Industry is shackled by skewed policies

The Modi government started off by saying all the right things: Digital India, Make in India, Clean India, Skilled India, Internationally-engaged India…

It is time now for follow-up action. All arms of the government need to do their bit to make achhe din happen. The HRD ministry getting its act together on education and skill development can accelerate ‘Make in India’.

The finance ministry delivering on GST and reining in fiscal deficit, thus leading to interest rate reduction, is very important. The power ministry ensuring generation of more power at lower costs and getting the nation connected with sufficient transmission capacity, is necessary for ‘Make in India’ to gather momentum.

High input costs But it is also critical that the commerce ministry undoes past mistakes. Sadly, there is no visible action. The commerce ministry’s functioning during the last decade has slowed down the ‘Make in India’ effort.

It has provided uncalled-for protection to almost all products made by less than 10 manufacturers, through anti-dumping duties and BIS certification requirements.

This has made metals, plastics, polyesters, viscose, tyres and cement a quarter to several times costlier in India than internationally.

The result is an adverse situation for value adding manufacturers and infrastructure builders, and has added to the cost of logistics and road transport.

India has signed free trade agreements (FTAs) only with less developed nations, to which no labour-intensive manufactured goods can be exported.

On the other hands, FTAs with EU, Canada and Australia, which can boost labour-intensive sectors and agricultural raw material-based sectors, is still a work in progress, with no clear road map ahead.

Export incentives, meant for labour-intensive and net foreign exchange earners, are instead being given to products and sectors which are least deserving.

Pricing it right Textiles, a highly labour-intensive and net foreign exchange earning industry, gets zero to 2 per cent, furniture and pharma chemicals, with a significant import component and little labour, get 5 per cent, and products with the lowest net foreign exchange earnings and least labour, namely set top boxes and push-button telephones, get the highest incentive of 7 per cent. Surprisingly, the commerce ministry has extended this foreign trade policy for one more year.

Correcting these aberrations is not difficult. By simply removing the uncalled for protection given to monopolistic companies and applying the foreign trade policy strictly as per the stated policy guidelines, both exports net foreign exchange earnings can be increased substantially.

This will also give manufacturing a huge push with right-priced raw materials, metals, plastics, synthetic and man-made fibres, cement and tyres, bringing down inflation further.

‘Make in India’ will then get kick-started, even if the ease of doing business takes time to improve. With GST possibly a year away, important raw material and infrastructure creation costs and logistics costs could drop by 15 to 50 per cent.

The writer is the chairman of Loyal Textiles

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