Financial Daily from THE HINDU group of publications
Thursday, May 16, 2002
Industry bodies must reinvent themselves
POLITICAL hubbub has now shifted from the floor of the Lok Sabha to the meetings of industry bodies. And not even the country's leading industry association is spared. It was thus awkward that the CII's recent annual general meeting turned into a political arena where the Prime Minister, Mr Atal Bihari Vajpayee, and the leader of Opposition, Ms Sonia Gandhi, hurled verbal missiles at each other on the issue of the Gujarat Chief Minister, Mr Narendra Modi's resignation. Foreign investors appeared taken aback and exasperated, and wondered how the participants could indulge in political bickering at such an important event, and when the manufacturing sector was mired in recession.
The year 2002-03 is crucial for industry. It will see the launch of the Tenth Five-Year Plan the first Plan after the 1950s where several regulatory barriers have been scrapped, starting from the licence raj to quantitative restrictions on imports. The road lies open for second-generation reforms. However, though the domestic barriers have been largely removed, global pressures continue to impact the manufacturing sector. China's entry into the WTO and its emergence as the world's workshop has cast a shadow on the future of Indian manufacturing.
Economic liberalisation has become the bane of Indian manufacturers and their associations. Till 1991 the main function of industry bodies was to "liaise" between government and industry. They were accorded high priority on two occasions: One, to recommend for the Union Budget and Exim Policy and, two, to represent, from time to time, industry captains' outcries for protection. At most annual general meetings held before 1991, the performance review of industry associations used to highlight two aspects: How much protection the association could provide its members against foreign competition, and to what extent they could tinker with the tariff structure to benefit domestic industry.
But post-liberalisation, industry groups have been left with little role to play, with the licence raj gone, tariffs almost halved and quantitative restrictions on imports done away with. Trade and economic policies are under constant surveillance by such global bodies as the WTO.
All this has led to a re-thinking about the significance of industry association and chambers of commerce. To keep their interests alive, the associations have entered non-liaison activities, such as organising fairs, seminars and workshops, and signing of MoUs with foreign missions. While the initial motives of these new activities were to woo foreign investors and businessmen by filling the vacuum between demand and supply and providing a platform for government-industry interaction, they were soon found ephemeral.
What, then, should be the new role for industry associations and chambers? As in other countries where the industry associations work under complete market economy, industry bodies should consider new activities, such as business promotion. The vision for industry associations should be to provide business support services to its members. These include setting up business support centres in their overseas and regional offices and providing both hard and soft services to members. Hard services include temporary business space, at a nominal cost, and such infrastructure facilities as communication services, while soft services include business advice by experts, development of contacts and helping in negotiations. Business support services are crucial overseas.
The second important function should be the dissemination of commercial information, which would serve as the database for members to draw up their business strategies. Information on production, consumption and inventory, which are the benchmarks for designing sales strategy and setting up new businesses, is difficult to come by. In India, the associations depend largely on government data whereas in a developed country such as Japan, the associations themselves are the main sources for information. With the fast-changing market milieu due to the liberalisation of imports, quick dissemination of current information is essential to devising effective business strategies.
The third important role of the association would be to energise the new areas that are the engines of growth in the economy, such as IT, telecommunications, banking and de-nationalised sectors such as oil and distribution. Huge investments are needed for growth in these areas. As it is difficult for Indian entrepreneurs to put in the investment needed, foreign funds are the answer. In this backdrop, industry associations should be more active in attracting foreign direct investment. But the general feeling is that the MoUs are gathering dust, with the industry captains' aversion to the entry of MNCs.
Last, a major new role is to consolidate the activities of industry associations export promotion councils and strengthen India's export base, which is now confined to the small-scale sector.
Much work, thus, lies ahead for the industry bodies to contribute to the restructuring of industry from the point of view of globalisation; the government alone cannot refurbish the economy with fiscal incentives and deregulation.
(The author is a Senior Researcher with a New Delhi-based Japanese MNC.)
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