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Conference Reports |
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"How can India get a competitive advantage in Manufacturing?"
N J Seth,
Tata Economic Consultancy Services
Talking about the rationale for strengthening the manufacturing sector, Mr. Seth highlighted that historically, countries have moved from an agrarian economy to Manufacturing driven and finally to 'Services' economy. Thus India cannot hope to be a 'Services' driven economy directly from being an agrarian, thereby skipping the Manufacturing regime.
Elaborating on China's growth drivers, Mr. Seth differentiated between macro-level and micro-level factors. Macro level factors being high investment to GDP ratio (40% for China and 25% for India). The important micro-level factors were state investment to fund infrastructure, use of state-owned financial system to drive to drive investment and judicious design and deployment of SEZs as a policy instrument.
Outlining the prescription for Indian manufacturing sector to attain similar growth as that in China, he suggested that the first step would be to develop a country level manufacturing competitiveness strategy. Specific strategy should be developed for each focus area like export intensive manufacturing, commodity manufacturing, auto sector, etc. This should be followed by putting in place institutional mechanisms to ensure effective strategy deployment. This is akin to what Japan achieved by setting up Ministry for International Trade and Investment in 1970s. Also, this should be geared towards developing export led competitiveness in manufacturing.
He made a strong case for India's competitiveness in commodity manufacturing based on its past successes in sectors like steel, aluminium, petro-chemicals, cement, etc. To lend strength to his argument, he cited favourable external factors critical in competitiveness profiling and mapping namely - decrease in cost of servicing debt, change in fiscal regime primarily due to proposed VAT and improved health of India financial system. However, he identified the costs imposed by inefficient infrastructure and a less evolved corporate governance practices as the major impediments to India's competitiveness in manufacturing.
He explained that Special Economic Zones were envisioned as potential global manufacturing hubs and centers of excellence. But even after four years into existence, the results leave much to be desired. The most crucial reason for this slow off take of SEZs was cited as 'constraints on funding'. The greenfield projects were structured as private or public-private partnership entities. However, the private sector has not been forthcoming in funding these projects. One possible reason could be absence of sound regulatory framework governing these long-term investments. Also, there is no role model for private-funded SEZs on global basis. Consequently, there has not been a financial closure for any SEZ in India till date.
"Assurance of sound regulatory framework is the most important factor to enhance private funding in SEZs"
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