costs became uncompetitive; growth of demand was lowered and attractiveness of investments in manufacturing suffered.
The distrust of the private sector industrialist, continuing till now, and the fear of being accused of corruption, has determined how government officials deal with private industry. Decision making usually takes a long time as the value of time is not appreciated. There is no attempt to facilitate competitive manufacturing. The outcome is higher costs.
The rate of taxes on manufactured products was fixed on socialist principles. This has continued till now. It needs to be recognized that manufacturing can grow only as fast as demand grows. High taxes lead to lower demand and slower growth. A longer-term view has to be taken by policymakers.
I do not want to convey that competitive manufacturing only requires government actions. The industry has a very big role to play and that aspect has been discussed in my book.
Atmanirbhar India requires an environment where government and industry work as partners, demand for manufactured products grows at a high rate, doing business becomes as easy as anywhere else and manufacturing is competitive in terms of cost and quality.
This article was first published in the print issue of (10 July - 25 July) BW Businessworld. Click Here to Subscribe to BW Businessworld magazine.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.