rejuvenating indian manufacturing industries b.v.raghunandan

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Rejuvenating Indian Manufacturing Base and Lessons from Chinese Miracle -B.V.Raghunandan, SVS College, Bantwal Post Graduate Department of Commerce University College, Mangalore March 14, 2013

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Page 1: Rejuvenating indian manufacturing industries b.v.raghunandan

Rejuvenating Indian Manufacturing Base andLessons from Chinese Miracle

-B.V.Raghunandan, SVS College, Bantwal

Post Graduate Department of Commerce

University College, Mangalore

March 14, 2013

Page 2: Rejuvenating indian manufacturing industries b.v.raghunandan

India and China: Similar History and Different Journeys

• India was liberated from British Rule in 1947 and People’s Republic of China was founded in 1949

• India became a Republic with the idea of Socialistic Pattern of Society and China became a single party communist state

• India adopted mixed economy and China adopted state ownership of everything including land

Page 3: Rejuvenating indian manufacturing industries b.v.raghunandan

• Nehru caused the Public Sector

• Mao gave importance to agriculture, and Defence

• 1962 Humiliation in War

Political Leadership

Page 4: Rejuvenating indian manufacturing industries b.v.raghunandan

Indian Industry: Initial Stage

• Growth of Public Sector• Family Owned Business comprising Private Sector• License Raj and a Land of Shortages• Bureaucracy and its Suspicious and Vindictive Attitude Towards

Private Business• Politicised Co-operative Sector• Many Instances of Black Economic History• Sluggish Exports, Growing imports and Deficit Economy

Page 5: Rejuvenating indian manufacturing industries b.v.raghunandan

Chinese Industry: Initial Stage• Economy of Deprivation & Self Sufficient• Conservation of Resources• Huge Amount Spent on Defence• Piling Up Nuclear Arsenal including Hydrogen

Bombs• Industrial Production was less than the Bare

Minimum• Totally Regulated and Centrally Planned

Economy• Became a Superpower

Page 6: Rejuvenating indian manufacturing industries b.v.raghunandan

Indian Fiasco• Slow Growth Rate• Inefficient Public Sector• Corrupt Government• Killing Tax Rates• Black Money• Energy Crisis• Lack of Investible Funds• 1968-a Shameful Year• 1990-Another Shameful Year• Industrial Policy was Defective• Only Traditional Exports

Page 7: Rejuvenating indian manufacturing industries b.v.raghunandan

Defective Industrial Policy• High Tax Rates• No License for Expansion• Powerful MRTP Act &

Commission• Traditional Family Owned

Business dominated the industrial scene

• Poor Infrastructure• Delay in Completion of

Power Projects• Generation &

Transmission-Govt Monopoly

Page 8: Rejuvenating indian manufacturing industries b.v.raghunandan

Game Changers

• Remittance from 1976 from Gulf NRIs• Government could Liberalise Import Policy• Industrial Raw Materials became available more• Growth of Reliance Industries• Capital Market becoming a Household Investment• EPZs and Tax Holidays• Housing Finance by HDFC• Rajiv Gandhi’s First Dose of Liberalisation in 1984

Page 9: Rejuvenating indian manufacturing industries b.v.raghunandan

Chinese Game Changers

• Death of Mao Ze Dong in 1976

• He left China as a unitarian monolith of single party communist ruled

• Mass Poverty and Deprivation

• Conserved Resources• Only Country in the world

without exports and imports• The biggest Red Army in the

world• A Thermo-nuclear Power

Page 10: Rejuvenating indian manufacturing industries b.v.raghunandan

Rise of a Socialistic Market Economy

• Deng Xiao Ping became the Chief Economic Advisor

• Proposed a Market Economy

• More Industrialisation• Invitation of Foreign

Investment to a Limited Extent

• Pirate Economy• Building up Database• 1980s saw Gorbachev in

USSR and Deng in China• Became angels of Market

Liberalisation

Page 11: Rejuvenating indian manufacturing industries b.v.raghunandan

Rajiv Gandhi’s Liberalisation• In automobiles,

telecommunication, education

• Liberalising Licensing Policies

• Tax Rates were brought down

• Encouragement for Exports

• Sam Pitroda was the Advisor

Page 12: Rejuvenating indian manufacturing industries b.v.raghunandan

Debacle of 1990s• Foreign Exchange Reserves dipped to a

low of 7 days’ import requirements• RBI pledged its gold reserves with Bank of

England• Tax Revenue was low• Industrial Growth became sluggish• Wheels of Fortune turned against India• Blame was on the first dose of

liberalisation

Page 13: Rejuvenating indian manufacturing industries b.v.raghunandan

Liberalisation 1991• Lower Tax Rates• Easier Licensing Policy• Diluting PSU Monopoly• Disinvestment• Banking Sector Reforms• Capital Market Reforms• SEBI and other Regulatory

Bodies• Forex Management• Media Reforms• Opening up

Telecommunications• Opening up Insurance

Sector

Page 14: Rejuvenating indian manufacturing industries b.v.raghunandan

Policy Dithering

• Self-Cancellation Policies• Bureaucratic Mindset• Lack of Firmness• Lack of Unity of Command• Lack of Ministerial Stability• Still suspicion on Industries• Lack of Planning and all Management

Strategies

Page 15: Rejuvenating indian manufacturing industries b.v.raghunandan

Policy Variations• China has Clear Cut Policies• India changes Policies very often• China believes in Manufacturing whereas India is betting on

Service Industries• China invested in hardware industries, whereas India was

preoccupied with software Industries• China believes in penetrating every market in every foreign

country-India gets preoccupied with a few sectors• Trade Surplus and Trade Deficit• Cheaper Yuan and Tendency to Make Indian Rupee Costlier• Growth Vs Inflation-Rates of Interest• Cost Wonder and High Cost Economy• Monitoring Project Execution• Investing in Infrastructure

Page 16: Rejuvenating indian manufacturing industries b.v.raghunandan

India’s Agenda

• Further Encouragement to Export Industries with a Guarantee of Non-Withdrawal

• Further Reduction of Taxation on the same Footing as IT Industry

• Encouraging Research in Industries where Chinese Products are Flooding Indian Market

• 24x7 power supply to industries-dedicated terminals

• Government Assuming the Role of Managing Industrial Pollution through outsourcing

Page 17: Rejuvenating indian manufacturing industries b.v.raghunandan

THANK YOU