Make Make in India competitive
20 Nov 2014 10:27 PM GMT
Given the size of the country’s domestic market of goods and services, the prime minister’s vision of manufacturing in India is no doubt a very practical idea not only from the point of view of the scale of local consumption but also the opportunity it holds for the export of surplus production. No country can sustain an import-led economy forever. However, its success will depend on the price and quality competitiveness of ‘Made-in-India’ products and services vis-a-vis imported ones. That is easier said than done. Entrepreneurs in a free economy are not in control of the factors of production, including costs of funds, raw material, labour, technology and conversion. The challenges are as much internal as external. And, industry has to perform at the highest level of efficiency to charter Made-in-India’s success. Simply, there is no escape from cost audit and maintenance of cost records on a regular basis by industry that many are trying to avoid by influencing the government to amend the cost rules.
Under the rules of the World Trade Organisation (WTO), of which India is a member, the country enjoys little flexibility in fiddling with import tariffs. Bilateral or regional trade agreements allowing duty-free movement of products within trade blocks too pose a challenge before manufactures, global or local, in India. For instance, a Chinese manufacturer in India may find it tough to deal with competition from Chinese-made imports from other countries, including China. Often transfer pricing practices employed by MNCs help in pricing out domestic products both in local and global markets. The so-called anti-dumping action is not easy to justify under WTO rules. This makes the aspect of cost and quality competitiveness of domestic manufacture key to the success of the ‘Make in India’ drive.
‘Make in India is our commitment- and an invitation to all- to turn India into a new global manufacturing hub. We will do what it takes to make it a reality,’ said prime minister Narendra Modi. The second part of his statement is the real challenge before the government as well as foreign and local manufacturers responding to the prime minister’s call. More than anything, it will require a total attitudinal change on the part of our lawmakers, bureaucracy and entrepreneurs to turn India a truly low-cost, highly efficient economy. There exists a very little information about how much of India’s GDP is solely Indian. Or, how much of its GDP is import led. For example, the oil sector’s contribution to India’s GDP is largely import-based. The power sector’s part in the GDP is becoming increasingly linked with coal imports. Similarly, automobile and capital goods sector’s contributions to the GDP too are substantially import led.
The growing trade deficit reflects, if anything, the vulnerability of Indian economy. High current account deficit impacts the exchange rate of the domestic currency and GDP in dollar terms. The sharp fall in rupee’s exchange rate through a good part of 2012-13 is primarily responsible for the slight fall in India’s GDP, under the World Bank calculation, to $1.877 trillion in 2013-14 from $1.880 trillion in the previous year. Correspondingly, the gross fixed capital formation too was in the negative at $4.957 trillion as against $5.356 trillion. In 2012-13, India’s trade deficit topped an all-time high mark at $190 billion. The import value was close to half a trillion dollar. There is no reliable data to suggest how much of this import value got converted into the making of India’s GDP of $1.880 trillion that year. All these are relevant for the meaningful execution of the new government’s Make-in-India vision and its lasting impact on the country’s economy, employment, income, living standard and gross capital formation.
Make-in-India is not merely a bunching of words to be equated with an erstwhile Letter-of-Intent (LoI) obtained by earlier industrial promoters from the government under the control-permit Raj with the all-powerful Planning Commission deciding on what should industry produce and to what capacity. The prime minister’s new economic doctrine will work only if India is sincerely wedded to a strong self-help philosophy to become a global leader in manufacturing. Unfortunately, that spirit seems to be lacking among most principal stakeholders, industry, bureaucracy and legislators- all long suffering from a tunnel vision of making quick bucks by hook or crook. It is unthinkable that at a time when the PMO, finance and economic ministries are dreaming to transform the country into a global manufacturing hub, a section of local industry and their cahoots in bureaucracy are engaged in a bizarre debate on the usefulness of compulsory cost audit and maintenance of cost audit reports, ultimately forcing finance minister Arun Jaitley to intervene to end the UPA’s mischievous regime-end cost rule dilutions that were to become effective from July 1, soon after the NDA government assumed the charge. There are several such examples that go against the spirit of transforming the country into an efficient and globally competitive economy.
It seems each sector of industry and economy has its own rigid and selfish agenda running counter to the big macro-level picture. The years of indulgence and political patronage in generating black money, concealing income, evading tax, invoice manipulation in foreign trade, havala transactions, maintaining ghost bank accounts in tax havens and converting unaccounted income into real estates, gold and benami assets and conspicuous consumption have corrupted the mind of a very large section of India’s rich. In the last five years of the UPA rule, India had imported more gold for personal consumption than it did in the previous 30 years, built and sold more high cost real estates for the rich than the low-cost homes for the poor and weaker sections in the previous 25 years. To ensure that Make-in-India becomes a reality, there is an urgent need to imbibe the spirit of
Indianness and a sense of nationalism among our people that put the nation’s macro vision before personal micro objectives. IPA
Under the rules of the World Trade Organisation (WTO), of which India is a member, the country enjoys little flexibility in fiddling with import tariffs. Bilateral or regional trade agreements allowing duty-free movement of products within trade blocks too pose a challenge before manufactures, global or local, in India. For instance, a Chinese manufacturer in India may find it tough to deal with competition from Chinese-made imports from other countries, including China. Often transfer pricing practices employed by MNCs help in pricing out domestic products both in local and global markets. The so-called anti-dumping action is not easy to justify under WTO rules. This makes the aspect of cost and quality competitiveness of domestic manufacture key to the success of the ‘Make in India’ drive.
‘Make in India is our commitment- and an invitation to all- to turn India into a new global manufacturing hub. We will do what it takes to make it a reality,’ said prime minister Narendra Modi. The second part of his statement is the real challenge before the government as well as foreign and local manufacturers responding to the prime minister’s call. More than anything, it will require a total attitudinal change on the part of our lawmakers, bureaucracy and entrepreneurs to turn India a truly low-cost, highly efficient economy. There exists a very little information about how much of India’s GDP is solely Indian. Or, how much of its GDP is import led. For example, the oil sector’s contribution to India’s GDP is largely import-based. The power sector’s part in the GDP is becoming increasingly linked with coal imports. Similarly, automobile and capital goods sector’s contributions to the GDP too are substantially import led.
The growing trade deficit reflects, if anything, the vulnerability of Indian economy. High current account deficit impacts the exchange rate of the domestic currency and GDP in dollar terms. The sharp fall in rupee’s exchange rate through a good part of 2012-13 is primarily responsible for the slight fall in India’s GDP, under the World Bank calculation, to $1.877 trillion in 2013-14 from $1.880 trillion in the previous year. Correspondingly, the gross fixed capital formation too was in the negative at $4.957 trillion as against $5.356 trillion. In 2012-13, India’s trade deficit topped an all-time high mark at $190 billion. The import value was close to half a trillion dollar. There is no reliable data to suggest how much of this import value got converted into the making of India’s GDP of $1.880 trillion that year. All these are relevant for the meaningful execution of the new government’s Make-in-India vision and its lasting impact on the country’s economy, employment, income, living standard and gross capital formation.
Make-in-India is not merely a bunching of words to be equated with an erstwhile Letter-of-Intent (LoI) obtained by earlier industrial promoters from the government under the control-permit Raj with the all-powerful Planning Commission deciding on what should industry produce and to what capacity. The prime minister’s new economic doctrine will work only if India is sincerely wedded to a strong self-help philosophy to become a global leader in manufacturing. Unfortunately, that spirit seems to be lacking among most principal stakeholders, industry, bureaucracy and legislators- all long suffering from a tunnel vision of making quick bucks by hook or crook. It is unthinkable that at a time when the PMO, finance and economic ministries are dreaming to transform the country into a global manufacturing hub, a section of local industry and their cahoots in bureaucracy are engaged in a bizarre debate on the usefulness of compulsory cost audit and maintenance of cost audit reports, ultimately forcing finance minister Arun Jaitley to intervene to end the UPA’s mischievous regime-end cost rule dilutions that were to become effective from July 1, soon after the NDA government assumed the charge. There are several such examples that go against the spirit of transforming the country into an efficient and globally competitive economy.
It seems each sector of industry and economy has its own rigid and selfish agenda running counter to the big macro-level picture. The years of indulgence and political patronage in generating black money, concealing income, evading tax, invoice manipulation in foreign trade, havala transactions, maintaining ghost bank accounts in tax havens and converting unaccounted income into real estates, gold and benami assets and conspicuous consumption have corrupted the mind of a very large section of India’s rich. In the last five years of the UPA rule, India had imported more gold for personal consumption than it did in the previous 30 years, built and sold more high cost real estates for the rich than the low-cost homes for the poor and weaker sections in the previous 25 years. To ensure that Make-in-India becomes a reality, there is an urgent need to imbibe the spirit of
Indianness and a sense of nationalism among our people that put the nation’s macro vision before personal micro objectives. IPA
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