By Arun Jaitley
THE manufacturing sector provides India with the greatest challenge so far. A challenge because there is occasionally a grievance that the growth we see in the economy is not accompanied by a matching job creation. It is the manufacturing sector that creates jobs and so it is the manufacturing sector that has to grow.
It is a fact that the manufacturing sector has not grown in the last few years with the same momentum as the services sector, although the latest figures show that the GDP in the second quarter has grown by 8.4 per cent and the manufacturing sector has registered a growth of over 7 per cent. The increased non-oil imports is an indicator that there is a spurt in activity in domestic industry and manufacturing. But it is also true that we have finally found our niche in some areas of manufacturing.
Automobiles: Now this was a sector where two decades ago we didn'texist at all. Now one of the fastest growing areas of Indian accomplishment today is the auto sector. Our auto parts industry today is growing rapidly, year after year and is today eyeing the global market. Today the best corporations in the world in the auto sector, including the two giants in Germany and US, are getting their auto parts manufactured in India. This is an area where we did not exist in any significant way. Ditto with our pharmaceutical industry.
When negotiations on TRIPS started, we all feared, and understandably so, considering the plight of our industry at that stage, that once the agreements binding upon us in 2005 come into place, there will be a sudden steep increase in the price of medicines.
It'sa great tribute to our pharmaceutical industry, and we must actually visualise the capacity of this industry and the manner in which it has grown for a true appreciation of what it has achieved in the last few years.
There is almost no country that I have visited in the last one year where I didn'tfind that the largest contingent from among the representatives of the Indian industry and business community was that of the pharmaceutical sector. From Myanmar to the United States, it is our pharmaceutical industry that has seen the fastest growth. And why are the American multinational companies in this sector so scared of our growth? Because today in generics we are manufacturing quality medicines at the cheapest price globally.
And so when poorer nations start getting their medicines in cases of their need on a compulsory licencing basis and these are going to be countries in Africa, they are actually going to see the quality and the cost of medicines that they get from us.
The AIDS package being supplied to the countries of Africa by American companies, when they had no challengers in the business, it cost the Africans close to ten thousand dollars for a year'ssupply of medicine per patient. Now that'sthe kind of money Africans cannot afford. And suddenly when the same package was developed by Indian companies, it started at $300.
And that is when the debate on public health considerations and protection of the intellectual property of those multinationals started. Because life-saving drugs are not merely commodities, there is also the question of public health wound up into it because it concerns human life.
So when Indian pharmaceutical companies started to pose serious competition to American multinationals, they had to slash prices drastically and the package came down from $10,000 to $1200. And Indian companies, for their part, have now slashed the price of the AIDS package to cost around $240 now. That'sthe kind of competition we are able to pose now to foreign multinationals.
Steel: Around three or four years ago we were all worried about the fate of our steel sector. We have a large iron ore resource. Indian steel plants have become non-competitive because of the high cost of their steel. But within a few years we have Tata Steel manufacturing the cheapest steel in the world; the Jindals are saying give us two years and we will be manufacturing the cheapest steel. Both the United States and China are complaining that Indian steel is coming into their respective countries in very large quantities. But they are getting quality steel, no questions on that. Our cement plants too are becoming truly world class today. These are all areas where we have been moving rapidly. But there are many sectors in manufacturing where we still have a lot of distance to cover. No matter, how much we may complain about the fact that we are not doing so well in manufacturing, we will be able to sell our products only if we are quality conscious and cost effective. They may sell domestically but if you follow these principles they will sell internationally. And this is one sector that has always been handicapped as far as India is concerned.
The first handicap we had?successive governments in the first five decades after Independence paid little attention to the development of infrastructure. We had sea-ports where consignments had to wait for weeks; you had a customs system, which delayed trade; just the cost of facilitating trade, efficiencies versus inefficiencies can actually add 14 per cent to the cost of your product. And the pressure on margins internationally is so intense that with 14 per cent added to your products because of inefficiencies, your products are becoming non-competitive internationally.
And these are areas to which we paid very little attention although now we have started to deal with them in a focused manner, particularly in the last five to seven years. We have started to improve our sea-ports and we now have electronic data interchange at our customs. The four grievances that the Indian manufacturing industry still has and to deal with which the system has to gear up in the years to come are:
- Are we in a position to be provided capital at the same cost as is available to our competitors internationally?
- Are we in a position to maintain productivity standards unhampered by the labour laws that obtain in our country today? Can we usher in a labour regime that is pro-productivity?
- Do we have infrastructure, which aids and facilitates trade?
- Do we get uninterrupted power supply and power on the same terms as our foreign competitors?
Let us take an area that is a great asset area for India?textiles?apparel, garments, fabric and yarn. It is the textile industry that after the construction industry is the biggest employment generator for our people. And for India, employment generation is a very important factor we take into account in any policy decision. From January 1, 2005, we are going to see a global regime free of all restrictions and quota in trade.
In international trade, the cost of manufactured goods plays a vital role in deciding whether our businessmen get those orders or not. The buyers, whether they are from the developing or the developed world, will approach 10 countries simultaneously to find out which country gives them the best price and in a situation of such fierce competition, even half a dollar difference in cost can decide who gets those orders. Western economies, the developed economies, have out-priced themselves on several manufactured goods. Their cost of manufacturing a shirt may be 15 or 20 dollars. In India, the cost may be eight dollars. So our competition is not with these economies but with the low-cost economies of this region?with Thailand, with Malaysia, with Korea and with China.
If any one of these countries can manufacture the same shirt for half a dollar less than India, either because in China the workers do not have the same kind of labour law protection that operates in India and therefore their productivity levels are higher than India, or because of the cost of power, which can become a very important factor in those industries where power is the raw material. Or because of interest rates, we are rationalising our interest rates now but there are differences still. The cost of trade facilitation will depend on our efficiencies.
And so, if we have to keep making progress on the road to becoming a developed nation, I have not the least doubt that in the services sector, where human resources is the best raw material, we have a great potential to grow. But if the same potential were to be used in the manufacturing sector, there are other hard decisions that we must take as a country, if manufacturing has to progress. Because it is only when we get those orders, it is only when our products are selling that we are going to be able to create more jobs. We must therefore gear ourselves for taking difficult decisions, which may appear difficult in the first instance but if we persist with them and implement them, then the longer route may be easier and more rewarding.
From Myanmar to the United States it is our pharmaceutical industry that has seen the fastest growth. And why are the American multinational companies in this sector so scared of our growth? Because today in generics we are manufacturing quality medicines at the cheapest price globally.
The mantra is: low cost, high quality, large quantity.
No matter, how much we may complain about the fact that we are not doing so well in manufacturing, we will be able to sell our products only if we are quality conscious and cost effective. They may sell domestically but if you follow these principles, they will sell internationally.