Challenges - Make in India, Interdisciplinary issues in Indian Commerce Video Lecture | Interdisciplinary Issues in Indian Commerce - B Com

hello and a very warm welcome to Raja
sabar television with me Frank rather
the government launched the make in
India initiative which aims at promoting
India as an investment destination and
to establish India as a global hub for
manufacturing design and innovation the
initiative aims to provide congenial
environment to the business community so
that they can devote their effort
resources and energy in productive work
a number of steps have been taken by the
government to improve ease of doing
business rules and procedures have been
simplified and a number of products have
been taken off licensing requirements on
this edition of the big picture we'll
analyze what some of the biggest
challenges of this initiative are join
me on the program today our super-wide
Bhattacharjee consulting editor of the
business standard also with me on the
program professor and our band multi
member ni p FB and SK Sarkar chairman
economic affairs committee or by a big
part in the managing committee member
som is also with me here from the
program thank you so much gentlemen for
being to be on the program
superboy I'd like to start with you you
know has the make in India initiative
really achieved what it's supposed to
have achieved thus far Oh
achieved meant is a very big word in the
sense that this is a program which
actually is a long-term phase a phase in
program so work we are at the stage here
where this is the stage where it's big
the parts need to be fitted in
manufacturing in India's actually sure
been shrinking now if it start out with
that as the base then the point is what
needs to be done to make manufacturing
actually start reviving to do that one
of the components is to change the rules
for doing business which is basically
being talked of as the ease of doing
business rules the second is action on
the ground in terms of what the states
are able to do in terms of what they
offer the investors and third what
happens with the manufacturers who are
already established in India and have
problems or advantages which
would like to sort as one goes through
so if you look at it there the first
easy hanging fruit is changing the basic
the roots the ease of doing business
rooms so we didn't make in India that is
the one which the single government has
sort of tapped into it's also something
with the state governments have tapped
into because those do not in most cases
require change of legislation so those
are the ones which have actually you'd
you'd have seen a lot of traction this
year the reports that came out the
discussions over them those are the
easier ones to work on that has been
done the second part of it which is that
what do you do about the state
governments actually being able to offer
concrete investment ideas and honest and
and and and who and and legal
regulations which make it interesting
for them to do that what we are coming
into now and of them the most critical
one is the one which has just started
which is the reform in the electricity
sector who they nowadays that stage
where the states are just signing up to
say we agree that the electricity boards
dues over the next three years we will
take up 75% of those ask the banks to
take your hair I am in a request the
banks to stake a haircut and make
electricity tariffs much more what I
meant called practical between the
agriculture and industrial sectors so
that is something that it will unfold in
the next few months in terms of what the
states actually do the third part of it
which is the balance sheet problem of
the companies which are already there
settling those out which is commonly
being referred to as an NPA problem of
the bad debt problem that is the most
difficult problem of all because that
involves companies actually each company
doing specific things to ensure that
they get those out the bad things out of
their books take it where it is
necessary take a lot of the shareholders
more say in terms of what needs to be
done at the management level weeding out
management you know this is very
difficult thing in India yes
management which he doesn't really
perform it doesn't really happen so
easily in India you know those sort of
steps those would be the third part so
that is how I look at the make in India
indeed and what challenges do you see
professor Bhanumati as far as the make
in India initiative is concerned yeah
the the major objective of making India
if you look at is to increase the share
of manufacturing sector to twenty five
percent yes which is currently at 16% or
17% that itself suggests it is a very
long-term plan of the government to
increase the share of manufacturing
sector so what takes manufacturing to
twenty five percent I would say there
are four eyes and one is infrastructure
investments innovation and intellectual
property property right and the skilled
labor so these are this five you know
aspects of making India is it will take
a long time so we are not really as
super me already pointed out we are not
talking about achievement have we
started making India I think that's
where we are at that moment any of these
five aspects all our long term emissions
it will take much more time than what
the annal is really looking for having
said that the biggest challenge that you
asked is that the biggest challenges
there is general impression that's been
created here right now making India is
for foreign investors okay and if you
look at and you must have heard some of
the dissent voices saying that making
india for india something like that from
the RBA governor himself so i think it
is not just for the foreign direct
investment alone it is also for the
domestic investors to be part of this
war all global expansion the indian
expansion which we are trying to
increase the share of manufacturing from
16 to 25 percent in that sense i am not
really sure again as super me already
you actually touched the crux of the
issue about the balance sheets yes
sure the domestic industry is really
ready for taking that challenge and
again this is not new in fact we heard
this kind of things in the beginning of
the reforms itself the fear of foreign
competition okay so the fear of foreign
competition seems to be coming back in
the minds of domestic investors I mean
that's one of the reasons why we see
even if there is a decline in the
interest rates by the central bank we
are not seeing the recovery in the
investment cycle there is no clarity on
where the foreign investors are going to
come where the government is attracting
foreign investment in which sector those
things have not been really made clear
so that the domestic investors can start
investing in other sectors indeed you
know something that he pointed out this
azúcar very interestingly you know is
that domestic industries are they
willing to take up this challenge well
let's go back to what the government is
trying to do you see the government is
has honest intentions to be fair to them
they have come up with schemes like
making India they have scaled India then
they have this smart cities digital
India Jan dhan Yojana
swatch bharat' and bullet trains bharat
mala whatever I mean so they got
everything there what is my fear or my
scare is that these are all standalone
schemes they've pretty disjointed
they're not joined together I'll give an
example and if you if you look at bullet
trains no fine you get you have the
foreign trade policy which came on 1st
April 2015 which which covers the period
of 2015 to 2020 now it says that project
Jayakar related projects would not be
entitled to the deemed export status now
that means that the supplies go up by
something like 20% yes because because
obviously the duty drawback and
everything will not come into play at
all now when you do and but World Bank
and ADB projects still remain under the
deem deemed exports scheme now if you
have such a thing and and if you have a
scheme you have your announcing a policy
which is actually working against a
scheme which is to be formulated by the
government
so that's where you you get into a
little bit of of issues and obviously
there's a lot of red tape observe
there's the bureaucracy is playing its
role now you have the National skill
development corporation which has been
targeted to to provide to provide jobs
150 million people they've actually done
for only 5.1 million people and only 1.5
million people have been employed placed
if you have things like that and then it
becomes a very very difficult task this
mr. Bhattacharya referred to NP r--'s
know if you when you look at NP r--'s
the balance sheet items when you look at
yes we have something like sixty billion
dollars of NPS right now which is
staring us in the face but when you come
up with this SDS the structure is a
strategic debt restructuring what
happens is there's a possibility that
you are forcing the companies to merge
into one another and world over today if
you look at the global economics if the
mergers have actually not played the
role that they should have played they
have become dominant players they have
actually cut down on employment they
have actually brought down the economic
activity to a considerable extent we are
not in that stage where a not take off
stage we are we are a developing economy
we want to be a superpower in economic
superpower in the next ten years or so
now that being so we are not really
taking off in the manner which we should
be doing we talk about tax terrorism
nobody whenever we talk about tax there
is a we do it visa V the foreign
investors we don't talk about domestic
tax terrorism I'll give an example here
again if you look at the finance sector
2015 it's suddenly at the last stage it
was never at the discussion stage at any
stage at all they they came up with the
definition of income which included
subsidies and grants and concessions the
purpose test was totally lost sight of
now if you do a thing like that and say
that any kind of subsidy that you get
without looking at the purpose for which
it has been given then and other than
what is given for an asset you it will
be an income now did you did you put it
for discussion before the before in the
public domain
did you discuss it in the power
Parliament you never did that
if you when you do things like that that
is where the scare I think actually
expands it is it you you have a you have
a large I mean you people are not very
confident and today let me say this on
as well the domestic industries concern
the capacity utilization today is
roughly speaking average is around 65 to
70 percent which means you have not even
got two hundred percent so the capital
investment does not come in at this as
this juncture at all and then of course
like professor Serb said that we have a
very hot we have very highly leveraged
companies in this country we do not have
the capital now these leveraged
companies they're not even able to meet
their interest payouts if that being so
and if you look at the BSE 200 top
companies or even the NSE top 50
companies you will find that we are
actually the profit margins are coming
down and not going up so the business
confidence today is totally lacking I
mean it is it is it is something where I
mean the businessman today is
unfortunately living for the day how do
you build his confidence we build the
confidence by putting it in the cap it
by the cap obviously the government has
front-loaded the capital investment I
must say in their favor they put in
something like 1.5 lakh crores already
which is which is a good thing but then
if you look at the projects the
infrastructure projects if I can break
it up
295 infrastructure products of 150
crores or more are actually stalled
under there they're not they're delayed
and if they are delayed so there are
cost overruns there are the utility
value is lost because what we put the
present value of what I could have got I
am not getting and unless and until this
this particular infrastructure is built
up we would not get the confidence back
again and if you are talking about the
confidence let me say this again that we
talk about private wealth we talk about
public wealth private wealth is always
very well managed by the why the front
manages not so the public public wealth
if you look at your public wealth itself
I am F says that you have about seventy
seven trillion dollars of public wave
globally if you were to manage that
problem at the way the private private
wealth is managed
you would have something like 2.70 a
trillion dollars per annum and that is
what and that is more than what you need
for building up your infrastructure in
meters India Chabot a capital is a major
problem and you know as you rightly
pointed out at the beginning itself ease
of doing business
India as we all know is not considered
to be a very easy country to do business
with and that's when we've seen a you
know history as tall as that India is
not a good country to do business with
so where is this capital flow really
going to come from
well capital I mean it's it's actually
technological I mean if it's an easy
place to do business capital comes in so
let's put it little but let's look at it
this way
is it the shortage of capital that is
holding up making India I don't think so
I think the point is the lack of
investment opportunities as one who
pointed out you know the lack of
investment opportunities is coming
because and here I think the first thing
that we need to see is the make in India
is not just about helping business it is
about creating jobs yes in India
well that is the reason in the first
iteration of reforms frankly speaking
while they've been plenty of great
companies that we managed to build up in
the public and private sector there are
lots of other companies which as mr.
Sarkar pointed out got this is leveraged
and they got it leveraged because of
cheap capital now for instance we have
did any quitting market how many of
these companies which had the
opportunity tap the equity market if
equity market brings in more discipline
yes
leverage debt from the bank is much more
easy to generate now having generated
that it's unfair for them to say then
you know we have got highly leveraged
sure the business cycle has turned the
other way and we've got bad debt on your
books but then that wasn't something
which if you had equity more you would
have actually been much more alert and
responsive to market demand and you
would have moved a curve accordingly you
didn't you waited and kept on betting on
that the RBI will be basically changing
the interest rate yes yes to help the
company
do will it is I think playing with the
country's scarce capital which you're
talking about now that is something
which is often a problem at ease of
doing business there are capital goes
into wrong areas and in a country and
let me look at a ground away label in
India we are labor and we're labor
intensive should be live intensive
economy we are the most capital
intensive economy in one of the world in
I mean one of the most couple in economy
in the world why does it happen because
capital is cheaper in India than labour
the pressure I agree that labor reforms
was difficult but instead of you know if
we had actually taken several amount of
difficult steps in terms of you know
going in for equity and all those things
probably we would have had much more
traction on labor reforms because
companies and the government would have
been forced to act
nobody acted on and therefore we have
got a situation where we don't add any
jobs
in the last one year we have just added
five lakh jobs yes against a combined
requirement of at least even by going
mile estimate of 8 million jobs a year
so I if I were a policymaker I would
actually be more scared about rather
than taking out the company's problems I
would rather be looking at ways to you
know pull that capital to make create
jobs where it is there and it doesn't
really matter who is able to create the
job so long as the job gets created
which is getting created or not that's a
point but that I think is the
fundamental problem and that is I think
the biggest challenge for making India
job creation the biggest challenge for
making India would you agree with that
yeah yes I think in the make in India I
mean apart from the 25 percent target I
think providing opportunity for 16
million new laborers entering into the
labor market is one of the biggest
challenges that's one of the reasons why
we want to shift from service led growth
to the manufacturing yes so that is the
whole crux of the point otherwise we
could continue to do this service let
growth because we know that that's a job
there is the service let growth is more
of a jobless kind of a growth so that's
definitely a crux of the issue but the
my problem is when they identified 25
sectors under the make in India there
are so many sector that has been I did
yes I think it's very important for the
government to analyze where which sector
has more labour absorption you know and
once you identify that as super me
pointed out chip the capital are give
priority to those sectors where labor
absorption is very high I think that
kind of analysis that needs to be done
you know before we get into a you know
road shows and all those things I'm not
really sure but that this kind of
analysis has been done at the government
level in terms of Finance I think and
slightly disagree with mr. Sarkar
because all these programs they are
actually enablers for making India you
know you talk about who they you talk
about Gendron scheme is gen than is
nothing but financial access financial
axis is the biggest problem for the
manufacturing sector in this country you
know right now the financial resource
gap in this manufacturing sector is
nearly 40 percent they are not
mobilizing from the formal financial
sector process so I think financial axis
general scheme digital India is supposed
to improve the ease of doing business so
all these things are enablers okay but
that is another point the other point is
like you know if you if you take a
textbook example of production function
we basically look for our capital labor
right lad okay energy you take out of
all this for we have all problems in all
the four yes impose yes you take labor
it's a state subject not many states
have cleared land we're in a mess energy
we're again in a mess capital we know
that there's a huge gap so if you don't
address these four components okay
you we're not going to have a take off I
mean we will crawl but we will not have
a take off to 25 percent now that's a
very valid point that you're making you
know we need to address those problems
and those four sectors first or those
four components and only then will we
see making India really take off this is
a car you see 91 when we embraced her
globalization unfortunately we we
we were actually the focus was on
capital intensive industries rather than
the labor intensive industries and we
may blame for China for whatever their
policies are and however they function
but China in 78 when they started off
they actually looked at agriculture
first and then they looked at industries
so then why did they look at agriculture
first the reason was that they wanted to
build up the rural income so the rural
income the rural demand which creates
the which creates that the the necessity
for the industrial products and unless
that happens your your your job creation
becomes a huge huge issue today in
industry when you talk about cost the
cost reduction or cost control it
actually means bringing down your labor
cost that is the first target rather
than anything else so commodities
fortunately of course that is of course
a god-sent gift that it has happened
that where we have commodity prices
going down but we are not in a position
to take advantage of that situation
because we do not have the skilled labor
at our disposal at all so an
infrastructure as I said earlier on that
we are at a very bare minimal stage we
do not have the infrastructure to to
carry carry us carry us forward finance
unfortunately when you look at finance
the equity market is a very very small
market in this country we actually look
at the banks and we are only looking at
the banks and financial institutions for
our finance so when that happens
obviously the leveraging goes up when
the leveraging goes up and and and
there's a downturn in the economy you
are hit and that hit is you are you're
not able to absorb at at this stage of
time and one point I wish I wanted to
make here was that when you look at
where a ease of doing business with
world banks talks about and that put
they put us at about 130 now from
hundred and fifty-eight but
unfortunately this kind of it the way
the calculation done here is a little
flawed in the in the sense that they
look at only Delhi and Mumbai as
industrial which are not industrial hubs
at all and if you look at the statuses
of these two places and then you compute
that that it doesn't really work that
way what is important here is that if I
want to start a business today average
on an average 12.2% of my capital goes
into
starting the business indeed now if I do
that then I'm losing out on that kind of
money how do i how do i how do i do the
value addition subsequently if that cost
is so high right so that is the point I
think the government needs to address
and and that and no and not look at what
what what the what World Bank is saying
that ease of doing business is such a
yes obviously we must keep that in mind
I'm not saying that we should totally
lose sight of that but the fact remains
that if my capital is going to be
withered away before I start my business
how do I build up a capital because my
capital unfortunately is very very
scarce I do not have the financial
capital with me you know I've got two
minutes left on the program so I'm gonna
get closing comments from my guests or
from all my guests starting with you
Superboy what's the way forward what do
we look at going into the future as far
as make India making India is concerned
well I think there are quite a few
interesting building blocks already in
place and it'll be good if industry
looks at actually the ones which have
been which are being touted for India
you know it's no point saying that I'll
enter a sector where the government
hasn't particularly talked about but I
don't see much of investment ideas
coming in to sanitation India at the
screen India or a ideas like even the
making India's basic building block of
telecom sector indeed you know those so
I would I would say think that that that
is where the action needs to be from
business in India and professor
Bhanumati closing comments from well I
think there are three issues one is very
quickly if you have worries I think R&D
investment I think we have not really
discussed much I you will be surprised
to know that we only spend 0.8 percent
of GDP and R&D investment yes and if you
want to have this 9 percent increase in
the share of manufacturing you have to
increase this R&D also rather you have
to double and other one is on the
financial sector I mean I think we still
have one of the big one of the countries
which have highest transaction cost in
the financial markets I think we have to
really go for much more financial sector
reforms and in the bankruptcy I think we
are getting into the Bankruptcy Code
once it comes I think we will see some
improvement in them doing business all
right
on that note we'll have to call it a
wrap on this edition of the big picture
thank you so much
Super Why back to Jersey also with us on
the program for professor another Panama
TNS kisses car thank you so much
gentlemen for being with us on the
program and putting things into
perspective for us that's all the time
we have thank you so much for watching
see you again next time