Can’t make Indian manufacturing globally competitive by imposing tariff barriers: Pawan Goenka


A lot of work is needed in the field of technology, says the MD of M&M.

Do you think India can become a self-reliant country?
Let me first try to put self-reliance in perspective. Self-reliance means we should not be at the mercy of any other country to meet our requirements or to grow economically and socially. Self-reliant does not mean we go into a cocoon. It does not mean we do not import anything because if we do not import anything, we probably would not be allowed to export anything and that will isolate us. The world today is connected. What we need to make sure is that we export more than we import.

Today at least in manufacturing goods, it is the other way round; where we import 25% more than what we export. We need to turn that around and export more but we certainly should not get into a mindset that India should stop importing completely. We should do things that we are good at and become better at things that we are not so good at and let us not take any sort of an ad hoc knee jerk reaction to being self-reliant because it does not mean that we do not import. It does mean that we do not depend on others. We should gradually increase our export and reduce our import.

If I look at the Indian manufacturing sector which you proudly represent, there have been only two success stories: autos/auto ancillary and pharma. If India has managed to excel in both auto and pharma at a global level, how come India at the manufacturing level and other basic industries still suffer?
First off all, the reason auto and pharma have succeeded the way they have succeeded is because there has been a very clear coordinated effort between the industry and the government where the government has supported the industry to grow and industry has invested and has come forward to say how do we become globally competitive. It does not happen in one day.

If I go back to the auto industry to the days when Maruti came in, we were hardly an industry. It is over the last 30 or 40 years that we have gotten to a point where we are absolutely self reliant. We probably import as an industry no more than 5% to 7% of what goes in our cars and we export about that much. So we are certainly self reliant but it happened step by step. If I go back to the 80s, India did not have competitiveness at all in terms of making the components and the first step was to just become competitive. The second step was to bring in technology, the third step was to start exporting. So it all happened in a very planned manner and I cannot say somebody sat down and wrote this down and say this is a strategy but certainly if you look back and if you do a case study of how an industry has really come from nowhere to becoming a global level industry both for pharma as well as for auto I think you can write case studies very clearly and demonstrate what has happened.

Now we need to do the same thing for other industries and there are some that have come in forward. For example, there is a lot of focus on the mobile industry and that is getting toward self reliance but there are many other industries that are fragmented where there are no national champions. You do need large players of course. You need to support MSMEs but without large players who lead the way, it is very difficult for the industry to have the complete wherewithal to have the competitiveness, to have the technology, to have the ability to attract markets and to ability to grow the demand. The government has to work very closely and you will see the departments of government which are very proactive and supporting the industry moving forward and doing well. I am very happy to say that there is a lot more of that happening today than two, three, four years ago.

India has a couple of obvious challenges which are land, labour, high cost of capital and high taxation. Do you think we are nowhere close to what global manufacturing hubs are?
This is obviously a very major issue for us to resolve because I do not believe that in the long term, we can make Indian manufacturing competitive by imposing tariff barriers or by imposing licence. In the long-term, we have to be competitive in the markets. Similarly, exports cannot happen in a big way unless we are competitive at the global scale. Now competitive means two things. One is cost and second is technology. If we do not have the technology that is equal to the best in the world, we will never be close to the best in the world and that is one area where we have to do a lot of work. Technology does not mean we have to do it all ourselves. Again, self-reliant does not mean we should do everything ourselves. Technology also can come from outside, come from joint ventures, from licensing and from buying. So that is one piece.

But the second piece that we really need to focus on is cost competitiveness. We have problems in many areas. Some of it the industry has to fix and some of it the government has to come into help the industry to fix. There are many numbers. One I think for India to become cost competitive is the logistic cost and infrastructure where we are really amongst the bottom quartile of all major nations. The speed at which the cargo can move from point A to point B especially for import and export and the cost of moving the cargo in India is amongst the highest and that has to come down. We have to really look at the root cause of why that is so and bring it down.

Second area that makes us non-competitive is the cost of industrial power where overall India is at the weighted average level; perhaps same as most of the other countries, may be even lower. But when you look at industrial power, because of subsidies, India is more expensive and in many goods power is a significant input cost. Therefore, that makes us non-competitive.

The third one is taxes. While we have this scheme called RODTEP that was recently announced a scheme and that will help us to not export taxes but it is very important that we do not make our goods more expensive for export because of internal taxes and leverage. Of course tax and leverage have to be there. Government has to earn revenue but we should not let that make us non-competitive. So that is what the government has to focus on. But if I come back to the industry, the biggest problem that we have and why we are not competitive is not having a large scale.

China was not built in one day. China was built over three decades with a fairly focussed approach on building stake and you cannot sort of offset in terms of cost and India in very few auto is one example. Pharma is another example where we have scale but in many industries, we do not have scale and therefore industry has to come forward. There have to be national champions who will take a leap of faith and put in investment to make large scale infrastructure available for any given sector. Number two is productivity. While we talk about low labour cost on a per hour basis, do not think India has reached the level of productivity that one requires to be truly cost competitive and we need to focus on that and that is the responsibility of the industry to do that.





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