By Col P Chandra (Retd)
India has transitioned from Make in India to Make in India for the World. It is encouraging to note that Indian policy makers have decided to focus on making India a trading nation. Buying and selling of goods and services is called trade. The buyer pays compensation to the seller or there can be exchange of goods and services between the trading partners. Trade takes place all the time within an economy, between producers and consumers. But if a nation wants to significantly expand its market for its goods and services, it has to aim for a significant slice of international trade. Global trading between nations allows consumers and countries to be exposed to goods and services not available in their own countries at competitive prices and range of quality. But international trade has more competition with large range of choices & quality and where prices are also competitive. Things become more difficult due to multinational policies and protocols for imports and exports between countries.
This new determination to make in India for the world shows the desire to grow its economy more efficiently by participating in global economy. Through this policy India also wants to increase its efficiency in production of goods and services and encourage increased foreign direct investment (FDI). India wants to attract foreign investment and also technical expertise to enter the country. It will also raise employment levels and will lead to growth in gross domestic product (GDP). This policy of Make in India for World also aims to take advantage of China’s negative image due to Covid pandemic. The policy makers hope to improve the trade deficit situation by increasing aggregate export and reducing imports.
But to achieve this aim Indian policy makers and its bureaucracy will have make fundamental changes in its various policies related to land, labour, capital and technology. The ease of doing business will need a thorough overhaul. India will need to focus on products and services where it has comparative advantage or where it can gain comparative advantage if it can replace China and few other countries. For example India needs to improve and expand its expertise in products the world buys most. Some of these products are medicines, active pharmaceutical ingredients (API), electronic components, electronics finished goods, machinery, automobile, power generation & transmission equipment, solar panels, textile & apparel, organic chemicals, telecom products & solutions, tourism including medical tourism, defence equipment, aviation maintenance etc. To be successful in this journey our policy makers and state governments will need to focus on deep reform in the following areas:-
(i) We will have to find ways to reduce input cost to compete in international trade. Some of the areas which need government’s attention are various types of duties on raw material, improvement in supply chain to reduce time, improving land acquisition process & reducing cost of land, improvement in power availability situation, simplification of tax refund system.
(ii) Easy availability of capital at low interest rates.
(iii) Availability of better skilled labour as the aim should be to make India a component manufacturing hub and not merely assembling components manufactured outside India. But component manufacturing requires deep design capabilities and latest manufacturing expertise. It does not come easily and requires serious and prolonged focus by the government and the manufacturer. We must attract Joint Ventures and Foreign Direct Investment immediately.
(iv) Central and State Governments need to spend significantly in setting up R&D facilities and Design & Innovation Centres. Government also need to set up standards and quality infrastructure and make them available to manufacturers and entrepreneurs.
(v) We also need to build efficient ports and roads to reduce turnaround time drastically.
(vi) We also need to enter into separate trade agreements with different trading blocks. Days of WTO are over.
Our policy makers need to identify areas of comparative advantage where India can compete. For example China’s comparative advantage with the United States in the form of cheap labor. Chinese workers produce some consumer goods at a much lower opportunity cost and sell it in USA. USA’s comparative advantage is in specialized and capital-intensive goods where labour is not cheap. American workers produce sophisticated goods or investment opportunities at lower opportunity costs than in many other countries. India must avoid following the old route of protectionism. By imposing tariff India can gain immediate local benefit. However our industry will remain uncompetitive and therefore protectionism is not a long term solution in international trade. Our government must not succumb to narrow interest of few lobby groups who want higher tariff on imported goods so that they can remain inefficient and yet sell their inferior products within the country. Being competitive in international trade will result in increased efficiency and will allow Indian industry to participate in global economy.
