THE EXCHANGE. What’s the sweet spot in policymaking?

National, sector-agnostic competitiveness is central to India’s growth and creation of livelihoods on the back of that growth. To cover lost ground we must evolve solutions to fragmented approaches of the past, which obstructed India from being an industrial powerhouse, and keep us exposed to significant threats even in our home market, especially from imports.

I expand here on my thoughts written a while ago (without being critical as is becoming trendy) but to constructively articulate a thought process.

Ease of doing business is occupying significant mind-space, but the real challenge is to go beyond mere simplification of procedures. We need a strong link running through relevant areas, binding policy formulation and implementation. Without this we continue to have many areas where actions end up contradicting intentions in another area. Recent months have seen positive actions to improve ease of doing business but regrettably, actions and formulations happening in compartments frustrate the competitive ability of doing business.

Unless a sweet spot profitably bonds both zones, dreams of growth and accompanying livelihoods — be it employment or self-employment — will remain just that: dreams.

It is clear from stressed financial results even in a depressed and deflationary domestic market, and from contracting exports, that our global competitiveness has fallen. We must think outside the box to advance our potency. Put simply, no enterprise — be it foreign, domestic or even a mom-and-pop venture — flourishes in an environment which does not exhibit “competitive, cost-effective, or profit-friendly” habits, irrespective of how easy it may be to conduct business. Achieving this requires a much-changed mindset across government, business and society.

‘Make in India’ is described on its website as “a major new national programme, designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure”.

This initiative is consistent with a belief that a coveted global position in manufacturing is achievable. But to my surprise these aspirations do not spell out any need to enhance our competitive and productive strengths, or to build scale or to join in the global supply chain. Such vital considerations must become an integral part of the vision.

Cost of capital has been often seen as a serious impediment to our being truly competitive. The reality is that our interest rates are steered by inflation, which in turn is more driven by supply-side and sometimes distribution issues.

A surprising reality check is that commerce and industry display flawed happiness in seeing miniscule cuts, sometimes as low as 25 basis points (sometimes not fully passed on).

A true zero-base budgeting based on the premise of competing with the world actually calls for structural changes in the way our cost of capital (interest rate and maturity) gets built up. There are no easy answers, since all this can impact international flows and currency rates. But the fact remains that we need a quantum shift to effectively support infrastructural and manufacturing effectiveness.

We speak time and again of improvements in tax laws and practices; but, as any businessman will confirm, frequent changes in direct (and even more so, in indirect) tax matters leave much to be desired. Laws tend to be punitive rather than promote hygiene, and a corresponding power is handed to inspectorates. Sooner rather than later such steps could destroy confidence.

We do not really debate a systemic solution to the root of the problems in indirect taxation but try to address it through frequent notifications, which is counterproductive. We would probably do better to base decisions on long-term competitive benchmarks and make up our minds on what “embedded taxation” can a product bear and still be competitive. Even a comprehensive GST with a sound architecture and enforcement may not yield expected results if, at the end of the day, indirect taxation continues to be repeatedly tweaked.

A huge part of the GDP and growth of many developing economies is directly or indirectly based on proper exploitation of natural resources (for example, ores to metal, limestone to cement) to add maximum value via manufacturing and processing.

There will always be a dichotomy in pricing of resources to maximise revenue to Union and State exchequers. Sometimes maximisation takes the form of multiple levies and barriers, which in difficult markets can only render Indian produce uncompetitive. An analysis of underlying costs in competing countries supplying many of our commodity imports will throw up startling results vis-à-vis our own effective costs.

Such analysis can go on, but we need to move to solutions. The government has been publicising key advances in the ease of doing business through simplification of procedures, transparency and in effect trying to rely on a larger “trust” factor between enterprises and government. This is happening at both Union and State levels, and is welcome. But these efforts remain incomplete because improvements on procedural fronts cannot deliver results without changes on the “substantive” front. The latter needs to be delivered at a much faster pace.

A comprehensive study seems to have begun on the effect of FTAs on our manufacturing sector and one looks forward to a good outcome. I believe much work needs to be triggered on tax (direct, indirect and administration), on customs duties, and on import/export regulations where a number of changes take place every year, and changes in labour/factories laws and sector-related regulations.

The manner (not merits) of a recent food-related controversy shows that India holds enormous risk of regulatory confrontation that the country is ill prepared to resolve speedily. No amount of ease compensates for such systemic weakness.

The time-honoured idiom, “God is in the detail”, expresses the idea that whatever one does should be done thoroughly; meaning, details are important. Its thwarting counterpart, which seems to play a larger role, could be, “Devil is in the detail”. Let’s carve out a sweet spot that embraces and bridges both ease and competitiveness.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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