Make in India: Realising the slogan – Feedback

Make in India is a vison. It intends to improve India’s manufacturing competitiveness and therefore recalibrate the current GDP construct. It aims to create a lot of jobs and finally, it targets improving India’s forex earnings by making exports an area of focus.

In this backdrop, Make in India, to start with needs to be first examined from an ‘outside in’ perspective. Markets in the US are recovering albeit slowly.  Europe is unlikely to bounce back soon. Overall recovery will be slow.  Exports could be a challenge at this point in time. However this issue is not in India’s control and not much can be done about it.

The next evaluation point and the most important one is the ‘inside out’ perspective. Is India ready to embrace this vision? Are our systems, policies and regulatory frameworks best in class to enable manufacturers willfully contribute to the vision? Are our financial systems up to speed to catalyse this vision? Can all this be achieved in a short period of time? There are more questions than answers today. However, this vision can be realized through a sensible, pragmatic & clinical approach:

Enable Indian manufacturing & enhance India’s manufacturing readiness

Make in India is a good vision but making in India is a challenge. Policy makers should accept this unconditionally as a starting point. SME sector that accounts for over 50 % of our manufacturing activity needs energizing. India needs to rise beyond territorial limitations and make SME development a single point agenda. To make this happen the policy makers will have to revamp some archaic & rather draconian rules that concern Octroi, labour laws, taxation, excise etc. Octroi as a channel of revenue collection defeats the concept of a single & united India! While the rules and regulations are supremely complex and binding, complying with them is dreadful to say the least. Whenever a tax inspector enters a premise he wins every argument because his interpretation of the law is what counts. The government should provide a single and commonly interpretable rule for everybody to follow. India’s readiness to be a manufacturing power house needs a complete relook and at the heart of those problems is our tax, regulatory and labour policy.

 

Bring down costs of doing business in India

Costs of doing business in India are prohibitive almost always unless economies of scale are not planned. Economies of scale are possible if costs are attractive! It all starts from the cost & availability of land. If land can be got the next issue to worry about is infrastructure – Many Indian manufacturers work on backup power solutions, depend on water that is transported across miles, ports that require 18 hours to reach and airports that are not necessarily ready to handle cargo. The next vital component is skill. People cost has gone up significantly. That is understandable because people spend lots of money to skill themselves and they need to earn enough to recover and pay for their investment in skilling.  All these and more erode the competitiveness of Indian manufacturers in the local market and also in exports. Further, loading these costs with prohibitive rates of taxes and duties squeezes the margin. The effect is cyclical and continuous. To make India competitive the government needs to invest in infrastructure education and health care in a very big way. There are proven business models to do this.

 

Create a robust and investment friendly financial system

Cost of capital is prohibitively high for Indian companies (particularly SME’s) to be competitive. Large companies have access to multiple sources of capital from around the world. SME’s struggle for credit. At times managing cash flows is a serious challenge for them. They need cheaper capital. Three issues need to be addressed .First, Business & not Government should be the largest user of credit in India.  Second, there is a restriction on the number of banks in India to channelize private capital into business. Reserve Bank of India (RBI) is frugal in issuing licenses. More banks will mean more capital at competitive cost. This should be encouraged. Third, RBI is severe in its fixing of CRR (Cash Reserve Ratio) and SLR (Statutory liquidity ratio). This controls a bank’s ability to take higher credit exposure. Globally the central bank is mandated by the parliament of the country on inflation target numbers. In India the mandate has to be a bit wider and should include capital outgo towards business too.

Make in India comes with a good integrity of purpose. If India’s readiness improves, make in India will happen. If not it will remain a rhetoric that will be remembered as a good slogan whose intent got slayed because there was no integrity of purpose.

About Shankar Khasnis

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