Make in India vs the bureaucracy

Make in India is the flavour of the day. In fact, it is being bandied about with great aplomb at most industry forums, and those of us who are manufacturing aficionados are waiting with bated breath for the lion to roar. Two years have gone by and while we are still optimistic, something appears to be amiss.

The biggest problem that all of us, namely, policymakers, industrialists, investors, startups and others face is which button to press to let the lion loose.

No one seems to have an answer to this, and while the bureaucrats are always asking for those ‘two-three key changes’ that will make the difference, the political brass is looking for the “big bang” that will open the floodgates of investments in manufacturing.

The Union Budget has brought a smile or two for the manufacturing fraternity of the electronics systems design and manufacturing (ESDM) sector by pushing the differential duty measure further.

It has also announced a number of changes in the indirect tax structure to strengthen the manufacture of IT hardware and mobile phones. There is a clear indication that the differential duty structure for mobiles and tablets which was introduced last year is being taken to the next level by including components and parts for chargers, batteries, wired headsets and speakers to nil duty on actual user condition.

While all these are steps forward, the challenge still remains in high value-added manufacturing, and mitigating the high-risk scenario faced by investors in manufacturing.

We must recognise and understand that an investor in value-added manufacturing, that is, beyond mere assembly and testing, has to make a very long-term commitment. For him there is no looking back.

In this scenario it is unrealistic for India to expect that long-term investments will flow in if there is a sense of uncertainty with respect to the business environment and policies. If we analyse most of the larger investments from global companies in recent days, these have all been in SKD (semi-knocked down) assembly of products which is characterised by low investment, low capital output ratio, and thus lower risk and long-term commitment.

From this, it’s clear that the key to success in making India a manufacturing powerhouse is to provide stable and supportive policy, mutual trust and predictability in responses to investors, besides an efficient infrastructure.

A recent example of the lack of trust and extremely conservative approach in policymaking is the rule on import of goods — the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (IGCR 1996).

IGCR allows the import of inputs for manufacture of electronic components at nil customs duty on actual user condition.

While the import of electronic components is allowed at nil duty, their inputs require a cumbersome procedure under IGCR. A change in these rules had been sought since the last eight or ten years; this finally happened in the Union Budget for 2016-17.

Unfortunately, the new version of the rules, namely IGCR 2016, once again demonstrates the Government’s lurking suspicion of the corporate world. While the approval procedure under IGCR has been shortened, the mistrust factor is highlighted by the introduction of a third party “surety” to cover the duty foregone by the importer.

Since last month, when these rules came into force, component manufacturers are running from pillar to post to find a third party to provide a surety for them to import their essential inputs!

To make matters worse, each customs officer is interpreting the rules according to his/her own understanding.

This government has started the Ease of Doing Business campaign with much hype and positive intent. Regrettably, there is still a big gap between intent and reality on the ground.

The Government’s earnest intention is not in doubt but the written policy and its final implementation are at complete variance. Elcina, the Electronics Industries Association of India, sincerely believes that the Government must detach itself from governing what does not need governance.

Possibly what is required is a massive movement on the lines of the Swachh Bharat Abhiyan to transform the thinking of officials who are refusing to change with the times.

The licence raj mentality to distrust and control persists. The manufacturer must be given the benefit of doubt.

Speed and ease of doing business have to take precedence over all else.

I would go to the extent of saying that if a manufacturer in India breaks the rules or cheats on taxes, he can be brought to book. The evaded taxes can be recovered. But letting the manufacturing opportunity go to other countries is opportunity lost for all time to come, and the worst thing we can do to our country and our people.

Let us stop making the lives of our manufacturers miserable and give them a chance to prove themselves.

With a globalised world and cutthroat competition, they already have enough to contend with. Let us allow them to work honestly and earn profits and revenues for our economy.

Don’t spare them if they cheat the exchequer, but don’t hang them before they do!

The writer is the secretary-general of Elcina

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