The policymakers and planners who devised the strategy for India’s development in the years after Independence had necessarily to work within the political directives of the government. The political leadership wanted the country to become strong, wealthy and socialist, so that poverty and deprivation could be eliminated. To achieve these objectives, rapid industrialisation was considered necessary as that would also create employment. These were excellent goals, but it is a sad fact that 70 years later industrialisation is inadequate, there is a huge unemployment problem, and poverty and deprivation still exist to a considerable extent. Socialism remains on paper.

We all know that if a person falls ill, it is necessary to make a correct diagnosis of the cause before effective treatment can be prescribed. Finding the root cause of problems, and then prescribing the correct remedy is equally necessary to find effective solutions. This is the method adopted in industry to improve quality and productivity. Given the high quality of our civil services and economists, it is surprising that no root-cause analysis seems to have been done to determine why Indian manufacturing did not grow fast enough and why the other objectives were not attained over such a long period of time. As a result, though industrial policies were revised several times and liberalisation started in 1991, the net result was continued stagnation of manufacturing at between 14-16% of GDP. The impact of this is visible in various aspects of our economy, including substantial dependence on imports for manufactured products. The unemployment problem has continued to be unresolved, along with that of poverty.

In my book ‘Getting Competitive’ I have attempted to identify the various causes why India failed to grow manufacturing and achieve its industrialisation-related goals. I have also suggested some remedies. It is my hope that this book will lead to serious attention being given to finding root causes and then prescribing remedies, and Indian manufacturing will rapidly become globally very competitive.

My first conclusion is that policymakers have consistently failed to understand the importance of competitive manufacturing as an essential requirement for high growth. They were neither trained in this area nor did they have any experience of it. Consequently, they did not appreciate what competitiveness meant and how it could be achieved. While the importance of making it easier to do business has been accepted in the recent years, and substantial reforms implemented, all the actions needed to making manufacturing globally competitive are still not being taken. Creating competitiveness is still not part of policymaking.

Public sector enterprises have never been judged by their ability to reduce costs of production, improve productivity, develop better technology, or generate resources for expansion and modernisation. These are essential conditions for competitiveness. The output of public enterprises, except in a few instances, is not subject to market competition. Where significant competition exists, public enterprises mostly make losses and have to be subsidised. Private sector competitiveness, including for foreign investors, is adversely affected when key inputs provided by public enterprises are not produced competitively, or prices are administered to meet social objectives, as for electricity and some infrastructure services.

One of the very important requirements for global manufacturing competitiveness is that costs of production should be minimised. Managements have a big role to play in this area. The central, and more importantly the state governments, also significantly affect costs of production. The lesser the time taken by the government in its numerous interfaces with industry, the lower would be the cost. Delays are the result of government employees not functioning as facilitators of private industry, but as controllers, who avoid taking responsibility for decisions and choose interpretations that would protect them from vigilance problems. This is an important reason for the huge volume of tax litigation, an area that considerably adds to costs of production. Infrastructure shortcomings also lead to industry having to incur higher costs.

There is no trust between private industry, politicians and the civil services. The absence of trust leads to processes that diffuse responsibility for decisions, and lead to the state officials not acting as facilitators. No country can become really competitive without trust and team-working between government and industry to promote manufacturing growth. The lack of trust is because of the role of the private sector since 1950 and their behaviour as a consequence.
Employment creation is, quite correctly, a major priority of the government. The economists and bureaucracy need to look at employment generation in the totality of the economy and not in silos. A very large percentage of employment in the services sector arises from manufacturing activities. The higher the volume of manufacturing and sales, the larger is the employment generation. Thus, employment generation requires pushing competitiveness, not compromising it by insisting on higher employment in factories.

The volume of demand for a product is largely determined by its price elasticity of demand. The lower the price, the higher the likely sales volume. The customer cost of a product is the sum of the manufacturer’s price plus the taxes. Historically, socialistic policies have led to high taxes on a large proportion of manufactured products since the ‘rich’ buy them. This has been a major factor depressing demand, and consequently production of such products. High manufacturing growth cannot be achieved without creating demand. If production increases steadily, economies of scale would result in lowering costs and increasing sales. Inadequate demand increase is a factor that keeps foreign investors away.

Some of the industry-related policies were designed to also achieve socialistic objectives. Mostly they result in higher costs of production. It was never realised that such policies would adversely affect the goal of industrialising India and achieving socialism, possibly because policymakers did not understand the importance of competitiveness. Several such policies still continue.

Competitiveness has no absolute standards. The bar keeps rising as companies and countries compete to win consumers. Policymakers, who understand competitiveness and work as a team with industrialists, are essential for success.

Bhargava is the chairman of Maruti Suzuki, and author of ‘Getting Competitive: A Practitioner’s Guide for India’ (HarperCollins, 2020)