Steps that the Modi regime has taken to kick-start the domestic economy are many, and they have the potential to bring about important changes. But the Indian corporate sector has to sincerely put its weight behind the drive
The war is official. India’s prowling lion is pitted against the howling dragon. The day Prime Minister Narendra Modi launched his morale-boosting ‘Make in India’, China also launched a ‘Make in China’ drive — an indication that the dragon wants to extend the “regional war” threat beyond the borders.
Mr Modi, industry leaders say, has boosted the confidence of the nation. Asia’s third largest economy is showing signs of clawing out of its slumber and slump. The nation hopes he will be able to engineer a turn-around — a mantra for changing the face of the country. He has suggested the beginning as well — ‘first develop India’, a new meaning to ‘Foreign Direct Investment’.
The ‘Make in India’ drive is an aggressive process to attract investment. The 25 sectors include almost all which can take the country on a stride. Mr Modi in his speech appreciated the small sector ancillaries’ carving out the sophisticated parts for the Mars mission, indicating that even khadi and the small-scale sector are a part of his mission.
The decision has come at an appropriate time. Manufacturing and industrial production has touched a bottom. The challenge is not just of raising production but also facing competition from China in terms of pricing. For instance, a compact fluorescent lamp from China is available for almost one-third the price of an Indian make.
The same day that he launched his new mission, Reserve Bank of Indian Governor Raghuram Rajan expressed concern over rising inflation, despite the fall in rate. Mr Rajan said that, even with some deceleration, it has a high base. Thus, a crucial lubricant — the cut in lending rates — is not possible. The banking cost has also gone up for various reasons, a major one being the high non-performing assets. It means either repayments are delayed or they do not come. It was witnessed recently that the defaulters were large corporate, who have not repaid over Rs 70,000 crore.
The corporate sits pretty on its almost over one lakh crore rupees as reserves. It earns them high interest as they lend it out on commercial rates while they access bank funds at reasonable rates. Mr Modi would have to take a call on corporate lending. The rise in manufacturing should not be at a risk to the banking sector. The 2008 financial crisis is too recent to be forgotten. Similar approach by the US and European corporates had denuded banks and financial institutions, just not the lehman Brothers but even the US Government arm, the American International Group.
Good missions, whether it is Mars or manufacturing, may have their flip side, if caution is ignored. The nation has to increase financial surveillance while giving a boost to the process of manufacturing.
Mr Modi has also been candid on India’s poor, poverty and purchasing power parity that stalks the market. He wants multinationals or other corporate to change through the new FDI — first develop India. This is an opportunity for the corporate. Will they do itIJ In the past, when the Indian corporate had monopoly over manufacturing to licence and permits, it utilised these to keep off competition and dish out poor quality products.
Despite verbal support and praise heaped on the Prime Minister by the biggest corporate leaders, Mr Modi has to take it with a grain of salt. The corporate — multinational corporations or the desi — are more concerned about their profits and developing themselves.
During the last 24 years, they have been demanding access to every market but want the Government to address the critical issues — as if Governments are meant to be in their service and only for their benefit. Mr Modi’s call is appropriate but getting the corporate to do it would not be easy. Since the 2008 global crisis, they have clamoured for incentives (subsidy) but opposed subsidy for the poor.
His dream of creating the country as a production hub is important. It would require a deft and aggressive foreign policy. The announcement of his policy on the day he was leaving for an official visit to the US signalled a lot. Despite its own problems, the US economy sustains many other economies. The recent strides by countries like South Korea are led by booming exports to the US. India would not like to miss it.
India has to understand that South Korea is a political front for the US against China. India, though, fits in a category viewed as ultra independent vis-a-vis the US. The same level of support from US President Barack Obama is difficult to come. The US has expressed its desire to build India into a global power. The relationship, however, between the two countries, has remained at sub-optimal level. There are some silver linings too. Despite intellectual property rights issues, some US pharma companies are prepared to sell some vital drugs at one per cent of its US price in India.