Manufacturing India: Media and Government Endorsements

Here is an excerpt from Economist from which we can learn that the world understands and appreciates the potential of India to emerge as one of the top manufacturing power. However, the government, through the necessary reforms such one coming from Rajasthan, fast implementation of infrastructure projects of roads, rails, aviation, ports and broadband/Internet speed, involving and, if necessary, handholding some key entrepreneurs and reforming some taxes, will have to move effectively to grab the opportunities that may slip to other competitive destinations in no time.

Manufacturing powers:
One of the major forces reshaping global business is that of rising wages in China. Nominal wages have been rising at over 10% a year in every year since 1997: Chinese workers are still much cheaper than those in, say, the United States, but the gap is closing rapidly. China has managed to create such a dominant position in global manufacturing supply chains, despite rapidly increasing wages, partly because of its infrastructure, but also because productivity growth has been unusually rapid.

Over the next five years we think that Chinese wages will continue to rise fast. Productivity will rise as well, but this is going to change the type of activity in which Chinese workers are competitive. Countries all around the world, such as Bangladesh, Peru and Nigeria, are hoping to get a slice of labour-intensive manufacturing supply chains as Chinese factories focus on a different stage of production. Which countries are best placed to move into this gap? One country stands out as having a lot of potential: India. It has low wages and business inputs are low, and it has the scale to attract big firms that many countries in, say, Africa lack. India’s business environment is very difficult, however, and its infrastructure is poor. But if India can get the building blocks right, then China’s rising wages create an opportunity it is uniquely placed to capture.”

Interestingly, Financial Express has article on trade policy that talks of some aspects of the FTA agreements discouraging manufacturing. Has the FTA agreements benefited India, particularly its manufacturing sector? There are worries that in one respect they may have harmed the country’s economic interest. India, like its partners, has excluded a number of non-agricultural products from the elimination of duty in these agreements. The exclusions have resulted in an inverted tariff structure, whereby the import duty has been eliminated on the finished products while being retained on parts and components. As a result, the original equipment manufacturers prefer to do business by importing finished goods rather than manufacturing the product in India from imported or domestically-produced parts and components. There has been a large influx of imports of such goods as refrigerators, air-conditioners, washing machines, microwave ovens and television sets (below 19 inches). The tariff structure is stimulating imports and inhibiting local manufacturing.

There is also some controversy on FDI in defence sector between CII and FICCI on three possible levels of FDI – 49, 74 and 100 per cent, that is intended to boost manufacturing in India.

Another suggestion from a private company intending to come in manufacturing of defence products is as this: “Any increase in FDI in defence must be accompanied by a commitment to transfer technology to the Indian entity in a phased manner (starting, for example, from 30 per cent and going up to the 90 per cent to 100 per cent over a two- to five-year period). A similar phased percentage of local content must be applicable in the serial production phase and the Indian entity should also undertake to export the equipment being manufactured after a period of three to five years or so. In this manner, it can become part of the global supply chain of foreign defence companies investing in India.”

Why can not the debate be conclusive? India must become a manufacturing power. Let all the member companies of both CII and FICCI must effectively endorse and invest in that.

However, the good signals are being heard. The President and thus the government has agreed: The President speech to joint session had the following specific point besides others welcome ones:

27. For rapid creation of jobs in the manufacturing sector, the government will strategically promote labour-intensive manufacturing. ……Employment opportunities will also be expanded by promoting…… agro-based industries………

28. We need to transform ourselves into a globally competitive manufacturing hub powered by Skill, Scale and Speed. To this end, the government will set up world class investment and industrial regions, particularly along the Dedicated Freight Corridors and Industrial Corridors spanning the country. My Government will encourage the domestic industry to innovate and collaborate internationally. It will strive to move towards a single-window system of clearances both at the Centre and at the States through a hub-spoke model.

29. To strengthen our share in global trade, procedures will be simplified and trade infrastructure strengthened so as to reduce transaction time and costs. The SSI and Handicraft sectors will be encouraged by providing them enhanced technological, marketing and investment support. Export potential of this sector will be encouraged. My government will make every effort to improve the working conditions of our weavers in particular. It will also set up a task force to review and revive our MSME sector.

30. …….We will encourage R&D and high level local manufacturing for railway systems. ……….

40. My Government … ..will encourage domestic industry, including the private sector; to have a larger share in design and production of defence equipment. We will introduce policies to strengthen technology transfer, including through liberalised FDI in defence production. With readily available skilled human resource, India can emerge as a global platform for defence manufacturing including software, which will strengthen our defence and spur industrial development as well as exports.

And Jaitley has emphatically endorsed that: “This is the last opportunity to be a part of the low-cost manufacturing revolution taking place in some Asian countries. We want to make India a low-cost manufacturing hub.”

Let us hope for a bright future for Indian manufacturing sector.

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1 Response to Manufacturing India: Media and Government Endorsements

  1. indra says:

    Ps: FICII backs the Government proposal of FDI in defence sector.

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