The key to success in making India a manufacturing powerhouse is to provide stable and supportive policies, an environment of mutual trust between the government and the investors, and an efficient infrastructure
‘Make in India’ is the flavour of the day. In fact, it is being brandished with great aplomb at most industry forums, and most of us who are manufacturing aficionados are waiting with bated breath for the lion to roar and soar skywards. But after two years, while we are still optimistic, something is amiss.
The biggest problem that all of us—policy makers, industrialists, investors and startups—face is which button to press to set the lion loose. No one seems to have an answer, and while the bureaucrats are always asking for those ‘two to three key changes’ that will make the difference, the political top brass is looking for the ‘big bang’ that will open the floodgates of investments in manufacturing.
The Union Budget has offered some hope to the electronic system design and manufacturing (ESDM) sector by pushing the differential duty measure further. The Budget also has a number of changes in the indirect tax structure to strengthen IT hardware and mobile phone manufacturing. There is a clear indication that the differential duty structure for mobiles and tablets, which was introduced last year, is being taken to the next level by including components and parts for chargers, batteries, wired headsets and speakers in the category eligible for nil duty on actual user condition.
While all these are steps forward, the challenge still remains in high value-added manufacturing and in mitigating the high risk scenario faced by investors in such manufacturing. We must recognise and understand that investors in value-added manufacturing, i.e., beyond mere assembly and testing, have to make a very long-term commitment. For them, there is no looking back. In such a scenario, it is unrealistic for India to expect that long-term investments will flow in, when there is a palpable sense of uncertainty with respect to the business environment and policies.
If we analyse most of the larger and more recent investments from global companies, these have all been in the SKD assembly of products, which is characterised by low investment, a low capital output ratio and thus lower risks and long-term commitments. From this, we can conclude that the key to making India a manufacturing powerhouse is to provide stable and supportive policies, create an environment of mutual trust and predictability with regard to investors, and an efficient infrastructure.
A recent example of lack of trust and an extremely conservative approach to policy making is the rule on the ‘Import of Goods at Concessional Duty 1996’ (IGCR 1996). This allows the import of inputs for manufacturing electronic components at nil customs duty on actual user condition. While import of electronic components is allowed at nil duty, their inputs require a cumbersome procedure under IGCR. A change in these rules was being sought since the last eight to ten years and finally it happened this year, in the Union Budget for 2016-17. Unfortunately, the new version of the rules—IGCR 2016—once again demonstrates the government’s suspicions towards the corporate world. While the approval procedure under IGCR has been shortened, the mistrust factor is highlighted by the introduction of a third party ‘surety’ to cover the duty foregone by the importer. Since the last month, when these rules came into force, component manufacturers are running from pillar to post to find a third party to provide a surety for them to import their essential inputs! To make matters worse, different customs officers are interpreting the rules as per their own understanding of them.
This government has started the ‘Ease of Doing Business’ campaign with much hype and positive intent. Regrettably, there is still a big gap between the intent and the reality on the ground.
The government’s earnest intentions are not in doubt, but the policy formulation and final implementation are at complete variance. ELCINA sincerely believes that the government must refrain from governing what does not need governance.
Possibly what is required is a massive movement like the ‘Swach Bharat Abhiyan’ to transform the thinking of officials who are refusing to change with the times. The Licence Raj mentality to distrust and control persists. The manufacturer must be given the benefit of doubt. Speed and ease of doing business have to take precedence over all else. I would go to the extent of saying that if a manufacturer in India breaks the rules or cheats on taxes, he can be brought to book. The evaded taxes can be recovered, but letting the manufacturing opportunity go to other countries is an opportunity lost for all time to come, and is the worst thing we can do to our country and our people.
Let us stop making the lives of our manufacturers miserable and give them a chance to prove themselves. With a globalised world and cut-throat competition, they already have enough to contend with. Let us allow them to work honestly, and earn profits and revenues for our economy. Don’t spare them if they cheat the exchequer, but don’t hang them before they do!
