Coleman, MD of global industries at Deloitte, speaks on manufacturing and ease of doing business in India and the nation's unique growth model
New Delhi: India has grown in the last two decades on the shoulders of the services sector but with the National Democratic Alliance (NDA) government pushing investment and reforms in manufacturing, the latter could play an important role in driving growth in the future, according to the Competitiveness: Catching the next wave in India report by consultancy Deloitte Touche Tohmatsu Ltd. Gary Coleman, managing director of global industries at Deloitte, spoke in an interview about China overtaking India in manufacturing in the last decade, ease of doing business in the country, and India following its own unique growth model. Edited excerpts:
What significant global business trends do you see at present?
There are several of them. I will put them in the categories of talent, innovation and public policy. As it relates to talent, the trend is that businesses are fighting for the best talent. Talent is scarce.
Even though there is unemployment in many countries, it doesn’t mean that there is lots of employable talent. It just means that there is a mismatch between roles and jobs that are available or roles that are available and the skill sets that are available.
The second trend is around innovation. Businesses are being disrupted at a much more rapid pace than what we have observed in the past. Most of that is due to advancement of technology. Digital technology is disrupting businesses at a faster pace today than anything I have ever seen before.
The third trend is around public policy. Most governments are trending towards creating more pro-growth public policy that attracts foreign direct investment but allows businesses to grow.
What are your thoughts on manufacturing in India?
Manufacturing in India has not taken off as much as some people thought it would or could and it’s been that way for a decade or so.
India lost out to China as it relates to manufacturing. That was due to variety of reasons—some of it deals with infrastructure, some of it deals with incentives that the Chinese governments gave and some of it also has to do with public policy which encouraged companies, particularly MNCs to put their manufacturing and R&D facilities in China rather than India.
However, I’m quite optimistic about manufacturing in India. Some of the reasons why India lost out to China have started going away. You have a leader who is pro-growth in his stance and is advocating that throughout his administration. There are efforts to create public policy which when implemented will make it easier for businesses to acquire land, power and water. It will create investment incentives for improving infrastructure. Manufacturing requires low-cost materials and low-cost logistics. With the right policies in place, manufacturing could be a bigger boom for India than what it has been in the last decade.
What is your perspective on manufacturing in the US? One of the things we have heard is how shale gas is changing energy economics. Some part of manufacturing which is being outsourced could move back to the US.
The US is seeing a manufacturing rebound and it’s not necessarily due to public policy that’s recently been implemented by the government. It’s being driven by two things —lower-cost energy and declining cost of production.
The cost advantage of producing something in a low-cost country like China and India and bring it back to the US is simply not there any more. And that coupled with the lower energy cost, particularly for energy-intensive types of manufacturing facilities that require large amounts of water or power, is allowing the US to be much more competitive in the manufacturing arena.
Do you think India has the kind of ecosystem, particularly infrastructure and skills, to sustain manufacturing?
At present, no. But tomorrow, it can have. That’s the reason why I stated my optimism in terms of future outlook. The bigger issue is with infrastructure and not the skill-set. It’s much quicker for governments and businesses to document a skill-set profile for a certain sector and then build a curriculum that trains and develops the next generation of engineers to meet that profile.
It takes much longer to put infrastructure in place that allows the raw material to be shipped in, transported over rail or highway to manufacturing facility and have finished products. That is a bigger, longer term problem than the skill-set.
Are there any industries where you think India enjoys a natural competitive advantage?
India enjoys natural competitive advantage in information technology—outsourcing and business process management. It has been doing that for a decade and the reasons are obvious. The country produces a large number of engineers. There is a culture in India which is customer service-oriented.
Indian dropped in ranking from 134 to 142 in the ease of doing business report by the World Bank recently. What do you think led to that?
It’s a trailing indicator, and my guess is that the data World Bank looked at is at least 18 months old. When it comes out again in a year from now, even though some of that data may be pre-current administration, I would not be surprised if India improves in the rankings because there are some qualitative factors, which relate to ease of doing business and it will fare much better on qualitative factors.
What kind of policies does the government need to implement to improve its ranking?
What it will take for India to move up in terms of improvement mostly relates to areas of labour laws and factors related to transparency.
Countries which are ranked higher tend to have labour laws which are more flexible. These include ability to hire and letting go being more flexible. The second is pro-business public policy which deals with things like ease of incorporating a business, ease of long-term equality contracts for power, water and certain infrastructure. It deals with simplicity of corporate taxes and corporate tax rate.
You have earlier said India needs to have its own model for growth. Can you elaborate on that?
The two big differences between India and China with respect to their economic business models is that China grew through exports which includes their natural resources and products produced in excess of local demand. India is much more of a domestic demand type of model which has proven to be quite successful. It weathered the 2008-09 financial crisis better than most emerging and developed countries. This was because it was not dependent on global demand for its products.
Going forward, the secret for India is where it is going to place its bets and chooses to invest in, what sectors can it invest in which are growing at a faster rate than the average GDP growth rate of the country. The construction industry, I get the sense with statement of the Prime Minister focusing on infrastructure, will create some basis points higher than the GDP. Another sector which is growing at a faster rate than GDP is life sciences and pharmaceuticals.
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