Economic Highlights

New Delhi, 26 September 2014

‘Make In India’

ROLLING OUT TRADE CARPET

By Shivaji Sarkar

The war is official. India’s prowling lion is pitted against the howling dragon. The day Prime Minister Narendra Modi launched his morale-boosting “Make in India”, China also launched “Made in China” – an indication that the dragon wants to extend the “regional war” threat beyond borders.

Modi, industry leaders say, has distinctly boosted confidence of the nation. Asia’s third largest economy is showing signs of clawing out of its slumber and slump. The nation hopes he will be able to engineer a turn-around – a mantra for changing the face of the country. He has suggested the beginning as well – first develop India, a new meaning to FDI.

‘Make-in India’ is an aggressive process for attracting investment. The 25 sectors include almost all that can take the country on a stride. Modi in his speech appreciated the small sector ancillaries’ carving out the sophisticated parts for the Mars mission indicating even the khadi and small scale sectors are part of his mission manufacturing.

The decision has come at an appropriate time. Manufacturing, industrial production has touched a bottom. The challenge is not just raising production but also face the toughest competition from China in terms of pricing. For instance, a CFL lamp from China is available for almost one-third the price of an Indian make.

The same day Modi launched his new mission, Reserve Bank Governor Raghuram Rajan expressed concern over rising inflation despite the fall in rate. Rajan says even with some deceleration, it has a high base and a crucial lubricant – cut in lending rates – is not possible. The banking cost has also gone up for various reasons – a major one being the high NPA. It means either repayments are delayed or they don’t come. It was witnessed recently that defaulters were large corporate, who have not repaid over Rs 70,000 crore and that included companies such as Bhushan Steel, Kingfisher Airlines and infrastructure firms engaged in road construction and real estate.

This unethical practice raises cost and adds to inflation. Containing inflation is a complex task.

The corporate sits pretty on its almost over Rs 1 lakh crore reserves. It earns them high interest as they lend it out on commercial rates while accessing bank funds at reasonable rates. Modi would have to take a call on corporate lending. The rise in manufacturing should not be at the risk to the banking sector. 2008 is too recent to be forgotten. Similar approach by the US and European corporate had denuded banks and financial institutions, just not the Lehman Brothers but even the US government arm AIG.

Good missions whether it is Mars or manufacturing may have their flip side, if caution is ignored. The nation has to increase financial surveillance while giving a boost to the process of manufacturing.

The Prime Minister has also been candid on India’s poor, poverty, purchasing power parity that stalks the market. He wants the multi-nationals or other corporate to change through the new FDI – develop India. This is an opportunity for the corporate. Will they do it? In the past, when the Indian corporate had monopoly over manufacturing to licence and permits, they sadly utilized these to keep off competition, dish out poor quality products to captive buyers and raise prices.

Despite verbal support and praise heaped on the Prime Minister by the biggest corporate leaders, Modi has to take it with a grain of salt. The corporate – MNCs or the deshi – are more concerned about their profits and developing themselves.

During the past 24 years, they have been demanding access to every market but want the government to address the critical issues – as if governments are meant to in their service and only for their benefit. Modi’s call is appropriate but getting the corporate to do it would not be easy. They since the 2008 global crisis clamour for incentives (subsidy) but oppose subsidy for the poor.

“Develop India”, Modi views, is as an opportunity for the corporate. His idea is simple. Invest in developing the people and induce them to buy quality products by providing them jobs, improving their financial status and create the necessary purchasing power capacity.

His dream of creating the country as a production hub is important. It would require a deft and aggressive foreign policy. The announcement of his policy on the day he was leaving for his official visit to the US means a lot. Despite problems, the US economy sustains many economies. The recent strides by countries such as South Korea are led by booming exports to the US. India would not like to miss such an opportunity.  

India has to understand that South Korea is a political front for the US against China. India though fits in that category is viewed as ultra independent vis a vis the US. The same level of support from US President Barack Obama is difficult. The US has expressed its desire to build India into a global power. The relationship, however, between the two countries has remained at sub-optimal level. There are some silver linings though. Despite IPR issues some US pharma companies are prepared to sell some vital drugs at one per cent of its US price in India.

Indian companies are investing aggressively in the US. This touches $7 billion today. And, the US companies have invested $24 billion in India. Modi is good negotiator and has the capability to achieve the maximum. His manufacturing mission can take a leap even if Obama stoops a bit. It would add to further easing of business climate.

Undoubtedly, Modi has taken the country to a most practical but engaging task. He has to do a bit more. He has to simplify the tax code and have low rates like Hong Kong. The World Bank each year ranks India as one of the most difficult countries in the world in which to start a legal business. This hurts job creation.

He should be cautious in attacking subsidies that benefit the poor, until the economy is in true bloom. The mission manufacturing can roll out the trade carpet. It can win friends and topple the unfriendly. ---INFA

(Copyright, India News and Feature Alliance)