Postponed Again

India has not done too badly in terms of growth. At a time when advanced countries are going through a long period of poor growth, India's figures have looked quite good. But it has been left behind by China, its looming neighbour to the north. China's industry has registered consistently high growth, and conquered markets across the world. Such intrusion should have evoked disquiet and led to policy reaction. But mostly, western countries have welcomed cheap Chinese manufactures, and kept their markets open for China's penetration. This should cause some perturbation in India, so the announcement of the national manufacturing policy is eagerly awaited.

The current government was concerned about manufacturing ever since it came to power 7 years ago. One of the first things it did was to appoint a national manufacturing competitiveness council, chaired by V. Krishnamurthy, a former public sector industrial manager. A chartered engineer with a doctorate from the Soviet Academy of Sciences, he has been on a plethora of committees appointed by the Prime Minister on trade, industry, energy, climate change, etc.

Perhaps their  demands on his time kept him too busy, but the national manufacturing policy has had to wait. It was to come out last week, but did not. It is rumoured that the minister of environment was dissatisfied because it proposed that environmental inspections would be carried out by private sector professional organisations, and that she preferred to expand her own army of government inspectors. Some of them have been reported to take bribes and look the other way, but there is no guarantee that private sector inspectors would not. It would be easier to dismiss them for infractions, but then, it is the government's policy to create, not to destroy employment. In any case, manufacturing continues, and has gone on in this country for millennia. So no one was waiting for the manufacturing policy with bated breath, and no one is losing sleep over it.

Besides, the hurdles to manufacturing in this country lie outside manufacturing. The country's markets for industrial goods are getting saturated, and industries need to look abroad for markets. They have been doing so, but have faced difficulties. For instance, this is a large country, and goods have to be transported to the coast for export. Port capacity has expanded considerably, but delays in ports continue to be greater than in well-run countries like Singapore and United Arab Emirates. The reason is dilatoriness of government agencies, especially customs. Speeding them up should be within the capacity of the government, but it finds it difficult to discipline itself. Then there is inland transport. The previous BJP-led government began an ambitious programme to improve highways, and this government has continued it, though with less vigour. But even if our highways were as good as China's, transport of goods would continue to be expensive, because highways have to pass through states and by cities; all along the way, police and other local busybodies levy informal taxes and slow down traffic. The federal structure may be a treasured feature of our Constitution, but it is not too conducive to efficient growth.

Another reason for high costs is short supply and high cost of bank credit. It would be too facile to blame banks for this, for most banks belong to the government, and it could order them to charge whatever it likes. And it does order them. It borrows enormous amounts every year, and makes the banks buy up its debt at low rates of interest. If they are to make a profit, they have to charge someone else more, so they charge the private sector high interest rates. True, they make a special concession and reduce interest for exports. But industry does not thrive on credit alone; to be an effective exporter, it has to achieve low overall costs, and high interest rates contribute to its inefficiency.

The result is that many of our industrial companies have been buying businesses and investing abroad to conquer foreign markets. It makes us proud that they are conquering the world, even if not from India's shores. But there they face other hurdles like local politics, alien laws, unfamiliar languages, and above all, low market growth. It would make things so much easier if their own government ran a bit better and faster, if it looked at the actual problems they face, and acted on a broader front than manufacturing policy. Stronger leadership and better coordination at the top would help. Better national performance in manufacturing requires action on a broad policy front, which only leadership from the top can provide.

(This story was published in Businessworld Issue Dated 03-10-2011)