1 December 2014

Mfg @ 0.1%! Make in India Needs Made in India Policy

By Shankkar Aiyar
30th November 2014 


0.1 %. It is the rate at which Indian manufacturing grew between July and September.

It is a reminder of a stark reality. A 5.3 per cent growth in GDP may satisfy some and look good. But fact is without a substantive improvement in manufacturing output, the promised high growth trajectory will elude India. It is a figure that must be pasted on bulletin boards in ministerial chambers and conference rooms of the many Bhavans. It is a reminder that the politics of procrastination must give way to politics of action, it is a post-it for this government that there is no escaping away from the hard calls that it must make if it intends to deliver on the promise of Achche Din.

One only has to look at the historical disaggregation of GDP to appreciate why manufacturing needs revival. In the three years India clocked 9-plus per cent GDP growth, industry grew at 9.7 per cent, 12.2 per cent and 9.7 per cent compared to 2.2 per cent now. And these rates are impossible to repeat without getting manufacturing back on track.

Yes. Manufacturing growth has been poor for over two years. Yes. Manufacturing growth has been sub-1 per cent in eight of the past 12 months. Yes. This is a crisis engineered by the clueless, paralysed, slothful, callous UPA regime. The fact of life, however, is one cannot choose siblings or parents—and one can blame our inheritance only in adolescence. The harsh truth is that the tried and tired spin of blame-the-UPA as a strategy is now past its sell-by date.

Sure, there is no doubting that Prime Minister Narendra Modi has taken the idea of ‘Make In India’ across the globe. But the idea of Make in India demands enabling policy Made in India. And unless his ministerial team translates working hours into actionable policy, the idea will remain an idea. This government is afflicted by what can only be described as “announcement-tis”. Keeping the people engaged and informed is necessary, but also critical is the expectation of movement. There is a distinct impression of motion—the clearance of some stalled projects—but little movement on the hardcore issues that have resulted in investment worth `18 lakh crore stuck between tables.

The imperative of reviving manufacturing does not call for a thesis in economics nor do the steps necessary demand yet another phase of conferences or committee raj. The milestones to be crossed for boosting manufacturing are essentially availability of land, environmental clearances, availability of power, dismantling of the tax pyramid and cost of capital. The first step to resolution is a change in mindset—the time for incrementalism is over. The solutions cannot and will not be led by risk-averse bureaucrats; the solutions will have to be innovative, political and risks will have to be taken by the political faces.

Take land acquisition—it is mostly about pricing. The issue is the front loading of the total cost of acquiring land—engineered in the Act, which one must remember was supported by the BJP without qualifications. Rejigging the pricing formula will not fly—no political party can afford to be seen giving less when more was promised. Why not look at model where a kind of stock option is created for land owners? How about the Magarpatta model of Pune? What about deferred payment? What about government acquiring it and paying in part with Kisan Vikas Patras?

Take environment clearances and land availability. The Modi Sarkar does not subscribe to the doctrine of privatisation. Why not lease/deploy the wasteland of public sector—the land, the buildings, the facilities—productively to kickstart investment. The previous government had computed the quantum of surplus land with PSUs. Finding the file would be a start. Likewise, the Ordnance Factories Board is squatting on hectares of land; why not slice them off into a corporation and lease this land? Why not repossess land given for SEZs which aren’t in use?

Yes. Power outage is a major issue. This crisis cannot be resolved without distribution being bought/wrenched from bankrupt state electricity boards. There is demand and investors are willing—provided the market is “islanded” from political rent. Inducting the Goods and Services Tax will dismantle multi-layered taxation, lower logistics costs, improve efficiency. The good news is that the GST is on the government’s radar. The worry is that the quest for the best may detain the good. Yes, cost of capital will continue to be an issue given the state of government finances, but India is at the intersection of serendipity. The combination of lower oil inflation and revenues from disinvestment and auctions (coal mines, spectrum) can help lower deficit, inflation and interest rates—bond rates are nudging 8 per cent in anticipation.

Conceptually, India’s economy is on a treadmill mode—neither investment nor consumption is taking off. The economy has to be shifted off the vicious cycle onto the virtuous cycle—where investment drives employment leading to incomes fuelling consumption which props demand that promotes investment.

What needs to be done is scarcely unknown. The UPA regime under Manmohan Singh too knew what needed to be done—it just didn’t do it. The defining difference—that propelled a majority—about the Modi Sarkar is the belief of decisive action. The Modi Sarkar needs to live up to this expectation.

Shankkar.aiyar@gmail.com

Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change

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