As India celebrates the season of sixty
seventh anniversary of Indian Independence, there is a new hope and aspiration,
which is reflected by the President Shri Pranab Mukherjee who said in his
customary pre-Independence Day speech, that the twenty first century belongs to
India. The Prime Minister, Shri Narendra Modi, reinforced the message while
unfurling the national flag at the Red Fort on the Independence Day with a call
to make India strong with economic growth and social equity. A cornerstone of
the new aspirations will need to be economic independence for the country. This
has a connotation greater than non-independence on economies of other nations. True
economic independence means the emergence of a policy structure that rests on
the logic of economic growth and social equity than on dogmas like
self-reliance or maximizing foreign direct investment (FDI).
True economic independence happens when every
adult in every family has a productive and earning job, whether through
agriculture, manufacturing or services. The Prime Minister has given a number
of inspirational slogans ever since he took office; these could verily serve as
credos of development for a New India. Some of these are; ‘Skills, Scale and
Speed’, ‘Per Drop, More Crop’, ‘Minimum Government, Maximum Governance’, ‘Come,
Make in India’, ‘Zero Defects, Made in India’, ‘Reduce Imports, Maximize
Exports’, ‘Zero Defect (of Product), Zero Effect (on Environment), and other
exhortations are reflective of Modiji’s passion to develop India as an economic
power. To these, if ‘Zero Unemployment, Productive Deployment’ gets added as
the exhortation that is translated gainful realization through tangible action
it could lead to micro level wealth creation. The issue with economic
development is that there tend to be no easy solutions. A holistic approach is
needed to make things work for true economic independence.
From licensor to regulator
One of the first tenets of economic
liberalization of the 1990s was that licensing stymies industrial and economic
development. The two decades of liberalization has demonstrated how unshackling
of industries and businesses can lead to unleashing of growth. Two caveats are,
however, necessary. Firstly, growth
cannot be fuelled only by continuous removal of licenses or liberalization of
investment caps. All said and done, there would continue to exist sectors of
strategic importance where licensing or investment controls would be in play. Barring
a few such strategic sectors (defence, multi brand retail, railways, insurance
and banking, oil and gas, mining, for example), all the rest are probably free
of licensing and investment controls but are still anemic in growth for various
reasons. Secondly, free market economy does not by itself guarantee non-cartelization
nor does it by itself prevent exploitative economics (real estate, for example).
There must be an oversight role for the governments, particularly in a huge
democracy like India where the disparities in wealth, education and health are
three of the most galling pain points.
At a conceptual level, the governments must
move from being licensors to regulators. Regulation commonly is seen as taking
care of customer interests through good business practices including pricing. Truly
effective regulation goes deeper, with an approach and guidance that ensures
quality, innovation and competitiveness. Each of this is an important parameter
that must be defining in its essence. National regulatory bodies should have
expertise to monitor how various industrial and business sectors are performing
in terms of the three parameters and periodically issue guidelines, rules and
regulations to course-correct the erring or sub-optimized industries. Regulators,
who will be industry specific need to matrix with three pan-industry
commissions on each of the three parameters mentioned above; quality, innovation
and competitiveness. Three national expert commissions can be conceptualized as
discussed below.
Three national missions
Quality, of the product and process, is the
key to make India global manufacturing hub. From a situation where the quality standards
are derived from the developed world, India must be able to set global quality
standards. Looks unbelievable? In the 1950s, setting global quality standards
appeared infeasible for Japan and in the 1970s for Korea. Yet, today Japan and
Korea lead in quality. Why not, therefore, India? If the Indian industry and
talent pool is seen to deliver quality, India would automatically become a
global manufacturing hub. For that, the existing base must be developed to
reach and set higher standards of quality. A National Quality Mission would be
well in order.
Innovation, of the product and process, is
the engine of growth. Innovation leads to new products and processes as well as
continuous improvement in existing ones. Innovation is commonly seen as a
result of research. However, innovation, as with quality, is a matter of
mindset. An inventive mindset is required to foster innovation as much as
laboratories are required to convert ideation into innovation. For a resource
scarce country like India, innovation lies in doing more with less; for
example, more crop per drop. The ability to identify sources, uses and forms of
innovation is a characteristic of successful nations such as Japan and Korea. India
requires a continuous scan of product and process landscape to drive
innovation; a National Innovation Mission would help.
Many times, competition is misconstrued as
competitiveness. Competition is simply presence of more players in the
industry, which it is hoped will lead to each firm excelling over one another offering
improved products or services to customers (it is a hope, not a given!) .
Competitiveness, on the other hand, is the ability of a company to excel over
the others in the industry in terms of products or services to the customers
(it is a demonstrated competency, not a hope!). Mere competition, however high
it is, does not guarantee competitiveness; in fact, excessive fragmentation affects
viability. Indian airline industry and domestic pharmaceutical industry are
examples. Competitiveness builds on quality and innovation with management and
leadership processes that assure business growth and sustainability. A National
Competitiveness Mission would identify appropriate technical and managerial
perspectives.
Three national objectives
There are three beliefs that inhibit the
genuine embedding of the three principles of quality, innovation and
competitiveness in emerging economies, and these need to be countered by the
three expert missions. The first is a sense of false correlation between the
product level and quality level. It may be presumed, for example, that a Mercedes
Benz E series car is one of higher quality than a lower end popular car. Such thinking
leads manufacturers and consumers equate specifications with quality, which is
not necessarily right. Each product needs to be designed, manufactured and
delivered with a purpose in mind, and quality represents fitness for the
purpose as expressed through specifications. The functionality, design
principles and quality levels form a total ecosystem, which must be
continuously elevated. Whatever be the level of product, the level of quality
cannot be compromised. A smart phone and a feature phone are both bound by
respective quality parameters as would a blacktopped road and concrete road would
need to be. The National Quality Mission would need to embed Quality as a
national mindset.
The second is a belief in generational lag, in
products and processes, and in social and industrial infrastructure, almost as
if it is a matter of destiny for emerging economies. Domestic governments and
consumers as well as foreign investors and corporations believe that the latest
technologies must first get embedded in the advanced countries before they can
be offered, developed or manufactured in an emerging nation. As a result of
this belief, which is driven by technological protectionism of innovating
countries and the economic weakness of follower countries, emerging nations
tend to be in a perpetual catch-up game in respect of innovation. The National
Innovation Mission must continuously explore where, why and how India should leapfrog
in innovation rather than be just content with followership.
The third is a belief that competitiveness is
a firm level concept, and government has only fiscal policies to improve or
reduce competitiveness. As Porter’s study on comparative advantage of nations
showed (Michael E Porter, The Competitive Advantage of Nations), certain
nations tend to become good, and internationally competitive, in certain
industries or businesses relative to others. Governments in India, Centre and
States, can integrate infrastructure developmental initiatives with industrial
development initiatives as well as social development initiatives to generate
competitive advantage at firm level and comparative advantage at national
level. The freight corridors that are being developed with Japanese investment
could be combined with Indo-Japanese industrial clusters and social communities
that provide free flow of technologies and goods and services between India and
Japan. The same could be accomplished in multiple manners with multiple nations,
in diverse product lines. The National Competitiveness Mission must analyze and
integrate the several public, private initiatives to generate national
comparative advantage.
Challenges as opportunities
Modiji has exhorted to minimize imports and maximize
exports. India imports 80 percent of its crude requirements. India also imports
gold, and most of the sophisticated plant and machinery for a wide range of
industries. It may therefore look impossible to minimize imports. However, if
value added export platform is adopted as the basis, all imports can be exported
as value added products; for example, gold as ornaments, and even crude as
diesel and petrol, at least to the neighboring nations. Sophisticated plant and
machinery may be assembled at site with local content rather than imported as
complete built units. This, in turn, requires confidence that the Indian
industry is at its pinnacle on quality, innovation and competitiveness.
Skill, Scale and Speed have helped China
achieve exactly this, as Shri Narendra Modi aptly observed. China’s acquired
expertise in telecom gear, smart phones, fermentation and bullet trains are striking
examples. For India to be up to speed on this platform, governments and
industries should backward integrate to the fullest extent, in a complete sense.
There is certainly utility in indigenously producing new generation products
even if in imported equipment, compared to import of the products. However, the
full utility accrues when the equipment is also indigenously produced. India, a
nation of 1.3 billion people, has now global scale demand levels for a range of
products and, therefore, for plant & machinery for such products. It requires
holistic planning and execution to recalibrate India on a global scale. The paradigm
of industry specific national regulators, and quality, innovation and
competitiveness specific national missions have the potential to help translate
all of the Prime Minister’s powerful principles into national wealth with
social equity.
Posted by Dr CB Rao on August 17, 2014
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