Essaytopic:Howcanthenew

governmentmakeIndiaaglobal
manufacturinghub?

Introduction:

ThefirstPMofIndiahadreferredtheIndustriesofIndiaastemplesofmoderndemocracyandit
canhardlyberefutedtoday.TheindustriesofIndiawereoneofthemajorentitiestoprotectthe
democracyofIndia,tocheckthegrowthofNeoImperialismthatpervadedthroughthecoldwar
andtherebyhelpedsustaintheeconomyandcivillibertariandemocracywhichwasleftdevastated
andexploitedatthedawnofindependence.
Thenatureofgrowthofindustrieshasseentransformationwiththechangingglobalscenarioand
domesticconditionstraversingfromacentralisedeconomytonowaneoliberalfreetrade

economy.
Today,Indiaboastsof3rankinworldinGDPinPPPtermsevenaheadofJapan,aheavily
industrialisednationandindeedtheaccoladeshastobegiventotheeconomicgrowthand
developmentbroughtthroughourindustrieswhichotherwisewouldnothavebeenpossible.
However,therestandsinfrontofusourdreamsadreamtomakeIndiaaprosperousand
vibrantcountry.Adreamtoreducethegrossinequalitythatexiststodayanddisempowerment
thatexiststodaytraversingregion,gender&economy.Adreamtobringsustainableand
inclusivegrowthandadreamtomakeIndiaaglobalsuperpowerandfeelproudofournation.
Thisdreamforcesustointrospectthepastfailuresandreinvigorateouractionsandpoliciesthat
notonlymakeIndiaaGLOBALMANUFACTURINGHUBbutalsoaNationofOurdreamsas
envisagedinthePreambleofourconstitution.
Inthisessay,weshallseeabriefevolutionofthegrowthofindustriesinIndiaandthepresent
scenario.WeshallthengothroughthevariousproblemsthathinderthegrowthofIndiaasa
manufacturingnation.Weshallanalysehowcertainpolicymeasureshaveaffectedtherightpolicy
climateandconfidenceoftheprivatesectorwhichhascurtailedinvestmentsfrombothforeign
anddomesticavenues.Weshallthensuggestreformsandstepsthatneedstobebroughtinto
bringtherightpolicyclimatewhichisstable,predictable,enablingandirreversibleandnotonly
boostsinvestmentsinIndiabutmakeIndiaafavourablebusinessventurewhilealsokeepingin
lightofthefactthatIndiaisstilladevelopingnationandtheinterestsoftheNationhasstilltobe
protectedineraofglobalisationandfreemarketeconomy.

EvolutionofIndustriesinIndia
19001950:
TheIndigenousIndustrialgrowthinIndiawasincontestationwiththeBritishongoingFinancial
Capitalism.Thusthegrowthwashighlyresourcestarved,withlackofIndianheavyindustriesand
dependencyonforeignimports.ItcheckedthegrowthofIndianancillaryindustriesbringinghuge
unemploymentandregionalimbalance.
ThebackwardnessanddependencyofIndianprivateindustrieswaspreciselythereasonwhenin
theBOMBAYPLAN1946,theindustrialclassacceptedaStateControlledmixedeconomyover
privateledinordertoboostrapidindustrialisationandalsotopreemptsocialismbycombining
equitywithgrowth.
19501990:
TheIndustrialPolicyof1956hadhighlightedtheneedforamixedeconomyandtheneedfor
heavyindustries.TheNehruMahalanobismodelofgrowthboostedthegrowthofheavy
enterprisesinIndiaandIndiawitnessedthegrowthofsteelplants,hugedams,manufacturing
unitsautomobiles,ports,airportsetc.whichwasslowlybutsteadilytransformingIndia.

HowevertheprolongedcontinuationofImportsubstitutionIndustrialisationmodel,thegrowing
ICOR(incrementalcapitaloutputratio)ofindustriesinmid1980sandthefailuretomakeatimely
shifttoaliberalisedeconomywhichwasrightlytappedbythesoutheastAsiannations,
culminatedintheeconomiccrisisof1991andforcedinstitutionalchangesintheeconomythat
broughtinliberalisation,privatisationandglobalisationoftheIndianeconomy.
ThePresent:
Thesituationoftheeconomyasitexiststodayisthatitstandsonsolidgroundswithlotsof
positivestosurgeahead.

POSITIVES:
IndiatodayiscalledastheBackOfficeoftheworldwithourITsectordominatingtheworld.There
ishugeskilledLabourresourceandboomingmarketfortheworldwiththegrowingcapacityofthe
peoplebroughtinthroughvariousenablingsociallegislationsandthegrowthanddevelopment.
TheproximitytobothAfricaandsoutheastAsiaandstrategiclocationofIndiaintheIndian
Oceanoffersgreatbusinessopportunityforthebusinesscommunityoftheworld.Thegrowing
partnershipsandFTAs(freetradeagreements)withASEAN,SAARCprovidesaddedopportunity
withtheIndiasgrowinginterestinRegionalComprehensiveEconomicPartnership(RCEP)a
groupingledbytheAssociationofSouthEastAsianNations(ASEAN)andisexpectedtopitchin
with$644billion.
Therearemorethan13majorportsand200smallportsthatcanbeeffectivelyusedastrans
shipmenthub.Thegovernmenttodayismuchbetterpreparedandmotivatedtoboost
investmentsinthecountryanditcanbeascertainedbythevigourthatthegovernmenthas
displayedinthecurrentbudget2014thataimsatresolvingtaxdisputes,andbringingastable
policyclimatefortheindustry.
TheForexReserveismorethan$300billion,theaveragegrowthinthe11FYPwas7.9%even
afterfacingtwoeconomiccrisis.TheCAD(currentaccountdeficit)wasaslowas1.7%ofGDP
whileFDhassubstantiallyreducedtoaround4.1%.
Theinflationasiswitnessedcurrentlyisbelow5.9ofCPIwhichishistoriclow.Thegrowing
infrastructurelikeroads,electricity,transport,shipmentetchavejusttransformedtheeconomy
whichishugeascomparedtoIndiaevenof1990s.
Thesefactorscoupledwithhugedemographicdividend,hugeavailabilityofrawmaterialsarethe
prerequisiteandessentialconditionsforanycountrytobeamanufacturinghubandisreadily
availableinIndia.

NEGATIVES:
Howevertherearelotsofdrawbacksthathavehinderedtheactualrealisationofthepotentialthat

Indiaiscapableof.Thiscanbeenumeratedbythefactthatdespitesubstantiveliberalisation
sincelast6monthstheeconomyhasnotreallycaughtup.
TheEconomicSurveyReportshows:
SubstantialreductioninFII(financialinstitutionalinvestors)inIndiain2013.($26,981millionto
$4,822million)
TheeaseofBusinessdoinginIndiais134/189countriesinworldin2014.
Thestatisticsofthelastyearshowsnegativegrowthforminingsector(1.4%)and
manufacturing(0.7%)in2013.
GDPshareofmanufacturingisstill15%.
TheInflationwasashighas9%untilrecently.
Thisstatisticsdonotaugurwelltodriveinvestmentsandtherebyboostmanufacturing.Italso
bringsforththepicturethatthereisnoonefactorinhibitinggrowthandinvestmentandthe
situationrequiresamoredetailedindepthunderstanding.
Letstrytoanalysethesameonebyoneandrecommendforchanges.

ISSUES/BOTTLENECKSINGROWTHANDMANUFACTURING
InstitutionalDrawbacks
BureaucraticREDTAPISM.
Overregulationanddelaysinproceduralclearancesofprojects(ex.POSCOsteelplantgot
itsenvironmentalclearanceafter8yearstostartconstructioninOdisha).
NosinglewindowclearancesforprojectstheNeGP(nationalegovernanceplanisyetto
catchupinalldepartments).
VariousarchaiclegislationslikeLABOURLAWS[Industrialdisputesact,1947contract
labour(regulationandabolition)Act,1970tradeUnionsAct,1929)whichhassubstantial
repercussionontheefficiencyofenterprises(onlyrecentlylawsarebeingpassedinRajasthan
afterreforminlabourlaws)
LandacquisitionisstilldemotivatingevenaftertheLARRA,2013(landacquisition
resettlementandrehabilitationact)makingthelandevenmorecostlierthanbefore.
TheFDIinIndiaisstillregulatedinvarioussectorsandcomeswithextremesafeguards.The
FDIinMBRisclassicexamplewhereIndiahardlyreceivedanyinvestmentdespitemakingit
51%.
TherehasbeenincreasingdemandforfullconvertibilityofrupeewhichcallsformoreFDIand
betterrates.
Thereisincreasingnumberofregulatorybodiesandcontrolfromplethoraoforganisation
addingtotheconfusionandwoesofinvestors.(SEBI,PFRDA,IRDAallworkinfinancialsectors
withinterspersedjurisdiction).
TheissueofRBItocontaininflationaswellasmaintaingrowthandinvestmentisfacing
criticismfromallsectorswithdemandforaseparateDMO(debtmanagementoffice).
TheretrospectiveamendmentoftheIncomeTaxlaw,1961intheVodafonecasehasbeen
oneprimeconcernofbusinessclassandforeigninvestmentseekingforastableandclear

policyguidelines(whichareyettobedetailedinelaborationsincethebudgetspeechofFM).
Lackofclearpolicyguidelineswithambiguityinvarioussectors.
Thereisalackofinstitutionalisedmechanismofeffectiveparticipationforpolicymakingwhich
includestheprivatesectoraswellasthecivilsociety(itmustbenotedthatUSAhas
institutionalisedlobbyingtoprovidefairplaytoallconcerned).
InfrastructuralBottlenecks
UnavailabilityofRoadsespeciallyinruralareasarehinderingpenetrationofindustrytorural
sector.
PoweristhemajorconcerninIndia.
TheJapanesedelegationtoIndiaaweekagohighlightedtheneedforpowerandinfrastructureto
motivateJapaneseinvestmentofcommitted$35billioninindia.Itbringsoutthegrimrealityhow
investmentsarecurtailed.
Thesoftwarecompanies(Infosys)havestartedtheirownsolarprojectstomeettheirpower
needs,whichisnotpossibleforsmallstartups.
Theneedforacheapmeansoftransportandswiftertravelislongfelt.
TheNationalwaterwaysareyettobedevelopedwithonlyrecentlysomeactioncanbe
perceived.Howeverthelonggestationperiodinvolvedinsuchprojectsishardlymotivating.
NUCLEARLIABILITYLAW,2011ofIndiahasbeenwelldetestedbytheforeignmarketand
despiteofthewaivergrantedfornucleartrade,theprojectsrelatedtonuclearpowerplants
havenotpickedup.
Thegaspricingpolicythoughaddressesbutisyettoyieldresult.
EconomicBottlenecks
Theinvestmentsandbudgetallocationshavenotgrowninaccordancewiththedemandfor
varioussectorsesp.MSME(medium,smallandmicroenterprises)whichthoughisaccountable
for60%oftheindustrialoutput.
Planv/sNonPlanexpenditureclassificationhasreducedfocusonmaintenanceof
infrastructureandfacilities.(TheformerChiefEconomicAdvisor,Rangarajanhastermeditto
bethefactorresponsibleforhospitalswithoutdoctorsandschoolswithoutteachersthereby
affectingfacilitiesandservicesaffectingthehumangrowthandcapacity.)
Theexpenditureisincreasinglytiltedtowardssubsidieswhichisreducingthecapacityofthe
government.
FiscalconsolidationandfiscalprudencenotwelladheredtowiththeFRBMactbeingtweaked
wheneverfeltnecessary.
ThereisalsothegrowingchallengefromtheFEDTAPERINGoftheUSAwhichisgoingto
havesubstantialimpactsonIndia.
Internationalbottlenecks:
ThegrowingpressureindifferentforumstoopenupthemarketandfreetradeasperWTO

ruleswithaneedstillfelttoprotecttheindigenoussectors.
ThegrowingprowessofChinesemarketsandproductsandtheacceptanceoftheFree
TradeAreaoftheAsiaPacific(FTAAP)intheongoingAPEC(Asiapacificeconomicco
operation)doesnotaugurwellforIndianproducts.
USAdemandtoincludeHFC(hydroflurocarbon)intheMontrealprotocolneedtobechecked
aslotsofourindustryisdependentonthatproduct.
Environmentalbottlenecks&Others:
TherecentSCverdicttobanmininginGoahasledtothereductioninexportsofironore
TheincreasingprotestsagainstprotestsbyNGOsomeevenvestedones(IBreporton
GREENPEACEactingagainstthedevelopmentalinterestsofIndia)callsforaeffective
regulationofsuchvestedinterests.
ThegrowingconsensusoncleanenergyandreductiontargetsaccordingtotheKYOTO
protocolandIndiasdependencyonfossilfuelscanactasantitheticaltogrowthofIndia.
Thereisaneedtobalancegrowthwithsustainabledevelopmentanditcallsfordistinctand
clearpolicyguidelineswhichisacceptabletoallandprojectsdonotgetstalled.
Corruptionisamenaceandneedformoretransparency
ThegrowthofLWE(leftwingextremism)intheeasterncorridorhassubstantiallydeterred
investmentintheresourcerichregionofJharkhand,Bihar,Odisha,WestBengaletc.
Suggestionstoundothebottlenecksanddrivemanufacturing:
TheManufacturingPolicyofindia,2011thataimstomakethesectorsGDPto25%.It
envisagestosetupNIMZ(NationalInvestmentandManufacturingZone)whichneedstobe
givenfreshimpetus.ThegrowthofindustrialCorridorsliketheDELHIMUMBAI,CHENNAI
BENGALURU,MUMBAIBENGALURU,needstobeprioritisedandbedevelopedwithworld
classfacilitiesandinfrastructureandtransportwithenablingreformsliketaxholidays,tax
benefitsetcthatcanspurtinvestmentsintheseclustersandmakeittheindustrialHubofthe
Nation.
DigitalIndiaProgrammehastobereinvigoratedandhastobemandatorilyintroducedinall
governmentaldepartments.Itshouldaimatmakingonlinefilingofprojects,trackingand
monitoringofclearances.Aimtobringtransparencyinthesystemandreducebureaucraticred
tapeandproceduraldelays.Aimtomakesinglewindowclearancesforallprojectsincludingin
thestategovernment.
Trytorationaliseregulationbycurbingthenumberofregulatorsandcheckvictimisationof
industrialists.Effortsshouldbebroughtinallsectors.Therecommendationsofthe
FSLRC(financialsectorlegislativereformscommission)shouldbeimplemented.Itwillseparate
theroleofRBIandbetterinflationtargetingandUFA(unifiedFinancialAgency)willbring
coherenceinregulationinfinancialfieldtocheckdiscrepancyandallalsonotoverregulate
things.Itwillenhanceinvestorssentimentsespeciallyinthefinancialsectorwhichcanfurther
boostinvestmentandstrengthenForex.
MAKEININDIAcampaignwhichaimstoboostforeigninvestmentinIndiaisintheright
direction.Ithassetupdedicatedcommitteestoexplainthepolicy,sortoutambiguityinlaws,
andfasterclearancesofprojects.Thisprogrammeneedsmoreboostandeffectivelytakenup

indifferentforumslikeASEAN,SAARCetc.
EaseofdoingBusinessneedsseriouslookatandnormalisedtoyieldeffectiveresultsonthe
ground.
Needsbasedholism(reorganizinggovernmentarounddistinctclientgroups)alongwith
combiningtheprincipleofsubsidiarity(activitymapping)tobekeptinmindwhileallocating
businesstoministries,departmentsandstateagencieswhichwilldriveefficiencyinfile
movementandmanagement.
ThePublicProcurementPolicyneedsarevampandshouldnotbiastowardsPSUsand
shouldcreatehealthyplatformforprivatesectortoparticipatethroughtransparentcompetition.
TheLabourReformsbroughtinforthbythegovernmentisawelcomechangeandisvery
wellhailedbythebusinesscommunity.Incentivesmustbeprovidedtothestatestobringin
suchchangesintheirrespectivestatelawsassoonaspossible.Desirablelegislationscanbe
alreadyseeninRajasthan.
FDIinvarioussectorsneedtocomewithmoreliberalisednormstofacilitateinvestment.
TheinfrastructuresectorespeciallyRoadsandpowersectorneedstobeaddressed
immediately.RationalisingoftheclausesoftheNuclearliabilitylawcanbedonetoboost
nuclearenergy.
TheGaspricingneedtobemorelucrativetodriveinvestmenttoboostexploration.
JNNSM(JawaharlalNehruNationalSolarmission)hastobetakeninamorededicatedmanner
andatanationalscalethatcanreducethepricesofthesolarpanelsandspurtdemandand
investment.
Thevariousarchaiclawsneedtobedoneawaywith.TheProductivityCommission/committee
toreviewoldlawsasenvisagedinthebudget2014toremoveorreplaceoldlawsneedtobe
proceedatfasterpace.
Therehastobeeffectivegrievanceredressalsystemespeciallyrelatedtotaxationcases.
Vodafonecase,Nokiacasedonotaugurwellfortheeconomyandretrospectivetaxation
shouldbecompletelyavoidedtobuildconfidenceintheeconomy.
Taxationrelatedreformsneedtobebroughtinfast.EffortstobringGST(Goodsandservices
taxes)actshouldbemadefaster.Asenvisageditcanboosttaxcollectionandtherebythe
capacityofthegovernmenttofundmoreprojects.ItislikeaFTAsignedwiththeIndianstates
andcansubstantiallyreducetimeandcostbyreducingmultiplecheckpostsandtaxbarriers.
TherationalisationofplanandnonplanexpenditureneedstobeaddressedwhileFRBMact
needstobewelladheredto.Fiscalconsolidationmustbepractisedanditalsocallsforthe
rationalisationofthesubsidiesanditseffectivetargeting.
Suchstepswillenhancethecapacityofthegovernment.
TheDTCcodebillandtheprovisionsoftheGAAR(generalantiavoidancerules)needtobe
factorintheconcernsoftheprivatesectorbeforebeingintroduced.
ThevariousFTAs(freetradeagreements)haveaddedbenefitsforthenation.However
casesofINVERTEDDUTYSTRUCTUREneedstobeaddressedbeforesigningofFTAs.
Issueofhumanresourcealsoneedstobeaddressed.Therecenttrendofbraindrainfrom
IndiahastobecheckedbyfurtherinvestmentinResearch&Developmentandhigher

educationfacilitiesinIndia.Itiscriticalforthedevelopmentofnewinnovationsandresearch
andgrowthoftechnologyandlatestproductwhichdrivetheworldmarket.Therecent
controversyrelatedtoautonomyofIITs/IIMsshouldbedoneawaywithasfastaspossibleto
fasttrackclarityinobjective.
TheDiplomaticeffortsshouldbetowardsgainingmoreaccesstomarketsespeciallyinareas
whereIndiahascompetence.LookEastpolicybeingreplacedwithACTEASThas
reinvigoratedthesentimentoftheprivatesector.TheUseofstrategiclocationcanbeeffectively
communicatedtodevelopIndiaintoatransshipmenthubforothernationsespeciallytoAfrica
andSouthEastAsiaviaIndia.TheUseofAndaman&Nicobartoprovidecontainerfacilities
andshipmentsinaregulatedmannershouldbecarriedout.
ElectronicsPolicyofIndia,2012recentlyunveiledaimstoestablishGLOBAL
ESDM(Engineeringsystemdesignandmanufacturing)inIndiaofworth$400billion.ThePolicy
needsmoreclarityastohowsuchinvestmentsaretobebroughtinandshouldalsooffer
incentivestoindustriestosetupindustries.
ThereisalsoaneedtotapthevastlabourresourcepresentintheEasternSectorofIndia.
Howeverincentivesmustbegiventoindustriestosetuptheirbase.TheUseofNationalWater
HighWay1fromAllahabadtoHaldiaforprovidingcheaptransporttotheportforexportcanbe
extensivelyusedtoboostproductionandmanufacturing.
Railwaysbudget2015offersgreatopportunitytotransformgrowthandmanufacturinginIndia
andshouldbepursueddiligently.
ThereisalsoaneedtoboostcreditfacilitiesinIndia.Innovativemethodstoincreaselong
terminvestmentinthemanufacturingsectorhastobeexploredwhilethemonetarypolicyhas
toalsofactorininvestorssentiments
Congruencebetweenfiscalpolicyandthemonetarypolicyisessentialtodriveinvestment
andgrowthandboostmanufacturing.
Finallythepolicyofboostinggrowthofthecountrythroughmanufacturingshouldbecarried
inamannerwhichissustainablemannerandinclusive.Itwillkeepdrivingthefutureprospectof
theeconomybycreatingthevirtuouscycleofdemandandsupply.

FUTUREPROSPECTS:
WorldBankReportofSOUTHASIAECONOMICFOCUSREPORT,2014hashighlightedfactthat
SOUTHASIAhasthepotentialtobecometheMANUFACTURINGHUBoftheworldespecially
whentheEastAsianLabourcostshaveincreasedandrequiresfurthercompetitiveboosting.
ItalsohighlightedthatIndiawillclaimALMOST80%oftheSOUTHASIANREGIONOUTPUT.
TheabovereportsumsitallforthefutureprospectsofIndiaandthepotentialthatitcarriestobe
notonlytheBACKOFFICEoftheworldbutalsotheFACTORYOFTHEWORLDandclaimit
rightfulplaceintheworldeconomy.
AnotherreportofWorldBankin2015relatedtoUrbanisationchallengesthecommonnotionthat
urbanisationleadstoinequalityratherstatedthatitprovidesmoreopportunityforlowerclassto
moveintoupperclassandtherebyreducesinequalityandisespeciallytruefortheSC/ST/OBCs.
Thusmanufacturingandurbanisationwhichareintertwinedcanleadtonotonlygrowthbutalso
holisticdevelopment.

CONCLUSION:

CONCLUSION:
TheworldiseagerlyawaitingtowitnesstheriseoftheASIANELEPHANTanditistimetoprove
themright.Thevigourofthepoliticalclassdisplayedbythenewgovernmenttoboost
manufacturingandgrowthalongwiththefavourableglobalconditionsaugursextremelywellfor
theriseofIndia.Thefavourablepolicyclimatebroughtinbyvariouslegislationsandtheimproving
economyofUSAandEuropehasbroughtinnewprospectsfortheIndianManufacturingIndustry.
IMFstatesIndiaasabrightspotinaslowglobaleconomy.
Howeverthereismoretobedonethansaidorspokenabout.Thisfavourableconditionshasto
beconditionedwiththestrengthsofIndiawhichisitscheaplabour,skilledresourceandhuge
marketcoupledwithdedicatedandtransparentadministration.GoodGovernancehastobe
broughtinthroughanetworkedapproachofGovernment,privatesectorandthecivilsocietythat
willfacilitateandbuildtrustandconfidenceessentialwithadequatechecksandbalancesforany
economytogrowandIndiaisnoexception.
ItisonlythroughdedicatedandsustainedeffortsthatIndiawillattainSWARAJinitstruesense
andbenotonlytheglobalmanufacturinghubbutalsothelightoftheworld.

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