The time for Indian manufacturing to bask in the sunlight has come, however shrouded in archaic laws and regulations, dimmed by a weakening economy and lack of government support, manufacturing in India might remain away from the limelight.
Explaining how India could have been a China by exploiting her comparative advantage, Shankar Acharya, former economic adviser to the Indian government told the Financial Times “Over the past four decades, India, like China before, should have become a big producer and exporter of clothing, shoes and toys. Instead, highly restrictive and old-fashioned labour laws have undermined the advantages of India’s low nominal wage costs and discouraged formal employment, driving employers to hire casual labour and keep their firms as small as possible.
Add to that a recent survey conducted by PwC and FICCI titled — “India Manufacturing Barometer”, which finds that the major growth barriers to Indian manufacturing are higher interest rates, lack of domestic demand and other concerns like pressure for increased wages, legislative or regulatory pressures, decreasing profitability and increased competition from foreign markets.
Compound this with India’s notorious bureaucracy, poor transport and electricity infrastructure, and the occasional imposition of retrospective taxes and you have a recipe for driving away both Indian and foreign prospective investors.
Yet, what persuades companies to set up factories in India?
Its the sheer potential of what can be – the market of a billion plus people with an annually increasing disposable income, a rapidly developing economy and the opportunity to leave with multi-fold higher dividend payouts. While often the hassle might not be worth the return, companies are eager to exploit this possible potential. Similar on a smaller scale to creating applications for mobile phones, a company never knows when things might work in its favour and a large investor might buy it out, foreign companies don’t know when India might work in their favour and reap rich dividends.
Regardless, India needs to buckle up and focus on her manufacturing sector, with companies keen to invest it will be a disastrously missed opportunity!