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)
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