Event ReportsPublished on Oct 15, 2019
‘Analog’ mindset in digital era hindering manufacturing growth

“The promotion of exports of goods and services from the SEZs is not the only objective but is one of the key objectives of the Government’s SEZ policy from the start,” said Sunil Rallan, president of the Tamil Nadu Association of SEZ Infrastructure Developers (TASID).

Initiating a discussion on “Sino-American tariff-war: Missed Opportunities for India” at Observer Research Foundation, Chennai on 28 September 2019, Rallan spoke about how India’s manufacturing sector has been tied into knots by the labyrinth of government policies, especially implementation.

Talking in depth on how the slump in the manufacturing sector can be addressed, Rallan set about by explaining how the Chinese model of Special Economic Zones (SEZs) differed from their Indian counterparts. Rallan remarked that Deng Xiaoping’s model of opening SEZs, which ushered in the manufacturing revolution in China, was built on earmarking vast city-sized areas for manufacturing while the same has not been taken up by India where SEZs have been far more measured in their sizes and the sops offered. Rallan observed that the SEZs in India should follow a similar model and be contiguous in order for the SEZs to be effective.

All-time high imports

Rallan pointed out that 1/3rd of India’s imports are from China and manufactured goods form a major chunk of these imports. Pulling up numbers from the Directorate General of Foreign Trade, Rallan showed how manufacturing goods have steadily been hovering at 55-60 percent of the India’s imports from 1997 to 2017. He also pointed out that along the same time, the export of manufactured goods from China, mainly through Hong Kong, have steadily climbed up from 4.4 to 19.5 percent.

Rallan pointed out that there has been tremendous growth in the volume of Indian exports with the number reaching 330 Billion USD in 2018-19 from an initial value of 34.79 billion in 1997-98. However, the speaker pointed out that the majority of this number stemmed from India’s now mature IT sector. He also pointed out that the IT sector, which received a hand holding from the government early on, has now evolved to operate with minimum support from the government. However, the same has not been replicated in the manufacturing sector.

Reiterating the need for an innovative government policy to aid the manufacturing sector, Rallan spoke about how the current mindset of policymakers is ‘analog’ in what is largely a digital era. He spoke about how policy shocks in the way of typos and errors have led to costly mixups and hasty withdrawals. He observed that the lack of a coherent government policy framework had resulted in chaos ensuing in India’s manufacturing sector thereby leading to a thinner presence by Indian-made goods in the market.

As a remedy, Rallan spoke about the need to think out-of-the-box structural changes. He emphasized on the need to consider manufacturing services as the way forward and subsidize the same as opposed to contract manufacturing, because the later is no longer the trend in the industry. He observed that amending the SEZ rules to remove sector specific limitations and NFE conditions should be considered a priority. He also spoke about integrating the ICEGATE and the GSTN portal and bringing in genuine single window clearances to make it easier for businesses to set shop. He concluded by emphasizing on creating a level playing field for both new age businesses and existing players to enter manufacturing.

This report was prepared by Gururag Kalanidhi, Research Associate at Observer Research Foundation, Chennai

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