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CII projects higher growth…

SUCCESSIVE DROUGHTS of the last two years had contributed to zero agriculture growth.  A vast range of commercial crops, including sugarcane and cotton, recorded decline, causing widespread misery in several parts of rural India.

In this background the prediction of an average monsoon is welcome. This kindles hopes on a significant improvement in agriculture growth. This has two favourable tidings: first a higher rate of economic growth, with agriculture sector accounting for 14 per cent of GDP, the jump in the agricultural sector could contribute to more than one per cent growth of GDP. CII predicts economic growth can be around 8.2 per cent!

The second is its impact on the rural economy. Better incomes would trigger higher spending on goods and services and will help increased production of consumer goods and other services.

Naushad Forbes, who had taken charge as President-CII, pointed to several green shoots: much higher demand for automobiles and tractors, step up in investments on highway development, railways and other infrastructure sectors and an improvement in investor sentiment. He also referred to the Centre facilitating states to undertake reforms in crucial areas like land and labour. Forbes pointed to Andhra Pradesh, Gujarat, Madhya Pradesh and Rajas-

than undertaking labour reforms to ease doing business. He also referred to Rajasthan and Tamil Nadu focusing on land reforms intended to facilitate acquisition for business purposes.

CII has listed a few sectors with high potential for growth, like textiles and garments, which constitute a significant share of exports, electronic hardware, cement, iron and steel, engineering, defence and aerospace.

 

No ‘Connect’ with electronics hardware

Despite years of references to the potential of electronic hardware manufacture, there has been little action on the ground. Tamil Nadu began well with export on the annual ‘Connect’ event. In the early 2000s, there was an explosive growth in the IT, communications and telecom hardware industries in Sriperumbudur and elsewhere. Remember Nokia – Foxconn setting up world class facilities and Nokia emerging the largest manufacturer of cell phones? In quick time, this thrust was lost. Confusion over tax policy and poor industrial relations led to the failure to build on this excellent start. Several electronics units in that complex closed down.

F C Kohli, who headed TCS and triggered the IT boom, has been an ardent advocate of electronic hardware. For over two decades Kohli has been suggesting the nurture of electronic hardware education in around fifty institutes of higher learning and backing these electronic hardware engineers with high volume production of a vast range of electronic hardware and components.

 

Make in India efforts hurt

 

Such an approach also needs tweaking tax policies. I refer to the failure of doing this hurting the Make in India effort by citing the experience of the Dell Computers (DC). This computer giant has set up a unit in Sriperumbudur and produces around 3000 PCs and laptops per day. With several state governments promising free laptops for students, combined with the tremendous growth in demand for these from other sectors, one can imagine the potential for volume production. But, on a visit to this facility, I noticed a few interesting factors: the first is the modest volume of production, of around 3000 per day or around a million a year. Second, the unit provides employment to local women with a higher secondary pass who are quite nimble and efficient.

The matter of concern relates to the very poor, indigenous content: except the CD manual, the sponge and carton used for packing, other items are all imported. Foxconn imports these from Taiwan in CKD packs. Reducing the excise duty from 10 per cent to 2 per cent can trigger manufacture of several components by local units.

Another equally sad experience related to the free mixies and fans offered by Tamil Nadu not resulting in any big orders for Indian manufacturing units. For their low prices, these are imported from China, of indifferent quality.

Forbes and his team at CII should address this issue by encouraging Indian manufacturers to go for high volume production as does China.

 

High capacity, low utilisation, high prices

 

In the Indian context, even in sectors where volumes have been high, the traditional pre-liberalisation habit of cartelisation persists. We have been pointing to such practice in the cement industry: despite a handsome expansion of capacity which is under-utilised, cement prices have been manipulated by cartelisation. We have been pointing to the huge difference in cement prices by such unethical, oligopolistic cartels.

 

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