It's now or never
27th November, 2014
Kumar Mangalam Birla
The Times of India
27 November 2014
Let's make India sizzle as a global manufacturing hub
I am an ardent believer in a glorious future that beckons India. The path to that future must necessarily go through a resurgence of manufacturing. We have all it takes to be a global manufacturing hub.
Still the share of manufacturing in India's GDP is only 15% vis-a-vis 34% for China, 31% for South Korea and 22% for Germany. We have a lot of catching up to do in manufacturing.
The world's economic centre of gravity has been shifting from West to East. Making India a global manufacturing hub will capitalize on this inevitable shift, positioning India at an inflexion point.
Manufacturing should be the next big wave for us. As articulated in the national vision, we need to move the share of manufacturing in GDP from 15 to 25%.
For us the ingredients are in place - talent, entrepreneurship, raw material and a large internal market, which render economies of scale. With its size and scale, India can boast of a critical mass. The government's "Make in India" campaign is an affirmation.
What stands in the way of India becoming a manufacturing powerhouse? Three broad areas that we need to address are regulatory hurdles, infrastructure bottlenecks and developing talent.
Setting up a manufacturing unit in India is an uphill task. It involves a long and tedious process for land acquisition, securing a plethora of clearances and approvals from regulatory authorities at the central, state and local levels.
What is needed is clarity of regulation, less clutter, more consistency, greater transparency and speed in decision making. All this is doable. The new government is bringing these issues centre stage.
Infrastructure remains a critical bottleneck. This includes roads, ports, railway, power and communication - the basics for growth.
Take power for example. Peak power shortage is estimated at about 15% of demand. In the year 2014, over one-fourth of industrial power is still generated by captive units! The availability of coal has become a major constraint despite India having the third largest coal reserves globally.
We are aware of India's demographic advantage. Our labour force is young and expanding much faster than the general population. India is in the enviable position of providing manpower, even for the rest of the world.
To seize this opportunity India's manpower skills have to be massively upgraded, calling for an educational ecosystem that can support a modern economy. This means vocational training, on-the-job training, curriculum redesign, teacher training, apprenticeship development, leveraging distance education and more.
The one metric which effectively captures many of these constraints is the "Ease of Doing Business" global ranking. This is compiled annually by the World Bank for 189 countries, following a well-defined, comprehensive and transparent methodology.
Let's see where India stands on this ranking. Overall India's rank is 142 out of 189. In "ease of starting a business" it ranks 179th; in "dealing with construction permits" it ranks 182nd; in "enforcement of contracts" it ranks 186th. India's performance in "access to electricity" is also low at a rank of 111.
Given our low ranking, our vision for manufacturing resurgence must aim, among other things, to improve substantially India's global ranking in terms of ease of doing business. We need to remind ourselves always that there is a lot of good going for India. We must leverage it. India's economy is the third largest in the world in terms of purchasing power parity.
Recent policy measures such as labour reforms, dilution of the factory "inspector raj", deregulation of diesel prices and coal sector reforms all point to an improvement in the investment climate going forward. Business confidence indicators are rising, and the pipeline of announced projects is bound to increase.
Foreign exchange reserves have now swelled to their highest ever, covering about 8 months of exports. The current account deficit is low. If oil prices keep going lower, we may even end up with a current account surplus.
The currency has been quite stable for the past one year. India is well prepared to withstand abrupt changes in monetary policy in the US or Europe, according to RBI.
Foreign fund inflows are very healthy and India's stock market has been among the topmost performers during 2014. The fiscal deficit is also on a downward trend. If this favourable tailwind is combined with a determined push, India can become a key global manufacturing hub.
I believe that India has reached a stage of sure-footedness and confidence. There is a palpable sense of excitement as our leadership takes the initiative and decisive steps, at a faster clip, to build the India that we have always dreamed about.
We are now tantalisingly close to seizing the moment and to getting it right. All the pieces finally seem to be falling in place.