1/29/2015

TheEconomicTimes
Title:REALREFORMSMAKEINDIA,andMakeinIndiaWillFollow
Author:YashwantSinha
Location:
ArticleDate:01/29/2015
Buildthefoundationofthecountry,andeveryonewillridethemanufacturingbeast
MakeinIndia'isoneofthemorefamoussloganscoinedbyPrimeMinisterNarendraModi.
MinistriesofGoI,BJPruledstategovernments,variouschambersofcommerce,academiciansand
analystsarebusydiscussing,analysingandpreparingfortheimplementationofthisidea.Foreign
governmentsandfirmsarebeingpersuadedtopartnerIndiaandIndianfirmsto`MakeinIndia'.
ThiswasoneofthehighpointsofUSPresidentBarackObama'svisitalso.
Sectorsoftheeconomyhavealreadybeenidentifiedwherethisconceptcanbeprofitablytranslated
intoreality.Aquestionoftenaskediswhether`MadeinIndia'productswillbefordomestic
consumptionorexport.Governmentspokespersonswouldhaveusbelievethatitisforboth,asit
shouldbe.However,theprioritybetweenthetwoshouldbeclearlydecided.
EmpiricalevidenceshowsthatunliketheEastAsianeconomiesandChina,highgrowthinIndiain
thepastyearshasbeenachievedlargelyonthestrengthofIndia'sdomesticsavingsanditsdomestic
demand.
Foreigninvestmentandforeigndemandhave,atbest,playedamarginalrole.Thiscouldchangeno
doubtinfutureyearsandplayamoreimportantroleinourtotalinvestmentandgrowthstrategy.For
theforeseeablefuture,however,wemustdependonourownsavingsandourowndemandtotake
oureconomyforward.Therefore,`MakeinIndia'mustbeprecededby`MakeIndia'.
Whatdoes`MakeIndia'imply?Weneedtoinstallthefollowing:
Smart,diversifiedandprofitableagriculture.
Waterforallourfields.
Thousandsofkilometresofnationalhighways,withfour,sixandeveneightlanehighwaysatplaces.
Lakhsofkilometresofruralroadsandbridges.
Scoresofnewportsandhundredsofnewairports.
Lakhsofmegawattsofelectricity.
Milesofdedicatedrailfreightcorridorsandpassengerconnectivity.
Linkingriverswhereverfeasible.Supplyofcleandrinkingwatertoeveryhousehold.
Millionsofhousesandcommercialrealestate.
Schools,colleges,skillsdevelopmentcentres,engineeringandmedicalcollegesandhospitals.
Abolitionofslums.
Conservationofoldforestsandplantingofnewforests.
Newsmartcities.
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Cleanerrivers.
Sanitationandmillionsoftoilets.
Amodernandintegratedtransportsystem.
AdigitisedIndia.
AmobilephoneineveryIndian'shand......andamillionotherthings.
`MakeIndia'callsforclearvision,detailedplanning,strongdetermination,vastresourcesand
efficientadministrativeinstrumentstoachievethismonumentaltask.Itwillautomaticallyleadto
`MakeinIndia'.`MakeIndia'willalsoleadtomoreandmoreemploymentopportunitiesandabetter
qualityoflife.
Itwillalsofollowtheeconomiccycleofpeopleearningandspending,insteadofspendingwithout
earningandstokinginflationaryfires.Foreignerscanbeinvitedtoparticipatein`MakingIndia'.But
thetaskwillbeessentiallyours.Nationshavebecomegreatthroughtheeffortoftheirownpeople,not
throughthecharityofstrangers.
ThisisthestrategywehadfollowedunderAtalBihariVajpayee.Whenwedecidedtobuildthe
fourlanenationalhighways,mostoftheequipmentfortheconstructionofthesehighwayswasnot
availableinIndiaandhadtobeimported.Itwasanevenbiggerchallengethanfindingthefinancial
resourcesfortheproject.Ihadtogiveimportdutyconcessionsfortheimportoftheseequipmentsto
attractthebuilders.
Subsequently,asdemandgrewandtheplanendured,manyoftheseequipmentsstartedtobemadein
Indiaaclassiccaseof`MakeIndia'leadingto`MakeinIndia'.Theseexamplescouldbemultiplied.
Today,however,themostimportantquestionisoffunds.Whereisthemoneygoingtocomefromto
`MakeIndia'?Unfortunately,asanation,wehavealwaysbeenshortofresources.The10yearUPA
rulehasleftusmoreimpoverished.Domesticsavingshavedippedbyawhopping6%oftheGDP,
grossfixedcapitalformationgrowthisatrockbottom,theprivatesectorisindeepdebt,NPAsof
bankshaverisento5.32%andareclimbing.
AstablegovernmentandastrongleadershiphaveindeedchangedthemoodbothinIndiaandabroad.
But,clearly,thisisnotenoughtorevivetheinvestmentcycle.Opportunitiesforinvestmentexist
aplenty.TheReserveBankofIndiahasalreadyindicatedareturntoamoremoderateinterestrate
regime.Inflationisundercontrol.Soisthecurrentaccountdeficit.Thecrashinpetroleumcrude
priceshasbeenanunexpectedboon,sohavebeenthequantitativeeasing(QE)oftheJapaneseand
Europeancentralbanks,andthestaggeredtaperingoftheAmericanQE.Butstill,whereisthemoney
torevivetheinvestmentcycleinIndia?
Giventheinabilityoftheprivatesectortoinvest,publicspendingappearstobetheonlywayout.It
cannotcomebyfiscalexpansionintheBudget.TheUPAtrieditin200809withdisastrous
consequences.Yet,abundantresourcesforinvestmentcouldbefound:
Amoreaggressivedisinvestmentplan,includingPSUprivatisationandstakesalethroughauctionin
onelot,insteadofinbitsandpieces.
Theraisingofforeigncapital,especiallyfromtheNRIsthroughtheStateBankofIndia(SBI).Under
Vajpayee,wehadraisedalmost$10billionthroughtheResurgentIndiaBondsandtheMillennium
DevelopmentBondsissuedbytheSBI.Giventheeasygloballiquiditysituation,suchaschemewill
attractNRIs.
CreatingmoreheadroomforPSUbankstoraiseresources.IwasalittledisappointedwhentheNDA
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governmentstucktotheUPAformulationofnotreducinggovernment'sequityinpublicsectorbanks
below51%.WhenIwasfinanceminister,IhadintroducedaBillforreducinggovernment'sequityin
banksgraduallyto33%.Thiswasdonetoenablethepublicsectorbanksgarnermoreresourcesin
ordertolendmoreforworthwhileprojects.Unfortunately,theparliamentarystandingcommitteeon
financesatovertheBillandneversubmitteditsreport.TheUPAregimeburiedtheidea.
Bettermanagementofgovernmentexpenditure,especiallysubsidies.
Encouragingstategovernmentstoalsoraiseresources.
Anattractiveschemeforconversionofidlegoldintocashthatwillmonetisetheidlegoldinto
investibleresources.
Undertakinganaggressiveprogrammetoraisedomesticsavings.
FDIwithmajoritystakeinsectorsidentifiedunder`MakeinIndia'.
ThereisplentyofmoneyinthesystembothinIndiaandabroad.Allweneedtodoistoencourageit
tocomeforwardandhaveitinvestedthroughappropriateavenues.`MakeinIndia'willsucceedonly
whenweaggressivelyundertaketo`MakeIndia'andfindtheresourcestodoso.Theforthcoming
Budgetistheoccasionforthegovernmenttodisplaycourageandattendtothisimportanttask.
ThewriterisaformerUnionfinanceminister

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