Finance Minister Nirmala Sitharaman has asked a big question to India Inc, or domestic business honchos, as to what holds them back from getting into the manufacturing sector. Her question is also why they are not making use of the Production-Linked Incentive Scheme introduced by the Modi government, which offered huge incentives and subsidies to the manufacturing sector. A package of Rs. 1.97 lakh crore across 14 sectors was announced last week under this scheme to boost the ‘Make in India’ agenda. The positives are not to be ignored. India’s manufacturing sector has the potential to touch $1trillion in three years’ time as it has the largest middle class base with purchasing power amid a bulging population of around 1.40 billion. Yet, as is realized by the government itself, lazy India produces “too little”.
This scenario has progressively worsened with the advent of Chinese and other foreign goods into the Indian market. Indian manufacturers are not able to produce and sell products even with the same price that the Chinese offer, even as these goods carry the huge costs of shipping and transportation as well. This is happening even as the labour cost in India remains too low and a whole lot of Indians have no work. The dichotomy is stark. A close analysis of the manufacturing scenario here despite the massive customer-base that’s on offer points to major lacunae across the spectrum. Governmental policies, including the licence raj that India claimed to have done away with at the start of the economic liberalization in the early 1990s are still persisting and are the main constraints. Bureaucrats and politicians bleed the prospective entrepreneurs dry. The hurdles they set are one too many and the processes cumbersome.
If China succeeded in the huge growth of its manufacturing sector, one key reasons is that it has simplified its systems and turned them entrepreneur-friendly. Xi Jinping’s first offensive was against corruption in the system. India, rather, makes the systems more complex which in turn encourages bribery. Prime Minister Modi took power with a promise of checking corruption but his anti-corruption agencies are targeting only the political rivals. A government, rather, has to be the facilitator. Projecting a steady climb in FDI means little. The finance minister says foreign investors are in a mood to get out of China and would like to come to India. But, are the conditions here favourable? Frequent changes in tariffs and policies themselves are a dampener to prospective investors. They get caught midway through the process. To add to this are the plethora of ‘hurdles and the corruption raj’.
