Thursday, August 21, 2014

Reviving India's Manufacturing Sector

The Prime Minister has declared his goal of "made in India" with "zero-defect" (quality) and "zero-effect" (on environment).

In this context, much of the discussion on reviving India's manufacturing sector revolves around the development of industrial clusters like special economic zones (SEZs) or national manufacturing zones (NMZs). This forms the centerpiece of the National Manufacturing Policy 2011 itself. There is nothing to suggest much has changed even with a change in government.

But, as Rahul Jacob wrote in an excellent recent op-ed, an SEZ-led manufacturing revival plan is not likely to lead us too far. A more prudent strategy, as this blog has consistently advocated, would be a concerted campaign to improve the country's business environment. The gains, especially to small and medium enterprises, from simplifying procedures and limiting regulatory discretion would be much more than those from government's fiscal and other incentives to firms in SEZs. Importantly, for fiscally strapped governments, this is as close to a free lunch as it can get.

The gains would come from both lowering the number of procedures and reducing the time (by simplifying and IT-enabling) for each of the activities defined in the chart below.
This is tough and long-drawn slog, un-sexy and diffuse, multi-dimensional and incremental. So, if the Prime Minister needs to walk the talk on making in India, he needs to get his bureaucrats to embrace the challenge of getting this right. 

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