Can Mr. Modi Make (it) in Indiia?

C
Case
study prepared
p
by Dr. Kasturi Das for cla
ass discussioon

Frrom Automobiles to Agro--products. Fro

rom Hardwarre to Softwarre.
From
F
Satellitees to Submariines. From Televisions
Te
to Telecom. Fro
om Pharma to
o Biotech. Frrom Paper to Power Plantts.
From
F
Roads to Bridges. From
F
Housess to Smart C
Cities. From Friendship
F
to
o Partnership.. From Profi
fit to Progresss.
Whatever
W
you want to makee: Make in Ind
dia.
Thats
T
how Prrime Ministerr Narendra Modis
M
flagshipp Make in In
ndia campaign has been cconceptualizeed. The muchhtalked
t
about initiative aim
ms to boost investments
i
aand encourag
ge innovation by creating world-class manufacturinng
infrastructure and making itt easier to do business
b
in traansparent and credit-friendlly environs. T
The lion symbo
ol, which Moddi
himself
h
chose for its tenacitty and courag
ge, is also beinng developed for language markets in Inndia and abroaad. The symbool
will
w remain thhe same, but local fonts both Indiann and foreign languages would be ussed for the words
w
Make in
i
India.
I
So, in Japan, it wouuld be in Japaanese and in G
w be in Gerrman. "In Maake in India, there
t
is a hugge
Germany, it will
emphasis
e
on qquality and suustainability. While
W
India hhas been a relu
uctant manufaacturing nationn and a late urbanizer,
u
therre
are
a huge advanntages. We caan today learn
n from the restt of the world, use the latest technology aand leapfrog,"" says Amitabbh
Kant,
K
secretaryy, departmentt of industrial policy and prromotion (DIP
PP), the nodal government agency manaaging the Makke
in India camppaign. In the next few mo
onths, the govvernment willl roll out the Make in Inddia campaign state by state,
following
f
a huub and spoke model (the hu
ub being Delhhi). Each statee would be acccorded a sectoor that it has earned
e
its spurrs
in. For instancce, automobilles could welll be the focuss sector in Taamil Nadu (ho
ome to factoriies of Ashok Leyland, Fordd,
Nissan
N
and H
Hyundai, amonngst others) or
o Haryana ((Hero MotoCorp, Honda Motorcycle
M
& Scooter Ind
dia and Maruuti
Suzuki).
S
"Thee challenge is to make this manufacturinng campaign exciting.
e
As we
w go to the sstates, the cam
mpaign will be
b
blended
b
with ccultural and other
o
entertain
nment program
mmes so that the locals get on board," saays a team meember workinng
on
o the campaiggn.
FDI
F (foreign ddirect investm
ment), Modi, to
old investors, should stand for First Dev
velop India. India is the only
o
country in
i
the
t world whiich offers the unique comb
bination of dem
mocracy, dem
mography, and
d demand, hee said. In the audience werre
CEOs
C
from abbroad Maruuti Suzukis Kenichi
K
Ayukaawa and Lock
kheed Martins Phil Shaw and home, including Tatta
Group
G
chief C
Cyrus Mistry, Reliance heaad Mukesh A
Ambani, Kumaar Mangalam Birla of the Aditya Birla Group and IT
I
tycoon
t
Azim P
Premji. Modi followed the launch with meetings with
h other CEOss, such as Marry Barra of General
G
Motorrs,
Jeff
J Bezos of Amazon, Mark Zuckerberg
g of Facebookk, Satya Nadeella of Microssoft and (earliier) Indra Noo
oyi of PepsiCoo.
They
T
all gavee the appropriiate soundbitees to the meddia. But the key
k question is: Will theyy bite? Will th
hey be able to
t
convince
c
theirr boards and companies
c
to invest in Indiia? Will Makee in India worrk? There are indeed plenty
y of challengees
and
a hurdles ahhead!
Manufacturin
M
ng: The unmeet promise off Indias liberralization
This
T is not thee first time thaat India has tried to boost itss manufacturin
ng prowess th
hough. The ben
enefits of integ
grating with thhe
global
g
econom
my were the key
k selling poiints of econom
mic reforms in
n 1991. Liberralization was premised on the idea that it
would
w
make thhe local indusstry more com
mpetitive and turn India intto a manufactu
uring superpoower. The team
m of reformerrs
led by P.V. N
Narasimha Raao and Manmohan Singh hhoped that maanufactured products
p
from
m India would capture worlld
markets,
m
openning up opporttunities for millions
m
to shifft from farms to factories. This is precissely what happened in manny
Asian
A
countriees including China.
C
In 200
04, the Confeederation of In
ndian Industry
y (CII) and M
McKinsey pro
oduced a repoort
titled,
t
Made iin India: The Next Big Maanufacturing E
Export Story. According to
o the report, M
Manufacturin
ng exports from
m
India
I
have nott taken off evven though Ind
dia has severaal advantages,, including engineering skillls (process, product,
p
qualitty
and
a capital), a growing dom
mestic market, a raw materiaal base and a large
l
pool of skilled
s
labourr. India has the potential to
t

increase manufacturing exports from $40 billion in 2002 to $300 billion by 2015. In 2004, the government set up the
National Manufacturing Competitiveness Council (NMCC). In 2006, the UPA government came out with a national
strategy for manufacturing. The objective: to raise the share of manufacturing in GDP from 17% to 30%-35% by 2015.
The UPA government even dubbed 2006-15 as the decade of manufacturing in India. The five-year period of 2005-06 to
2009-10 was one of a smart 10 per cent plus growth for the manufacturing sector when several advantages engineering
skills, a growing domestic market, a raw material base and a large pool of skilled labour trumped the vast barriers to
doing business in India. In 2012, McKinsey wrote: If Indias manufacturing sector realized its full potential, it could
generate 25% to 30% of GDP by 2025. (Incidentally, Modi has appointed former McKinsey India chairman Adil
Zainulbhai as chief of the Quality Council of India, which will spearhead the Make in India effort.) In May 2011, the
department of commerce finalized a strategic paper on doubling Indias exports from $246 billion to $500 billion in the
next three years (2011-2012 to 2013-2014). Merchandise exports needed to grow at 26.7% to achieve this target.
More than two decades after those radical reforms of 1991, Indias manufacturing dream still lies unfulfilled. Trade
liberalization led to a sharp growth in exports of services but the rise in manufacturing exports has been very slow. Further,
within manufacturing, exports of labour-intensive products have lagged those of capital-intensive goods. The anticipated
transition from farms to factories has not materialized. Manufacturing output grew barely 1 per cent in 2012-13. In 201314, factory output contracted (-) 0.7 per cent. The share of the jobs-creating sector in the GDP has declined to 14.9 per cent
in 2013-14 from the peak level of 16.2 per cent in 2009-10.
To put things in perspective, it may be recalled that the Organisation for Economic Co-operation and Development
(OECD) said in its India Economic Survey released in November 2014 that India's economy is coming out of its worst
slowdown in a quarter-century, but needs major structural reforms if it is to return to pre-2011 growth levels. The OECD
said that annual growth should top 6.5 per cent in the coming years, but reducing barriers to manufacturing growth was
"critical". India's growth has languished at below five per cent for the last two financial years, hit by high interest rates,
stubborn inflation and weak investment. India's economy grew by 4.7 per cent in the last fiscal year to March 2014 and the
central bank projects 5.5 per cent expansion this year. "Structural reforms would raise India"s economic growth," the
report said. "In their absence, however, growth will remain below the eight-per-cent growth achieved during the previous
decade." Economist say India needs near double-digit economic growth to generate jobs to employ millions of young
people who join the job market each year.
The big question, therefore, is will Make in India be able to fulfil the unmet manufacturing dream of Indias liberalization?
Hurdles galore
There are several hurdles to Modis Make in India campaign, counters Ravi Aron, professor at Johns Hopkins Carey
Business School. The reason that there is very little manufacturing investment in India is not because the country has
done a poor job of marketing itself. India today is a bad choice for foreign investment in manufacturing.Aron says that
there are several things fundamentally wrong with India that will continue to stifle manufacturing. There are four classes
of deficits, he explains. First are the factors of production. India faces crippling shortages in, for example, power.
Businesses are forced to rely on expensive and inefficient ways of producing power. Indias labour laws make it hazardous
for businesses that face seasonality in their demand to set up mass production facilities. By telling industry that it cannot
retrench a part of the workforce in accordance with falls in demand, India has succeeded in making original equipment and
component manufacturing extremely unattractive, Aron notes. Second, continues Aron, are the enablers of production
such as surface transport and ports. Manufacturing requires a significant edifice of infrastructure support. This edifice is
absent in India, he points out. The third set of issues has to do with the legal regime. Laws are made to suit the extremely
myopic and expedient objectives of the regime in power, Aron notes. The Vodafone retroactive taxation is a case in
point. Even after the Supreme Court ruled that the company did not owe taxes, Parliament passed a retroactive law to
claim the money from Vodafone in what must surely seem to foreign investors like state-sponsored larceny. Walmart,
Amazon and Nokia are all faced with capricious tax and business laws being implemented by a corrupt bureaucracy. Is it
any surprise that Microsoft did not include Nokias manufacturing facility in Chennai in its deal for Nokias phone and
tablet assets. The reason? Tax terrorism again. Finally, there is chronic, all pervasive corruption. It is only the fourth
deficit that Modi can tackle to some extent, says Aron.
The OECD report said the government needed to do more to simplify the country's infamous bureaucratic red tape to speed
up commissioning of industrial projects and other investment. Public investment in physical infrastructure such as roads

and
a social insttitutions suchh as hospitals and schools aare vital to bo
oosting economic expansioon and reducin
ng inequalities,
the
t report addded. It calledd for a "simpller and more flexible labo
our law, coveering more w
workers, couplled with betteer
education
e
and training proggrammes". It must
m also imprrove governan
nce to crack down
d
on widesspread corrup
ption, the repoort
said.
s
Still highh inflation, a wide
w fiscal deficit, large eneergy and fertiliser subsidiess and delays in passing key
y tax reforms to
t
make
m
doing buusiness easier and cheaper in
i India are am
mong other brrakes on econo
omic growth, tthe OECD saiid.
Another
A
majorr hurdle highllighted by com
mmentators iss that of a hug
ge skill deficitt. In order to ttruly rebalancce the econom
my
and
a set it on thhe path of susttainable devellopment, addrressing the gro
owing skills deficit of Indiaas youthful po
opulation posees
a major policyy challenge. Inn an increasin
ngly globalizeed age where the
t competitio
on for growthh and jobs is intense, there is
an
a undeniable need to upskkill the Indian workforce. T
This is a fundaamental issue that demandss urgent policy attention annd
institutional reeform if Makee in India is to succeed.
Indicators
I
of the business environmentt
Indias
I
latest rrankings in soome of the key
y indicators o f business env
vironment and
d perception aabout Brand India (as show
wn
in Chart 1) do not provide quite
q
an optim
mistic picture.
Chart1
C

India
I
has droppped down to stand at 142n
nd out of 1899 countries ran
nked by the World
W
Bank fo
for ease of doiing business in
i
2015,
2
which ccovers the perriod from Jun
ne 2013 to M
May 2014 (wh
hen the UPA was
w in powerr). All of Indiia's neighbourrs
except
e
for Banngladesh (1733) and Afghan
nistan (193) w
were ranked hiigher. China topped
t
the neiighbourhood at
a 90, followeed
by
b Sri Lanka at 99, Nepal at 108, Bhutaan at 125 andd Pakistan at 128.
1
Singaporre stood first ooverall for th
he ninth year in
i
succession,
s
annd is followed by New Zealaand, Hong Koong, Denmark
k, and South Korea.
K
In
I the ten metrrics used to measure
m
ease of
o doing businness in the Ban
nk's 2015 repo
ort, India cam
me close to thee bottom in tw
wo
categories.
c
It stood a wrettched 184th in
i the categorry "Dealing with
w Construcction Permitss," and 186th in "Enforcinng
Contracts."
C
Geetting construcction permits in India invollved an averag
ge of 25 proceedures that toook 186 days, and
a cost 28 peer

cent of the warehouse value. Enforcing contracts took 46 procedures and 1420 days nearly four years. On the bright
side, India stood 7th, an improvement of 14 places, when it came to "Protecting Minority Investors." It is the only category
in which India has shown an improvement from 2013, when it was ranked 21 in this category and 140 in the overall ease
of doing business. Ranking in other eight categories are: Starting a business (158th), Getting electricity (137), Registering
property (121), Getting credit (36th - down from 30th place), Paying taxes (156), Trading across borders (126), and
Resolving insolvency (137).
Work in progress!
PM Modi has assured investors that a red carpet will replace red tape. He wants to radically de-bureaucratise, deregulate,
change officers mindsets, cut paperwork and remove the notorious legal and infrastructure hurdles to starting and doing
business in India. Modi is trying to change mindsets that of labour, of bureaucrats and of employers. During the launch
of Make in India campaign, Modi had announced that the government would initiate measures to improve Indias
position in the ease-of- doing-business index and bring it into the top 50. To achieve this, the government of India along
with state governments will have to initiate a series of radical measures on a war footing, according to the DIPP.
"Reforms are being undertaken to enhance ease of doing business," Modi assured Aussie business during his Australia
visit in November. However, so far Modi has not initiated too many policy changes to improve the business climate in
India, though some efforts are already underway. The Centre has identified eight bottlenecks in the system which need to
be removed to ensure the success of Modis Make in India campaign. The government conducted a detailed exercise to
identify the sectors where reforms are required immediately after Modi launched the campaign, rolling out a red carpet for
Indian and foreign companies to encourage manufacturing. The eight bottlenecks identified by the DIPP are related to
starting a business, getting construction permits, electricity connection, registering property, paying taxes, trading across
the borders, enforcing contracts and resolving insolvency. These reforms can be pushed only through continuous
consultation, sharing of ideas and extended partnership among the departments and ministries, DIPP Additional Secretary
Shatrughna Singh said.
As for starting a business in India, the reforms will usher in a one-stop mechanism for the registration processes required
under all labour laws, similar to the systems in Malaysia and Singapore. Globally, New Zealand is the best performer in
the starting business rankings. It takes less than a day to start a business in New Zealand, the DIPP said.
Even to get construction permits, companies need to deal with 25 procedures which takes a minimum of 186 days whereas
the whole process is completed within 26 days in Hong Kong and China. Also, the DIPP has asked the Ministry of Urban
Development to streamline the building laws at the national and state levels by removing overlapping or contradictory
building bylaws. States and local authorities are asked to evolve a composite online application process and to introduce a
one-stop shop to improve coordination.
India stands at 184 among 189 economies on the ease of dealing with construction permission, the document states.
Getting an electricity connection for a company requires seven procedures and takes a minimum of 67 days. The
government wants the whole process to be cleared within 14 days.
The government also wants to simplify the process of registering properties which requires five procedures and 44 days. It
has proposed online registration of properties with onsite physical verification, similar to the issuance of passports. The
government also wants to increase exports and imports by reducing the number of documents required and has asked the
Directorate General of Foreign Trade to allow electronic submission and processing for custom declaration. For insolvency
cases, it has decided to introduce a single law.
The most important reform that the DIPP has proposed is in taxes. On an average, firms make 32 tax payments a year,
spend 243 hours a year filing, preparing and paying taxes, and pay total taxes amounting to 62.8 per cent of profits
whereas in the UAE it takes only 12 hours per year and the taxes are just 14.9 per cent of profits. The DIPP has asked the
Ministry of Finance to reduce the number of taxes and the frequency of payments, and to allow the online payment of
taxes and the consolidation of filings. Expedite the implementation of the Direct Tax Code (DTC) and Goods and Service
Tax (GST) and the simplification of VAT refund, the DIPP stated.
The policy offers few tangibles except acceptance of self-certified documents, a 72-hour window to get clarifications on
the Make in India website and 25 defined focus areas, says Radhicka Kapoor, fellow at the Indian Council for Research

and International Economic Relations and the author of a recent paper titled, Creating Jobs in Indias Organized
Manufacturing Sector. While the PM has acknowledged that India is indeed a difficult place to do business due to the large
number of regulatory bottlenecks and has set a target of elevating Indias ranking in the World Banks Doing Business
survey, he has not outlined a specific strategy to achieve this goal, Kapoor notes. What the policy does, however, is to
send signals of vigour and enthusiasm. But it will take a lot more than a flashy new website, a new lion symbol and catchy
phrases to make India a manufacturing powerhouse and create productive jobs for Indias rapidly-expanding workforce.
Adds C.S. Rao, chief economist at apex chamber Assocham: At this point, the policy mirrors Modis thoughts. It needs to
be seen how it turns out. According to Kumar Kandaswami, senior director at Deloitte Touche Tohmatsu India, so far the
campaign is a statement of intent. That said, he adds, it is a very important one as it will mobilize activity and direct the
attention of stakeholders. The government has brought on board industry leaders. The fact that this is held out as an
important initiative of the prime minister means that there will be serious follow-up action.
No one is quarrelling with the need to boost manufacturing, but Pankaj Chandra, professor of production and operations
management at the Indian Institute of Management Bangalore, says that the government must take a proactive approach if
it wants to get results. In the past, the bureaucrats didnt do their part of the job. They did not have the strategic
framework, Chandra notes. There were the big manufacturing investment zones. But the bureaucrats couldnt see
beyond a real estate play. And manufacturing is everything but a real estate play. The world over, manufacturing has
changed. Modern manufacturing is about science and technology, R&D, new processes, innovation, skills and quality. If
we cant do all this, I dont think the Make in India project will work.
But Babu Khan, senior director (manufacturing & infrastructure) at apex chamber the Confederation of Indian Industry
(CII), says that Make in India is more than a statement of intent. [Make in India] underscores a sound strategy and the
strong reforms process that the new government is committed to, Khan says. The Indian economy is at a major turning
point, as we can now look back at the global financial crisis and move ahead toward economic revival. Khan adds that
recent statistics show how critical it is for India to focus on boosting manufacturing. After growing at 10.1% during the
five-year period 2005-2006 to 2009-2010, the manufacturing sector slowed down sharply, growing at just 4.2% in the past
four years, he explains. As a result, its share in GDP has declined to 14.9% in 2013-2014 from a peak level of 16.2% in
2009-2010.

Japan-plus and infrastructure

According to Anil Gupta, a professor at the University of Marylands Robert H. Smith School of Business, India hasnt
come close to matching Chinas investments in the roads, ports, and power networks that companies want. Lousy
infrastructure essentially eats up any advantage the country may have on the labour front.
Recently the Modi government has set up a special committee of officials to expedite Japanese investment in India,
separately from the Japan Plus team of officials from both sides constituted in October 2014 to research, outreach, promote
and facilitate Japanese businesses wanting to set up base in Asias third largest economy. In response to Japanese concerns
about infrastructure bottlenecks in India, Shatrughan Singh, additional secretary, DIPP, said the government was fasttracking the development of industrial corridors besides setting up a new national industrial corridor development
authority for the purpose. In his comments, DIPPs Singh said the Modi government was taking steps to improve
infrastructure and one of the steps in this direction was the constitution of the new national industrial corridor
development authority to carry out project development activities, appraise and sanction projects as well as coordinate
all central efforts for industrial corridor development. An announcement to this effect was made by finance minister Arun
Jaitely while presenting his first budget in July. Outlining the reform measures taken by the Modi government after being
sworn into office on 26 May, Singh urged Japanese businesses to help develop its manufacturing sector to create jobs for
Indias youth. He said Indias foreign investment regime had been made investor-friendly with no caps on investment in
construction, operation and maintenance in railway infrastructure projects and easing FDI rules in Indias construction
sector. The government has also constituted a core group chaired by the cabinet secretary for India-Japan investment
promotion, Singh said, adding that the group comprises the chairman of the Railway Board, the foreign secretary,
secretaries in the ministries of commerce and information technology, besides others, to coordinate and monitor the
processes for the facilitation of Japanese investments and transfer of technology in various sectors.
Masami Ijima, chairman of the Japan-India Business Cooperation Committee and chief executive officer and president of

Mitsui and Co. Ltd, welcomed the setting up of Japan Plus comprising representatives from the government of India and
Japans ministry of economy, trade and industry. Japan Plus was constituted after Modis visit to Japan and its mandate
spans the entire spectrum of investment promotionresearch, outreach, promotion, facilitation and dealing with any kind
of challenges post investments. But infrastructure and the requirement of multiple clearances from the Union and state
governments dampened investment plans, Ijima said.
Even with all the challenges, Modi could still attract some manufacturing FDI to India, Ravi Aron, professor at Johns
Hopkins Carey Business School, says, though it would be nothing like Chinas spectacular gains made between 2000
and 2010. But nonetheless, [it could be a] significant amount, he notes. Before he does that though, he will need to
build roads, ports and power plants the manufacturing infrastructure. Perhaps a CEO could tell the PM: If you build it,
they will come.
Land acquisition
In the context of infrastructure development, a vexed issue is that of land acquisition in India, as witnessed over the past
couple of decades, in particular.
The UPA government passed a new land acquisition law, titled The Right to Fair Compensation and Transparency in
Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LARR Act) that replaced the archaic Land Acquisition
Act, 1894, which existed from the colonial times. The 1894 Act was seen as a legislation that used the eminent domain
principle to allow the state to gain access to land by subverting the right to property, the human rights pertaining to
housing, livelihood and other allied rights of the affected people. One of the key features of this archaic Act was the lack
of a comprehensive definition of public purpose, which determined the need for land acquisition. Further, it included an
Urgency Clause, which never truly defined what constituted an urgent need, leaving it entirely to the discretion of the
acquiring authority. The outcome was that almost all acquisitions under the Act invoked the urgency clause. As for the
compensation, the rates paid for the land acquired were the prevailing circle rates in the area, which were notorious for
being outdated and hence not even remotely indicative of the actual rates prevailing in the area. Above all, there were
absolutely no provisions in the 1894 law relating to the resettlement and rehabilitation of those displaced by the
acquisition. A backlash was perhaps inevitable, as witnessed over the past couple of decades, in particular. In fact, the
flashpoints keep increasing by the day: the Posco steel plant in Jagatsinghpur, Orissa; Reliance SEZ in Raigad,
Maharashtra; Salem SEZ in Nandigrm, West Bengal; Tata Motors in Singur, West Bengal; Coal India in Korba,
Chhattisgarh; Vedanta in Niyamgiri, Orissa ... stories galore.
The new LARR Act was claimed by the UPA government to be an attempt to revamp and make the land acquisition
process more humane in the country by way of introducing certain significant changes in the framework. For instance, in
cases where public-private partnership (PPP) projects are involved or acquisition is taking place for private companies, the
Act requires the consent of at least 70% and 80%, respectively of those whose land is sought to be acquired. Given the
inaccurate nature of circle rates, the Act calls for payment of compensations that are up to four times the market value in
rural areas and twice the market value in urban areas. In addition to those losing land, the Act provides compensation to
those who are dependent for their livelihood on the land being acquired. The LARR Act not only links land acquisition
with the accompanying obligations for Rehabilitation and Resettlement (R& R), but also makes R&R mandatory.
Mandatory Social Impact Assessment (SIA) is another new introduction to the land acquisition process by the LARR Act.
Given the socially and environmentally damaging legacy of mines, industries and dams, the SIA is considered as a tool
which would help in understanding the implications of a proposed land acquisition of the affected population and various
stakeholders.
However, industry as well as most of the states have come out openly against the UPAs LARR Act, complaining that it
hurt the process of acquiring land for infrastructure projects. The Modi government is likely to bring amendments to the
LARR Act in the Winter session of the Parliament, Commerce and Industry Minister Nirmala Sitharaman said. "Work is
going on to see how best it can be made much more user friendly. I am clear that sooner there would be something
happening, ideally which means Winter Session because we do not want major projects to suffer waiting for this
amendment, waiting for this change," she said. "We are definitely clear that as it stands, the Land Acquisition Act is very
difficult for anyone who wish to move forward in acquiring land," Sitharaman told. She further said that the amendments
would look into making the acquisition process easier without touching on the compensation clause. "We will be looking
at the processes. We will certainly be looking at the exceptions that will be added to the Act and those are the ways by

which
w
we wannt to make it user
u friendly rather
r
than touuch the compeensation," shee added. The R
Rural Develop
pment Ministrry
has
h already suuggested a num
mber of amen
ndments that w
will water dow
wn provisions such as manddatory consen
nt of at least 70
7
per
p cent locals for acquirinng land for PP
PP projects, aand 80 per cent for privatee projects. Thee LARR Act is likely to go
g
undergo
u
drastiic changes if PM
P Modi giv
ves nod for thee Ministry's proposals whicch also includde dilution of a key clause of
o
Social
S
Impact Assessment study
s
criticised
d by states as time consumiing for industrrialisation proocess.
Tax

Terrorism?
Apart
A
from thhe widely disccussed case of
o retrospectivve taxation in
nvolving Vodaafone, the on--going transfeer pricing (TP
P)
litigations on transactions involving
i
shaare capital infu
fusion has beeen a huge draain on India's reputation an
nd significantlly
impacted the F
FDI into the country in lasst few years. T
There are aro
ound 20 comp
panies, includiing Vodafonee, Shell, Bhartti,
Essar,
E
Standarrd Charted, HS
SBC, among other,
o
fightingg similar cases (Chart 2). Though the faccts vary, the un
nderlying issuue
pertains
p
to appplicability of TP
T provisions on subscriptioon of share caapital.
Chart
C
2

On
O October 10, 2014, the Bombay
B
High
h Court in its ruling on thee Vodafone TP
T case held th
that the FDI received
r
by thhe
Indian
I
companny in the form
m of share caapital cannot bbe taxed in In
ndia under the ambit of Inndian TP regu
ulations, as thhis
transaction
t
does not give risse to any "tax
xable income" in India. While ruling in faavour of the IIndian taxpayeer, the HC helld
that
t
Indian TP
P provisions are
a on machinery and one ccannot tax cap
pital receipts which
w
are otheerwise not tax
xable under thhe
Indian
I
laws. Iterating the principles
p
laid down in its O
October 10, 2014
2
ruling in
n Vodafone Inndias case that cross-bordeer
share
s
transferss cannot lead to
t income and
d in the absencce of an expreess provision to
t tax, the couurt on Novem
mber 18 relieveed
Shell
S
India of a huge potential tax burden
n. The court sset aside the income tax departments nootices that sou
ught to increasse
the
t income of the global eneergy giants In
ndian arm forr two years 2007-08 and 20082009 by close to R18,000 crore.
To
T seek the inncome additioon, the taxman
n had applied the TP princiiple to Shell Indias
I
issue oof shares to itts Dutch parennt
alleging
a
an unndervaluation.
Speaking
S
on thhe Vodafone decision, Vijaay Iyer, Partneer & National Leader Traansfer Pricing,, EY, opined (t)his

decisioon
couldnt
c
have been timelieer than anticip
pated in light of the majorr national inittiative Makke in India, laaunched by thhe
Honble
H
Primee Minister Naarendra Modi recently. Maake in India initiative, wh
hich aims to trransform Indiia into a globaal
manufacturing
m
g hub, requirees significant FDI in buildiing up best-in
n-class manufaacturing infraastructure in th
he country. An
A

investor friendly tax environment and certainty around the administration of tax laws of country is critical for attracting
billions of dollars of FDI in the country. This well-reasoned order of the Bombay high court provides much sought after
clarity on the contentious issue related to applicability of TP provisions on share issue transaction and is of great relevance
to the foreign investors. This decision should have persuasive impact in resolving similar tax disputes being faced by other
tax payers. Though the position of the revenue authorities seemed unsustainable from the outset, it caused a lot of stress to
foreign investors and significantly dampened the foreign investment climate in the country in last few years. If the revenue
authorities do not appeal to the Supreme Court and let the High Courts decision prevail, this matter might reach finality
and shall provide a huge impetus for fast-forwarding FDI in the country. This will further provide stimulus to Make in
India initiative of the Prime Minister and the overall investment climate in the country, Iyer added.
Unsustainable demand wont get you taxes. Unsustainable demands in the books can show you in good glory, but
eventually those taxes will be blocked in some judicial court proceedingsthey would have only earned us a bad name as
an investment destination, Finance Minister Arun Jaitley said after the Shell ruling. According to official sources, a
decision on whether the government would appeal against the HC rulings on Vodafone and Shell in the Supreme Court
would be taken soon. Although the Modi government has been vocal about a non-adversarial and investor-friendly tax
regime, a likely Comptroller and Auditor General objection to a decision to refrain from appealing may also weigh on the
governments mind.
GST
Bureaucracy related to tax-collection at state borders is a big reason why Indias long distance truckers are parked 60% of
the time. The present mess is rooted in the division of fiscal power in Indias constitution, says Indira Rajaraman, an
economist. To ensure balance the central government was granted the right to tax the production of goods; the states could
tax their consumption. The drafters ignored services. But as services became more important to the economy, their taxation
became the preserve of the centre. From the outset India has suffered the problem of cascades of tax on tax. The centre
slaps an excise at the factory gate; the states compound that with a tax at the point of sale. The problem has become bigger
as new levies have proliferated. The centre imposes a tax on goods that are sold across state borders. States collect taxes on
entertainment and betting. There are separate levies on transport, electricity and cars. Rates vary from state to state, adding
to the complexity. This creates a big burden on businesses that sell across borders. It is in part why Indias manufacturing
has a small share of GDP compared with other emerging markets, says Vijay Kelkar, a former chairman of the finance
commission, which mediates between the centre and states on tax issues. A proposal to address this by rationalising the
myriad state and central-government levies into a harmonised goods-and-service tax, or GST, has been around since at
least 2007. But grubby politics has put paid to the ideauntil now. The GST Bill is supposed to be taken up in the Winter
Session of the Parliament.
An ideal tax system would have three elements: it should be progressive, with the better-off shouldering more of the
burden; it should not influence choices over what to produce or consume; and it should be simple. Mr Kelkars
commission sketched out a GST that conforms to these principles. It would be levied at a uniform rate on all sales,
including of property and financial services, with exceptions only for unprocessed food, schooling, health care and some
public services. A sin-tax surcharge to the main GST rate would apply to petrol, tobacco and alcohol. With a broad tax
base the GST rate could be as low as 12%5% for the centre and 7% for the states. The properties of a value-added tax
would apply so that taxes on inputs could be claimed back.
However, there are still many hurdles. For one, the government must secure the agreement of Indias 29 states to the
reform. If there is to be a common rate, the states must give up their much-prized power over taxes. Many fret about the
possibility of lost income. Indirect taxes are 45% of the centres tax-take but 80% of state revenue, says Morgan Stanley.
There are already worrying signs that, to placate the states, the GST in its final form will deviate from the ideal. The
exclusion of land sales would raise the rate by 2-3 percentage points, reckons Satya Poddar of EY. Alcohol may also be
out and petrol may be given a special status. But the more exemptions there are, the more the GST will resemble what it is
supposed to replace. At issue is whether, as Mr Poddar puts it, the GST will be a game-changer or merely a name-changer?
Labour reforms
Industrialists often cite Indias complex labour rules as one of the major hurdles that have kept away large-scale private
investments in what should otherwise count as a massive, attractive market. Besides, business leaders argue that abiding

by numerous labour laws both at the centre and states, often archaic ones, is time-consuming and costly. According to
World Bank India has one of the world's most rigid labour markets. But successive governments have failed to undertaking
reforms measures fearing backlash from the trade unions.
Almost a month after the Make in India initiative was launched, PM Modi on October 16, 2014 unveiled a string of labour
reforms that will make inspection of businesses transparent and also ease rules so that employees can smoothly move their
social security funds when they change jobs. An online Shram Suvidha portal has been unveiled for employers to submit
one compliance report for 16 labour laws, rather than the onerous task of filling 16 forms related to central labour laws.
The new website, managed by the labour ministry, will allow companies to fill forms online and raise their grievances.
"These facilities are what I call minimum government, maximum governance. I have been hearing about inspector raj
since childhood," Modi said. Such streamlining will provide enormous relief and reduce the compliance burden
according to the Confederation of Indian Industry. The inspector raj is believed to be a major hurdle in smooth
functioning of businesses. To make inspectors role transparent, a computer lottery will pick both the enterprise to be
inspected and the inspector who will inspect. The inspector will have to upload his report on the same website within 72
hours. The reforms do away with inspectors discretionary power and any decision on inspection reports will be taken only
after a proposed central analysis and intelligence unit scrutinises the compliance reports submitted by the employers. The
reform schemes named Deen Dayal Upadhyay Shrameva Jayate also include a Universal Account Number (UAN) facility
for Employees Provident Fund Organisation (EPFO) subscribers. Through UAN, employees will no longer have to apply
for the transfer of provident fund while switching job anywhere in the country, thus reducing time in funds transfer. The
EPFO has 80 million members. Because transfers are so difficult, more than 270 billion rupees ($4.4 billion) lie idle in
such accounts. "I need to return this money to the poor," the prime minister said. "The world asks, 'What is Modi's vision?'
They will see it in this effort." The change would chiefly benefit firms that employ just a few employees, he said. In 2009,
84% of the countrys manufacturing workers were employed by firms with fewer than 50 workers, research by the Asian
Development Bank shows. It is difficult to estimate the size of this workforce, but just 8% of the workers have formal jobs
with any security and benefits, such as the Provident Fund, while most are employed in the informal sector, experts say.
While the aforesaid reforms are already underway, the Industrial Disputes Act, which does not allow a company to close
down a loss-making unit, remains intact for now, even as the labour reforms initiatives of the Modi Government have
attracted criticisms from several opposition parties as well as labour unions.
Under the current constitutional provisions, labour is a subject in the Concurrent List. Individual States can amend labour
laws. The Union governments role is to forward them to the President. If the President assents, the States are free to
implement the amended laws. This is the avenue States such as Rajasthan and Madhya Pradesh are pursuing to implement
labour reforms. Uttar Pradesh, Himachal Pradesh, and Haryana, are reportedly considering labour reforms to attract
investments. Also, with a BJP government having been elected in Maharashtra an important State in terms of the
economy as Mumbai is the financial and commercial Centre of the country labour reforms are also likely to be initiated
there.
Modi has taken the position that India must be transparent and efficient, says Janice Bellace, professor of legal studies
and business ethics at Wharton. Poor infrastructure, crony capitalism and corruption have likely done more to dissuade
investment than labour laws. What Modi needs to do is eliminate outdated legislation and replace them with up-to-date
laws, where appropriate, and streamline compliance and enforcement procedures. Most importantly, Modi should commit
the government of India to decent work, an International Labour Organization term that includes opportunity, security,
adequate remuneration and freedom of association.
The Great Indian Talent Conundrum
According to the 11th five-year plan, only 10 per cent of the Indian workforce has formal training in the form of higher
education, technical education or vocational training. The All India Council of Technical Education (AICTE) statistics
show that India produces over one million engineers and management graduates every year. However, not even a third of
them find meaningful employment. Several studies by industry federations and consultancies have found that of the 12
million people entering the labour market every year, nearly 75 per cent are not job-ready. The India Skills Report,
prepared by human resources company PeopleStrong and industry lobby CII, calls this the Great Indian Talent
Conundrum, which could swiftly transport India from the stage of reaping the demographic dividend to facing a
demographic disaster. According to the report, India would need 700 million skilled workers by 2022 to meet the demands

of a growing economy. The government has a target to skill-train 500 million people, nearly the combined population of
the 28-nation European Union, by 2022. However, going by the current pace, India is likely to fall far short of the target.
India currently has an annual training capacity of 4.3 million, which is less than 20 per cent of the industry requirement of
22 million skilled workers a year. This is breathtakingly paltry in the context of the central governments target of creating
a skilled workforce of 500 million by 2022. Since April 2011, departments and ministries of the central government have
cumulatively trained just 17.39 million and have missed the target in two of the last three years, according to official data.
This mushrooming skills deficit has deep-seated social and economic implications. In particular, Indias oft-cited
demographic dividend could easily turn into a disaster if a majority of its youthful population fails to secure employment
due to a lack of skills. Moreover, a lack of social mobility and economic inequality may get exacerbated too with stark
consequences. Unless the skills gap is addressed, a vision of sustainable economic progress may be illusory. Ask any
businessman, and the answer is the same: Enough manpower, but not job-worthy. Sharad Jaipuria, president of the
industry lobby group PHD Chamber of Commerce and Industry, said though India boasts of a huge young population,
there is nothing inevitable in demographic dividend. He says it is slowly turning chaotic. The government needs to put in
place a proper mechanism to tackle this, he said. Across industries, across sectors, the shortage of right talent is a key
challenge for us, said Jaipuria.
Research undertaken on the subject suggests that there are myriad deficiencies with the current approach and
implementation of the skills development agenda. First, the existing institutional structure consists of a plethora of
agencies with overlapping and conflicting priorities. The governments own estimates reveal that currently, skill
development efforts are spread across approximately 20 separate ministries, and 35 state governments and union
territories. Given this mind-bogglingly complex institutional setup, the National Skill Development Agency was created
last year to consolidate efforts in this sphere. But it mainly has a coordination role, lacks any effective powers and remains
significantly under-resourced.
Second, the training infrastructure for imparting technical and vocational skills is woefully inadequate. In addition, the
infrastructure in the skill development sector today is largely government-owned while private sector investment hasnt
been incentivized.
Third, the focus of vocational training offered in India is badly mismatched with the needs of casual workers who
constitute 90 per cent of the labour force, resulting in a shortage of skilled workers at the national level. Casual workers,
such as construction workers, often comprise workers from rural areas with little or no education and need support and
training. Even the Central governments findings estimate that the construction sector is likely to create over six times
more jobs than the information technology and related services sectors by 2022. Yet the policy focus particularly at the
state levelhas generally prioritized information technology, which is perverse in the extreme.
Given these shortcomings, might there be some comparative benefit from examining models of skill development adopted
elsewhere which could offer instructive lessons? For example, Germanys dual system of vocational education integrates
work-based and school-based learning to prepare apprentices for a successful transition to full-time employment. Each
week, trainees spend one or two days in a vocational school and three or four days in their company. Progress is evaluated
through final examinations in which trainees must show that they have acquired the necessary skills, and practical and
theoretical knowledge from their companies and that they have mastered the course material.
The experience of South Korea also provides a neat illustration of a developing economy reaping the benefits of a
concerted strategy. South Korea underwent reforms in the 1990s in order to ensure a mass supply of skilled workers to the
industry and protect vulnerable groups of the population from unemployment. South Koreas job skill development
programme, under the framework of the employment insurance system, expanded the existing levy-grant system, where
employers received a rebate for training existing employees. This led to an increase of over 27 per cent in training
participation by employees and the number of employees trained by employers increased by almost 13 times. Closer to
home, the Chinese government has launched specific initiatives at the local government-level to train unskilled and
uneducated migrant labour for sectors like construction, while such initiatives are missing in India.

10

Made in China
Markets across Indian towns and cities that are flooded with Chinese products are grim reminders of how Made-in-China
has come to dominate homes and offices. From furniture and gadgets to industrial equipment, India is importing almost all
products from its neighbour, even yarn for saris. It is estimated that over 99 per cent of Bangalore silk saris are being made
with Chinese silk yarn. As a result, the rapidly growing bilateral trade between the two neighbours is tilting heavily in
Chinas favour, at a rate that India has termed unsustainable. Bilateral trade crossed $65 billion in 2013, but while India
exported $15 billion worth of goods to China, but imported $51 bn. The quality of trade also goes against India. India
exports raw materials such as iron ore but imports manufactured goods. Considering that India realized the manufacturing
imperatives several years ago and did nothing but produce a series of reports that gathered dust, the question is whether it
is already too late!
The window for growth through export-led manufacturing may well have closed for India, says Ravi Aron. There are
two reasons for this, he adds. First are supply efficiencies: Large volume component manufacturers move to a region
because they wish to co-locate with other firms in the same supply chain. Between 1985 and 2000, many manufacturers
went to China because of cheap labour, Aron notes. But their growth in the second phase from 2000 through 20122013 was because an ecosystem of suppliers comprising members of many business verticals semiconductors,
medical equipment, heavy electrical, molded plastics and toys had sprung up in China. In other words, many firms took
their manufacturing to China because their supply chain partners were already there. Companies first went to China for
cheap labour, but stayed for supply chain efficiencies.Indeed Indian smartphone vendors such as Micromax and Karbonn
are not enthused about Make in India, as they feel setting up facilities in the country without the entire ecosystem - such
as supply of components - being available to them will harm their price competitiveness. When it comes to putting its
phones together, a company such as Micromax would need to have lots of its suppliers nearby; that exists in China, not in
India. You need to have cameras, screens, touch panels, chip sets. You need all that to be around you, says Chairman
Sanjay Kapoor. If you are able to build that ecosystem, then the whole Make in India story comes true.
The second issue, according to Ravi Aron is the extent of automation in production. In industry after industry, we have
seen automation in the form of robotic production, digitization of business processes and precision manufacturing
techniques, he points out. Manufacturing is returning to the US much faster than manufacturing jobs are. The growth in
manufacturing jobs is not really about where unskilled labourers swing their hammer at a widget moving on the assembly
line; it is about workers that calibrate, operate and manage machines as a part of the manufacturing routine.
But there is hope still! A new index of manufacturing costs, including productivity-adjusted wages, electricity, natural gas
and currency movements, created by the Boston Consulting Group (BCG) of the worlds 25 biggest exporters shows
Chinas traditional cost advantage is now under pressure denting its attractiveness. Under pressure from the US, China has
had to appreciate its currency by 30 per cent since 2006, which is eroding its exports cost competitiveness. This, coupled
with the double-digit increases in Chinas minimum wages have compelled many companies to look for low-cost
alternatives. Therein lies an opportunity Make in India must tap. As Chinese factories move up the value-chain to hi-tech
manufacturing, opportunities would open up for Indian entrepreneurs but they are up against stiff competition. On the
BCG ranking, however, several countries, including the US and Mexico, are better poised and ranked above India as of
now to take gain from Chinas loss of competitiveness.
Indias labour costs are among the lowest in the world. According to the US Bureau of Labour Statistics, average labour
compensation (including pay, benefits, social insurance, and taxes) in Indias organised manufacturing sector increased
only marginally, from $0.68 an hour in 1999 to $1.50 an hour currently. The average compensation in Chinas
manufacturing sector in contrast rose 20 per cent year-on-year in the same period to $3 an hour. Besides, the cost
competitiveness, India boasts a nearly 500-million-strong labour force comprising unskilled workers and English-speaking
scientists, researchers, and engineers, making it a potential destination for cost-effective research and developmentoriented manufacturing.
That said, there are still plenty of reasons for companies to be wary about India vis--vis other alternatives. China, for
instance, is now the No. 1 manufacturing location for Hong Kong-based TAL Group, one of the worlds largest producers
of dress shirts for men. Because China is becoming too expensive, Chief Executive Officer Roger Lee says the company is
expanding in Vietnam. A few years ago, TAL considered moving to India but ultimately ruled it out. Each factory could

11

have
h
many, m
many differentt labour union
ns, he recallss. When you have many, many
m
differennt unions, theen it gets prettty
hard
h
to managge.
Chart
C
3: Indiia vs. China

Indeed,
I
Southeeast Asian countries such as
a Vietnam annd Indonesia are
a attractive, but they lackk the deep sup
pply of workerrs
available
a
in Inndia. Its the only country that has the sccale to take up
p where China is leaving ooff, says Fred
deric Neumannn,
a senior econoomist with HS
SBC. Vietnam
m and Indonesiia? Neither one
o is big enou
ugh to take upp the slack, he
h says, leavinng
India
I
with a ggolden opporttunity.
Recent
R
sporaddic instances of
o the odd Ch
hinese manufaacturer setting up shop in In
ndia and a few
w Indian com
mpanies movinng
production
p
basses back hom
me from China are encouragging. Havells, Godrej, Micrromax and autto-componentts maker Boscch
are
a amongst a handful off companies that
t
have reccently moved back to Ind
dia some partt of their maanufacturing or
o
outsourcing
o
inn China owingg to currency, labour and othher cost advan
ntages.
PM
P Modis strrategy to use the Make in India campaaign to turn th
he country into a global maanufacturing hub
h is bang onn,
but
b it can be achieved throough future teechnologies aand not old world
w
thinking
g, feels internnational management experrt,
Richard
R
DAvveni. India cannnot ape the su
uccessful Chiinese model of mass manuffacturing at loow cost in the future, for it is
on
o the declinee. New technoologies such as
a 3D printingg are going to revolutionisee the future, he told. Consid
dered a leadinng
expert
e
in Corpporate Strategyy, DAveni frrom the Tuck School of Bu
usiness at the US
U based Darrtmouth Colleg
ge, said, Indiia
is in a good pposition to atttract leading US companiies pulling ou
ut from China and lookingg for optionss and investinng
resources
r
into developing 3D
3 printing, breakthroughs
b
in cloud com
mputing and new IT. It has both talent an
nd intent. Thhe
challenge
c
for ccompanies likke TCS, Infosy
ys and Wiproo is artificial in
ntelligence, daata analytics aand cloud. Hee said not manny

12

American and Japanese corporates are willing to set up manufacturing bases, because they perceive India as high risk in
corruption.
More reasons to cheer!
This is a great idea, says Jagmohan Raju, professor of marketing at Wharton, referring the Make in India initiative. The
Indian consumer has come of age, and domestic demand will continue to increase to justify the production of goods in
India.If goods are produced in India, it creates manufacturing sector jobs. It creates an infrastructure of ancillary
industries. More jobs will be created in the industrial sector and the economy will get a boost. Japan started its growth path
by making goods for the U.S. China has a strong manufacturing base. India can achieve the same.
Anthony Paul Bamford, the 69-yearold chairman of JCB Ltd, who set up his companys first overseas plant way back in
India in 1979, sees it as an inspired decision; few companies would have contemplated setting up a business in India back
then. Today, JCB is a generic name for earth-moving equipment in India. Recently, Bamford announced investment of
`500 crore to set up a manufacturing facility in Jaipur, the firms fourth in India. Every country has differences. What is to
complain about? Your country is a wonderful country, and I certainly see more positives than I see negatives. If you look
at how difficult was it to do business in the early 1970s in India when everything was licensed or rationed...now your
country is very modern and you have a bureaucracy and that is starting to be energized. I get that feeling. You have got
Mr. Modi who works so many hours a day. You have got a very, very active prime minister. A person makes a difference.
My country, Great Britain, was transformed by a womanMrs. Thatcher. She transformed it. Of course, she had a lot of
good people with her but it was her will that did it. So, a person can make a lot of difference and you have got a very
positive man running your country. To be honest, we believe in your country. Come what may, we believe in India. As for
red tape, every country in the world has red tape. I have never complained about India and I would not because the pluses
are much more than the minuses. People smile in India. They are not miserable. Thats what I find very attractive, says
Bamford.
With its chronic blackouts, crumbling roads, and other infrastructure woes, India should have no appeal for John Ginascol.
A vice president at Abbott Laboratories (ABT), Ginascol is responsible for ensuring that the companys food-products
factories run smoothly worldwide. He cant afford surprises when it comes to electricity, water, and other essentials.
People like me, he says, dream of having existing, good, reliable infrastructure. Yet Abbott has just opened its first
plant in India, and Ginascol says there havent been any nightmares so far. In October the company began production at a
$75 million factory in an industrial park in the western state of Gujarat. The factory is producing Similac baby formula and
nutritional supplement PediaSure, which Abbott plans to sell to the growing Indian middle class. The plant will employ
about 400 workers by the time its fully up and running next year. As for Indias infrastructure, Ginascol has no
complaints. The officials in charge of the park were able to deliver very good, very reliable power, water, natural gas, and
roads, he says. Fundamentally, the infrastructure was in place. During his 13 years in power in Gujarat, Modi made the
state an industrial leader. Manufacturing accounts for 28 per cent of Gujarats economy, compared with 13 per cent for the
country as a whole, and a touch less than the 30 per cent figure for manufacturing titan China.
India has the land, India has the people, India has everything, says Ajit Gulabchand, chairman of Hindustan
Construction. Why wouldnt global manufacturers come?
Among those making commitments is Ford Motor, which has one factory in the southern state of Tamil Nadu and is
opening a second $1 billion plant in Gujarat in 2015. Japanese auto parts maker Nidec in June announced a plan to invest
10 billion yen in a motor manufacturing plant in the northern state of Rajasthan. At the end of November, Yamaha Motor
is scheduled to open a $244 million factory producing motor scooters near Chennai in Tamil Nadu, an investment thats
attracted shock absorber maker KYB and other Japanese suppliers. Panasonic on Oct. 1 announced it had formed a venture
with Minda Industries, a Delhi-based maker of auto parts; their plant is scheduled to produce 2 million car batteries a year
starting in 2018. A lot of projects which were stuck now have been cleared, says Baba Kalyani, chairman of Bharat
Forge, one of Indias biggest makers of auto parts. Pro-reform state governments such as those in Madhya Pradesh and
Gujarat, both controlled by Modis party, will be able to attract maximum investment, Kalyani says.
India is the most attractive equity market in the world from a five-year perspective, Christopher Wood, managing director
of CLSA Ltd, Asias leading equity brokerage and investment group focused on institutional broking, said recently.
According to Wood, the Indian economy has bottomed out and a rating upgrade may be around the corner.

13

While commenting on the macro-economic outlook of India, Rajeev Malik, Senior Economist, CLSA said (f)irst of all
starting off with growth, that is really what makes people excited about India, both domestically and externally. Given the
relative context, we continue to expect gradual improvement initially, paving the way for a much stronger rebound next
year, which should accelerate even further in FY17. So in terms of our growth forecast -- 5.6% for this year, 6.5% for the
next year and 7.2% in FY17 - we want to say that by this time we think India would actually be growing faster than China.
Bear in mind that with this shift that is taking place in Asia, structurally, India would be doing a lot better. China, however,
having already had its day in the sun would structurally be moving towards lower growth trajectories. One important point
to really understand is the growth pickup initially will be gradual and uneven and that is simply a function of not so much
that nothing is being done at the policy level, but simply because of the multiple imbalances that India is also trying to fix
at the same time. It appears gradualism is at work, but that is not necessarily a bad thing given the multiple issues that are
also being sorted out. The most striking thing I find at the macro level is while people crib about not having big bang
reforms, India really cannot be a big-bang story. You will have meaningful steps, they do not necessarily have to be big
bang all the time and this is where even gradualism or incremental steps cumulatively will add up to make a much more
powerful story. One of the biggest reforms that is actually already underway is in the RBI's new monetary framework
which aims to bring a significant decline in medium term inflation expectations. You cannot have a sustained growth
acceleration, if inflation remains high and highly volatile, which is why the RBI's game plan of initially of 6 per cent target
for Jan 2016 and thereafter, if the government agrees, 4 per cent is actually extremely meaningful. You will not be able to
name any economy which has become a manufacturing powerhouse but still has high inflation.
According to the results of the CII-BCG Manufacturing Leadership Survey 2014, which was launched to gauge the pulse
of industry leaders on the current scenario and future prospects for the Indian manufacturing sector, and which included
views from a little over 100 head honchos of India Inc., the pulse has certainly quickened since the Narendra Modi Sarkar
picked up the reins. The survey for its part displayed in abundance the optimism of domestic CEOs: for instance, 85 per
cent of those surveyed expect manufacturing growth of between 5 per cent and 10 per cent in the next five years (against
3.4 per cent in the past five). That's the headline number. But it gets better. One of the posers shot at the corporate
chieftains was what would they like Indian manufacturing to be known for by 2020. The options: The 'next Germany'
(most preferred for top-quality manufacturing), the 'next China' (most preferred for low-cost manufacturing), global leader
in low-cost innovation, or jugaad, or tech and process leader in select manufacturing sectors, like Thailand. The most
popular answer was not unpredictably a reflection of the new-found ambition and optimism all of 37 per cent of those
surveyed want India to be known as the next Germany; only 21 per cent wanted India to usurp China's position as a lowcost manufacturing hub; and best of all, less than a fifth reckoned India should pursue the path of jugaad. The confidence
that India Inc. exudes stems to a large extent from the Make in India initiative. Can Mr. Modi make it - in India?

14

References

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http://www.livemint.com/Industry/ncXr2gJp1oJSUCLGlcRJcM/The-unmet-promise-of-Indias-liberalization.html
http://articles.economictimes.indiatimes.com/2014-11-16/news/56137367_1_india-inc-indian-manufacturing-sectorceos
http://articles.economictimes.indiatimes.com/2014-11-17/news/56174617_1_rajeev-malik-growth-forecast-macro
http://www.livemint.com/Companies/vCEPjFB07xcQoluvEozmcI/India-most-attractive-market-Modi-key-CLSAsChristopher-W.html
http://www.business-standard.com/article/pti-stories/unsustainable-tax-demand-would-only-earn-bad-name-fm114112100752_1.html
http://www.thehindubusinessline.com/industry-and-economy/education/modi-govts-make-in-india-has-right-intentwrong-strategy/article6615405.ece
http://articles.economictimes.indiatimes.com/2014-11-18/news/56222350_1_prime-minister-narendra-modi-indiainitiative-tourism-sector
http://www.livemint.com/Companies/DyZm6r2uJiXCvuKhjdkbUO/Pluses-of-doing-business-in-India-much-morethan-minuses-An.html
http://www.livemint.com/Opinion/LCpv8ZRlEqn0pPNZOiE42J/Need-to-reboot-the-skill-development-policy-inIndia.html
http://timesofindia.indiatimes.com/business/india-business/India-drops-to-dismal-142nd-in-ease-of-doing-businessrankings/articleshow/44969091.cms
http://www.thehindu.com/opinion/op-ed/comment-reforming-labour-laws-creating-livelihoods/article6545494.ece
http://www.livemint.com/Politics/tRK4eM4sdYcu7hw5BigNqN/Narendra-Modi-introduces-labour-reforms-to-endinspector-ra.html
http://www.hindustantimes.com/india-news/narendra-modi-launches-key-labour-reforms-promises-better-workcultures/article1-1275925.aspx
http://www.economist.com/news/finance-and-economics/21631147-fix-indias-indirect-tax-system-overdue-it-mayfall-short

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