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Modified economy needs policy churning to build manufacturing hub

 

It was 1980. Two friends of mine, a German and a Japanese, had come, on a visit to Delhi. I took them to a consumer fair being held at the Pragati Maidan, the national exhibition ground.

After visiting various stalls manufacturing needle, shaving blade, cosmetics, sewing machine, machineries for domestic use and light machineries, they asked, “Do not you (India) import anything?” It was a pride moment for this Indian. Two foreigners whose countries depended heavily on imports were dazzled by our manufacturing. The country had developed a strong base. Soon after there was news that India-made Ashok stainless blades were being exported to some European countries, including Switzerland.

India had the pride in its indigenous products, something that prime minister Narendra Modi wants to recreate. His Independence Day message to give boost to manufacturing and take pride in “made in India” has been the dream of every freedom fighter and at least the first generation rulers. Reviving the manufacturing requires many efforts, policy changes, strengthening rupee and curbing inflation.

The year 1980 was the epitome. India had started producing steel, power generation equipment and BARC was developing a super computer for its nuclear research, reactors and power plant, ISRO doing wonders despite US ban in the post-Pokharan-I nuclear test.

Even foreign collaboration, that is how FDI was described in early years, like Soviet Union for steel, Japanese companies Nissan for defence production, GAerman company Benz for commercial vehicles, Italian two-wheeler producer Piaggio and many others in various field were not an anathema.

The country became a major producer of television, transistors in the post-1982 Asiad. It might have been called screw-driver technology as most parts initially were imported and later indigenized. Even exports of TV had begun in a small way.

The underlying concept was to create strong manufacturing base in the country. Modi has echoed the same feeling.

But during the past over three decades, India faces the problem of surrendering whatever it had achieved to a culture of imports or production by foreign companies. Let us not forget that the country had diverse aerated drinks. Each region had its own brand. It has been lost to the predatory moves of two US companies. None stopped them.

That unfortunately became the model. From mid-1980s through 1990s and 2000-10, the country may have earned a few dimes in FDI but lost out on its pride and strong base. Its indigenous manufacturers lost on many or rather all areas. A few vestiges that remain like heavy vehicles manufactured for defence, though many of it with foreign technology, have survived because of protection from market competition.

India is having problems in revival of its manufacturing which has almost reached its nadir. It no more produces refrigerators, TV, electrical goods, toys, crackers and so many more which were produced regionally. Even Khadi products and Murshidabad silk are facing severe erosion because of imitations being imported from China and South Korea.

Much of it could be attributed to the way the country acquiesced or succumbed to WTO pressures in signing different agreements in the name of multi-lateralism. It opened up flood gates. Chinese goods be it toys, mobile phones, fancy items, electrical and electronics goods or crackers, were being smuggled in earlier. Now post-WTO they are being imported along with many other goods.

Unless the nation strives to change the WTO rules and create tariff barriers, for which a small beginning was made this July, it would not be easy to stop imports of unnecessary goods, which the country had been producing itself.

Chinese goods have cost advantage. Even after being imported they are eliminating the indigenous products, which have become expensive as the country is having run away inflation, a concern expressed even by Moody’s. Inflation is increasing costs of lifestyle, labour, living, labour (LLL) and transportation. It makes manufacturing uncompetitive.

The higher wages have not led even youth to the market as most of them do not have disposable extra or savings. It is being lost in buying food, the prices of which shot by 44 per cent. Indian inflation is high even from global standpoint, say Moody’s. Unless we check inflation and get out of the syndrome that “price rise is a phenomenon” much of the efforts this country is keen on making would be lost.

Sivakasi cracker manufacturing comes to a halt as the manufacturers prefer to import it. So it  is with most other products.

Cheap Chinese watches have ruined the pride of the nation, public sector HMT. Hand-wound watches cost around $ 2000 (Rs 1.20 lakh) in the US. India has not tried to enter that market to compete the world watchmakers. The public sector is not a bad word. They have given an edge to this country.

The HMT watches and similar other products need to be revived to bolster the impression that India can produce quality products. It may mark the beginning of building brand India dream of Modi.

It also has to come with efforts to strengthen rupee and the domestic market. Fledgling rupee was at Rs 25.79 at the beginning of liberalization in 1991. It hovers over Rs 60 now. What have the much touted reforms given to this country?  The Modi government should try to bring rupee back to at least the level of 1991. Weaker rupee boosts exports is incorrect.

A stronger rupee can bring down the cost of living and inflation. It requires a policy change – a break away from what is called Manmohanomics.

The country needs a Modified economy junking most off World Bank-IMF “reforms” prescriptions to not only revive the domestic economy but also lead the world economy to new highs. It is not an easy task but people have great hopes in the new NDA leadership. They want Modi to lead the country through policy changes, boosting morale of Indian entrepreneurs, reviving small and medium entrepreneurship and make agriculture base of his economy.

It also needs to decouple dollar-based petroleum prices. The 30 plus percent of petroleum and gas produced in the country has to be priced in rupee. Then only the first step to strengthening the rupee would be taken.

India has the capability to become global manufacturing hub provided rules are simplified, cost of living is affordable and entrepreneurs and not officials are looked at with pride. It calls for ushering in a new economy with new domestic-oriented policies.

 

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