The Hindu Business Line : National Manufacturing Competitiveness Council

Quietly the Government has set up National Manufacturing Competitiveness Council. It has been made responsible for delivering the goods on so wide a front — evolving policies and conditions which encourage competitive, sustainable and efficient indigenous creation of value through manufacturing sector — as to make its task daunting. But it can profit from similar outfits set up abroad and think-tanks at home.

IN THE medley of media-grabbing headlines covering the visit of the Prime Minister, Dr Manmohan Singh, to the UK and the US, few might have noticed a news item datelined September 17 which was displayed too modestly to reflect its intrinsic importance.

It was the one announcing the setting up of a National Manufacturing Competitive Council (NMCC), a mechanism envisaged in the National Common Minimum Programme (NCMP) of the United Progressive Alliance (UPA). It is commendable that the Government has shown a noticeable sense of urgency in launching it, with Mr V. Krishnamurthy, as its chairman. That completes the easiest part.

The NMCC makes its advent in a context in which the share of the manufacturing sector in the gross domestic product in India is 17 per cent compared to 33 per cent in China, 29 per cent in Korea, 25 per cent Brazil and 27 per cent Thailand and the share of manufacturing export in total exports has also gone down to 0.76 per cent in 2003 compared to 0.8 per cent in 2002.

It is only being realistic if it is pointed out at the outset that the role the Council is expected to play is so daunting and the obstacles and challenges it faces so formidable as to test the mettle of even seasoned veterans in the field.

It has been made responsible for delivering the goods on a very wide front: evolving policies and conditions which encourage competitive, sustainable and efficient indigenous creation of value through manufacturing sector; resolving issues plaguing priority sectors in terms of size, technology, modernisation and so on; formulating and implementing technology missions critical to manufacturing sector such as nano-technology; benchmarking Indian industry against best practices prevalent elsewhere; establishing a nation-wide network of testing and training facilities and attuning them to those practices; exploring sectoral complementarity of India and China; and preparing a time-bound road map on achieving world class standards for the manufacturing sector as a whole as well as for individual industries.

Overloaded with officialdom

Not the least among the NMCC's handicaps is its composition itself which is overloaded with officialdom. Crowding into it are representatives of the Ministries of Finance and External Affairs, Departments of Commerce and Industrial Policy and Promotion, the Planning Commission, and there is no knowing how many more from other Ministries and Departments will clamber on to it as time passes.

It might have been better to have instead made place for professionals, industrialists, academics, representatives of federations of trade, industry and commerce, and sector specialists. Government departments and agencies can always be on call to provide the required data, information and clarification.

The redeeming feature, however, is that the NMCC starts off with the decided advantage of being able to profit from the experience of, and benchmark itself against, similar Councils functioning in the European Union, Australia, Ireland, the United States and elsewhere.

The difference between them and India lies in the fact that the establishment of the Council in those countries, notably, the EU and the US, was the natural corollary of the conclusions of a comprehensive manufacturing report, identifying specific areas for their Councils to focus on and indicating the definitive directions along which efforts were called for.

The US example is particularly illuminating in that, before the Commerce Department constituted the manufacturing council "to advocate, coordinate and implement policies that will help U.S. manufacturers compete worldwide," it carried out an exhaustive study of manufacturing in that country by a broad based group comprising captains of business and industry, and prominent representatives of the academia and think tanks. Not only that, in the period between the submission of the findings of the study in January 2004 and putting the Council in place in June 2004, the Department held a series of Round Tables in all the major States to thrash out the numerous complex issues likely to arise in addressing the tasks of the proposed Council pertaining to the creation of conditions for economic growth and manufacturing investment; promotion of open markets and a level playing field; lowering the cost of manufacturing; investment in R&D and innovation; and strengthening education, retraining, and economic diversification.

The sense of participation and ownership of the ideas generated has boded well for all the players pulling together as a team in making the Council a success.

Not resting on its oars, the US Commerce Department has also begun to discard unnecessary regulations that are creating barriers to free and fair trade and bring about a reduction in the costs of tax compliance, besides assisting manufacturers to expand and exploit their trade and business opportunities.

The Unfair Trade Practices Task Force aggressively enforces trade agreements with countries that do not allow market forces to set economic decisions.

Need for synergistic approach

In this light, the most essential pre-requisite for the NMCC to make a meaningful contribution is to undertake a thorough inquiry into the problems and possibilities in India's manufacturing sector in conjunction with industry associations such as the CII, the Assocham and the Ficci and think tanks such as the Centre for Monitoring the Indian Economy, the National Council for Applied Economic Research and the Indian Institute of Foreign Trade.

Many of them have gone some way in preparing the ground for the NMCC. For instance, the CII has been working on achieving a turnaround in the manufacturing sector, and making Indian companies globally competitive by initially concentrating on sectors of high potential growth such as technical textiles, drugs and pharmaceuticals and providing world-class infrastructure and reducing transaction costs.

Ficci has already carried out a survey of 364 companies with a wide geographical and sectoral spread and turnover of up to Rs 60,000 crore during July-August covering pharmaceuticals, textiles, telecom, food and beverages, heavy equipment and machinery, paper, metal and metal products, chemicals and fertilisers, fast moving consumer goods, information technology, auto and auto ancillary, construction and real estate, steel, cement and petrochemicals.

The participants want the NMCC to give top priority to bringing about flexibility in labour laws and improvements in infrastructure facilities.

Other issues needing special attention, in their view, are: Rationalisation of commodity taxes; creation of a mechanism for speedy exit for sick and unviable units; forging and fostering linkages between industry and vocational training institutions for producing technicians of world standard; revitalisation of the Development Financial Institutions; reorienting the small scale industries reservation policy to enhance competitiveness; and addressing cross subsidisation by industrial users for other user groups in power consumption.

The NMCC could draw on the expertise of the Quality Council already brought into existence jointly by federations of industry and commerce and the Government since its charter includes promotion of competitiveness as its core objective. In short, the NMCC should strive for a synergistic, symbiotic and synchronous strategy pooling resources, talents and ideas rather than getting embroiled in a turf war.

This approach is particularly vital in India where, unlike in other countries, there is no single association of manufacturers, and every sector has its own association and works in isolation from others.

India's competitiveness is not a virgin field. It has been the subject of study by many competent observers abroad, providing plenty of clues on the lines along which corrective action needs to be taken.

Foreign investors' complaints essentially stem from excessive official interference, excessive indirect taxes, high tariffs, differential tax rates for foreign companies, substandard infrastructure and weak protection of intellectual property.

Only last year, in a report of the World Economic Forum on the competitiveness of 102 countries based on 80 indicators, India was ranked among the last dozen countries in a number of critical areas (See Table).

With all this material, it should not be difficult for the NMCC to come out within the first three months with a blueprint for immediate action. The impact that it will make thereby will be truly tremendous.