Manufacturing India: CAD

The Indian economists and many columnists in past few weeks have been discussing CAD (Current Account Deficit) so much that today even a commoner knows the reason of worries of the government. CAD most simply is the difference between the revenue from the export and the expenditure on the import. In a simpler language, if a country goes on importing more than it exports, it finally gets into a serious crisis for its economy. India is in that crisis.

Unfortunately, with the rise in growth of revenue for few years the present UPA government became complacent and allowed almost free import that should and would have been controlled. With an economist in the prime minister chair, the country would not have gone in this pathetic situation. For example in my own auto sector, unlike the earlier effort of phased in-house and indigenous manufacturing that expected support from the government as well as the main OEMs, OEMs and even main ancillary component manufacturers started importing freely a large percentage that constitute its final products. Today many in the manufacturing business of various products in different sectors too are resorting to as much cheap import as possible. The government didn’t encourage local manufacture nor the industrial policy ambience created entrepreneurs in manufacturing sectors.

In low end high volume low tech household items too, the country has gone for a huge import instead of encouraging the local manufacturing.

Jayanti Ghosh, an economist and columnist very aptly writes in her article in Frontline, ” Many commodities that were previously produced in India have simply disappeared from markets to be replaced with imports coming not just from China but many other parts of the world. It is well known that toys, decorations and similar things increasingly come from China, and electronic goods from various parts of Asia. Shopping malls sell garments made in Guatemala and Morocco even though similar garments are made in India; builders use marble from Italy rather than the stuff sold by small processors in Rajasthan and elsewhere; imports have replaced domestic production in the urban markets for many fairly standard goods that are very much part of mass consumption such as pens, soaps, household goods, and so on.”

One can see it easily during the festival seasons. All the fancy lightings and even the statues of Lakshmi and Ganesha for worshipping in Diwali and all the colour sprayers in Holi are from China. It means only a huge drain of the country’s wealth. With such a huge population to consume the household goods, its manufacturing must be domestic to provide employment. India certainly does not lack the talent and the human resources to manufacture those items. It’s the government policy that has not encouraged instead discouraged the people to go for its manufacturing.

India’s high tech manufacturing continued mainly with PSUs almost as in China. But unlike the Chinese counterparts, these Indian firms, such as BHEL, BMEL, HMT hardly did significant enough to compete with international manufacturers and export and survived mainly under the government’s protection. As example, BMEL couldn’t indigenise the parts for the Tatra Vehicles for the Indian Army it manufactured, and went on importing them.

Unfortunately, most of the big business houses even in private sector hived off the manufacturing companies they had. Even the company such as Tata Motors couldn’t make a significant contribution in exporting its locally manufactured products because it hardly innovated the way its competitors did in developed countries.

Is it not surprising that the country is interested in counting on exporting of iron ores and cotton rather than competing and becoming one of the biggest manufacturers and exporters of steel and its products and clothes and apparels? Where is the rationality for worrying CAD?

CAD can’t remain a headache if the manufacturing of the country becomes globally competitive.

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