SEPTEMBER 30, 2014

By TIOL Edit Team

THE Prime Minister Narendra Modi's address at the global launch of his core initiative 'Make in India' (MII) has the potential to bring about a paradigm shift in the country's growth process.

Manufacturing has been the biggest casualty of the economic reforms process initiated by Narasimha Rao Government in mid-1991 and carried on by successive regimes. The casualty has been manifested in the form of slow-down in manufacturing growth rate and closure of many plants due to import liberalization and several other factors.

MII campaign can thus facilitate manufacturing renaissance, diversification of industries and deepening & widening of the value-chains. It should ultimately result in decrease in import intensity of manufacturing sector and increase in value-addition to the exported products.

The NDA Government thus must work on certain very important suggestions and observations made by Mr. Modi at MII launch on 25th September to realize his vision. It must develop the ideas into action/strategies that can bring about demonstrable change in the business environment.

Mr. Modi implied the need to redefine Government-industry interface. He stated: "There should be an atmosphere of corporate government responsibility on the lines of corporate social responsibility. But at the same time there are responsibilities of government." He also stated: "we want to reassure you that your money will not sink."

First consider the Government responsibility. Mr. Modi did not indicate how and whether the Government would protect the investments that go down the drain solely due to policies that are struck down later by the Judiciary. The obvious case in point is the colossal loss of both foreign & domestic investment and jobs resulting from cancellation of 2G licences issued in 1998. The cancellation of these mobile service permits also led to aborting of orders for supply of equipment, software and support services.

A similar situation is likely to emerge from the cancellation of the coal blocks allocations right from 1993. The scrapping of most of the coal mining concessions would not only plunge the mining equipment industry into uncertainty but also hurt the manufacturing industries that projects linked to allotted blocks.

Factor in instances where judiciary has struck down environmental approval for projects that have already been implemented or at an advanced stage of implementation.

Add to this retrospective changes in policies and taxes that change the business fundamentals, resulting in varying degrees of losses to the companies. All these variables constitute dreaded risks would deter even the most bullish entrepreneurs.

MII should thus provide a clear-cut strategy to avoid recurrence of losses arising from flawed policies, public interest litigation and selective interpretation of the Constitution by the Judiciary.

The time has perhaps come to make judiciary an integral part of consultation on policies and thus make it accountable for the state of economy. Under the new framework, once a policy has been debated and finalized in consultations with the judiciary and all sections of the society, then it should be insulted from PILs, some of which are inspired by corporate rivals.

If the Government sticks to its present stance, as in the 2G case, of not compensating the investors for loss of investment, then ongoing arbitration and litigation would sully Indian business outlook.

As for Corporate Government Responsibility (CGR), the industry must refrain from seeking post-tender changes in the policies and contracts, which spawned crony capitalism under the garb of economic reforms.

The industry must be willing to pay for its bad decisions instead of expecting the Government, the hapless tax-payer and the bank depositor to foot the bill for bail-outs including corporate debt restructuring.

The concept of CGR should equally apply to the Government as entrepreneur and owner of public sector undertakings (PSUs). The Government has been too generous in bailing out mismanaged and sick PSUs. The prolonged, artificial sustenance of such enterprises vitiates the manufacturing sector, apart from diversion of funds that can easily be deployed for creating more new jobs.

Mr. Modi needs generous applaud for giving a new meaning of FDI to the country's masses yearning for achche din. He has rightly said that for the countrymen, FDI should be First Develop India. For global community, FDI remains an opportunity to investment and generate wealth in foreign markets.

The concept of FDI as First Develop India should be viewed as a national and constitutional duty by all constituents of democracy notably NGOs and the judiciary.

There are several other elements of MII that require analysis. MII should thus become a running theme of national development. It should be developed into clear-cut action points at the macro level, sector level as well as at the industry level.

An analysis on these lines would turn focus on lack of comparative advantage in certain areas and under-exploitation or virtual non-tapping of comparative advantage in other areas. MII can thus pave the wave a few sun-rise industries in areas such as beach sand-based metals, deep-sea mining-based metals, offshore wind power, small arms manufacturing and unidentified aerial vehicles.

Development of MII into deliverable outcomes must also factor in causes that led to deceleration in the growth rate of manufacturing sector and closure of thousands of plants including the monopolistic and oligopolistic ones.

Learning from failures should be the first stepping stone for manufacturing resurgence. And one of our biggest failures as democracy has been reluctance to put duties and rights on equal footing. It is the duty of every citizen to First Develop India in varied ways starting from giving up the habit of littering and going the extra mile in one's sphere of activity.