Budget 2020: Govt must take bold steps to bring private participation into infrastructure building to spur demand

The importance of the manufacturing sector, both in terms of generating good quality jobs and contributing to economic activity cannot be overstated. Particularly, at this juncture where we seem to be challenged on both of these aspects. The important question that everyone has is, what should we be doing to revive the manufacturing sector to and grow fast—not just in the coming year, but for several years to be able to pull a large number of fellow Indians out of poverty. Given where we are today, we have a great opportunity to reimagine manufacturing and make the sector globally competitive. This is likely to call for imaginative and difficult steps—the good news is this administration has the mandate in its favour and has shown it has the willingness to take difficult steps. Demand creation One of the largest sources of demand for manufacturing products is the government’s investment in infrastructure and building assets. However, because of the constant pressure on the government’s fiscal balance and the falling share of the capital expenditure in the government’s total spending in recent years, the demand for manufactured products can potentially remain muted. Recognising this, the government has announced the plan to spend over Rs 100 lakh crore on infrastructure. Given the size of the outlay, it may be time to take bold steps to bring private participation into infrastructure building at levels we have not seen in the past through innovative partnership models that are equitable to all stakeholders. This will likely spur demand and in a more efficient manner. The role the government should play here is as a facilitator of the implementation of projects. There are a number of areas only the government can contribute—land acquisition, environment approvals, consensus building with stakeholders, etc. Today, most of the project delays are on account of one or more of the above. Supporting investors with these processes will help achieve infrastructure building goals with greater efficiency. Manufacturing competitiveness Land, power, material and capital costs in India are high as compared with the countries we seek to compete with. To illustrate this, let us take some sectors of the future like cell phones, computing hardware, electric mobility products, solar energy products, etc. We seem to be assemblers of these products rather than manufacturers of components, which are imported from the Asian region. [caption id=“attachment_7289551” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] In order to make our manufacturing sectors competitive, they have to transition to a new and exacting definition of competition. Joining trade blocs like RCEP can achieve this—the government should consider doing this in a pre-defined timeframe after critical safeguards are established. This will mean disruption in the short-term, but the sectors or firms that survive will be far stronger and have the ability to prosper in markets outside India. The extent of value addition in manufacturing is pretty low. It becomes vitally important to substantially increase research/innovation capability in the country. To begin with, our best academic institutes must be encouraged to focus far more on research and promote innovation centres that benefit the manufacturing sector on a commercial basis. Two, the private sector must be actively supported to create innovation ecosystems in the country. This could include accessing the remarkable research infrastructure the government has created, which may have to be opened up more to operate on a commercial format. Manufacturing of the future would call for far greater appreciation of what defines competitiveness and creating a platform to address the same. This is probably best done by an independent entity that has a life beyond a particular administration—we have the examples of Japan and Korea that have become manufacturing powerhouses with such organisations playing a significant role in shaping their manufacturing sectors. Greater push on EODB We have made a great start in improving the ranking in ease of doing business. However, we are below the countries we aspire to compete with on some critical parameters. Keeping up the focus on improving the ease of doing business to being a strategic differentiator rather than to catch with these countries will be important. For example, the areas of focus could be increased capacity to dispose of legal disputes in a timely manner, superior infrastructure to bring down the cost of operations, lower cost of compliance, etc. These cannot be done in a year but have to be urgently addressed. There is a need for urgent action to enhance the competitiveness of the sectors where we have been a dominant player and invest in the manufacturing sectors of the future. As a country, we have shown remarkable ability to respond well when in a really difficult situation. Now is the time and opportunity to be decisive and build strong foundations for the manufacturing sector for the coming decade. (Kandaswami is Partner, Easwaran, Partner, Deloitte India. Rumki Majumdar, Associate Director, Deloitte India also contributed to this article) Follow full coverage of Union Budget 2020-21 here