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Making the “ Make in India ” Brand

, September 29, 2014, 0 Comments

Make in india-MarketExpress-in“ Make in India ” brand has gained popularity after Prime Minister, Mr Narendra Modi’s Independence day speech – the programme which was eventually launched amidst fanfare in September. Mr Modi’s plan, with all its good intention is certainly ambitious. Presently, the success story of Indian manufacturing sector is centred on capital-intensive based industries, involving the likes of Reliance, TATA, Mahindra, etc.

If the idea is to make the manufacturing sector more competitive, and job friendly then there is a need to reduce cost of doing business in India. There is also a need for Indian manufacturing sector to participate in global production chain network. Participating in global supply chain has become necessary condition for getting access to cutting edge technology and making our manufacturing sector competitive.

However, this may not be an easy task without setting our house in order. In spite of India having advantages in terms of cheaper labour and land, developed countries such as the US and other Western European countries get more multinational funding because of transparency in business rules and low cost of doing business. Also, because of flexible labour laws and mechanisation of production, labourers are more productive in developed countries. Likewise, state-of-the-art infrastructure such as roads, ports, electric grids, telecommunication, and banks complement business environment.

From the policy side, to make ‘ Make in India ’ brand effective it is important to improve on these aforementioned attributes. India scores low on these attributes. Companies face a maze of government orders, regulations, rules and procedures, which raise the cost of production.

In its Doing Business Report-2014, the World Bank placed India in the 134th position out of a sample of 189 countries, which is worse than China (96th), Sri Lanka (85th), Bangladesh (130th), or Pakistan (110th) when it comes to the convenience of doing business. In 2013, the World Economic Forum in its Global Competitiveness Index Report places India in the 84th position (out of a total sample of 144 countries) when competitiveness is measured in terms of infrastructure development. To have world class infrastructure, government will require funding from the private sector. Considering infrastructure sector funding, contribution of private sector is only 36 per cent in India in comparison to China’s 48 per cent. This is notwithstanding the fact that China’s GDP is almost four times the size of India’s GDP.

As to how a better infrastructure can provide impetus to growth, the stark example is that of The Golden Quadrilateral. This project, started by the Atal Bihari Vajpayee led National Democratic Alliance government in 2001, aimed at building four and six-lane highways to connect four metro cities, namely, Kolkata, Chennai, Mumbai, and Delhi. According to the National Highway Authority of India, 99.71 per cent of the project work was finished during January 2013. The impact of this road completion was telling. Travel time between Kanpur and Kolkata has fallen from 48 to 36 hours.

There is a need to reduce trade costs. All types of cost such as freight and time costs, information costs, contract enforcement costs, and lack of trade facilitation measures such as inadequate logistics of moving goods through ports, inefficient handling of custom documentation, etc., all will be counted as part of the trade costs. With respect to ‘Trading Across Borders’, in 2013, India ranked 132 out of 189 countries, while Bangladesh, Nepal, Pakistan and Sri Lanka ranked 130, 177, 91, and 51, respectively. For instance, trucks in India have to pass through multiple checkpoints and stop at state borders to pay toll taxes and octroi, for inspections, etc. South East nations and Japan has comparative advantage in providing logistic services, and certainly will be of help to India in its effort to reduce trade costs.

One reason for lower FDI inflow in India has to do with government changing tax retrospectively. A number of events since March 2012 have seriously dented India’s image as a favourable investment destination. Examples are numerous starting with Vodafone case, cancellation of 2G mobile licences, introduction of General Anti-Avoidance Rules (GAAR) in the 2012, the Posco steel plant case, and the recent Supreme Court judgement declaring allocation of 218 coal blocks as illegal. An assurance from the government that it is not in favour changing tax laws retrospectively will help.

To address the governance issue it is necessary to quickly settle court cases. Many times number of judges available in courts are less than what have been sanctioned. India has 14,576 judges as against capacity to hire 17,641 judges, including 630 High Court Judges. This works out to a ratio of 10.5 judges per million population.

This ratio is going to grow with more people becoming literate. It is easy to appeal from a lower court to a higher court, for instance the Supreme Court. Added to this is the high acceptance rate of cases and one can clearly see the reasons for such backlogs.

Then there are issues related to labour. The lack of labour market reform is preventing India to properly use its demographic dividend and to attract foreign investment in labour intensive modes of production. As per Global Competitiveness Index 2013, India ranked 61st in ‘cooperation in labour-employer relations’, and this has deteriorated to 90th position in 2014; on ‘flexibility of wage determination’, the ranking has fallen from 50th to 113th.

The present NDA government is showing intention of reducing red tapes. Only if these aforementioned factors are taken into consideration, the ‘ Make in India ’ brand will sooner become a reality.