Global Manufacturing HUB- How to grab this "TITLE"

Today the majority of the global population is either in complete lockdown or staying at home because of the Corona virus fear, sentiments with today is resonating in the entire world is that China is to be blamed for the spread of this virus and lot of countries especially in the Western world are now looking to sue China for trillions of dollars in damages or may take some other steps to get out of this mess.

As on date the number of people infected by the disease is approximately over 3 million and more than 200,000 dead across the globe with almost two third of the population sitting home and all economic activity halted.

Beyond the health impact of this grave disease there is an impending social and economic impact which would perhaps take many years if not decades to heal.

In the middle of all of this there lies an opportunity for countries like India. Shifting of manufacturing out of China as a lot of the American and European companies would want to look for an alternative and preferably not work with China in at least the near term given the negative sentiment.

However this window of opportunity is only in my opinion limited to 3 to 6 months after normalcy starts resuming in the World because eventually time heals all anger, resentment and then the only thing which is supreme is commerce and if these countries do not find a viable alternative to source economical goods and services they would have no choice but to continue with China as their manufacturing partner.

The bigger question is whether India is ready for this opportunity!

Given our current policy regime specially to do with availability of credit, labour laws, bureaucratic delays etc 3-6 months will pass like a blink of an eye and we would not be able to harness this great once in a lifetime opportunity presented to us in the middle of this global crisis.

The success of China as a manufacturing base for the world stems from the policy regime in which the made cheap credit available to any entrepreneur / business who just had a business plan to earn foreign exchange and get in dollars / euros in the country and India would need to rapidly formulate a comprehensive policy if at all they want to get a large pie from the shift that will happen out of China.

Here are some of my suggestions as Professional to the government, if this is an opportunity they would like to really harness, which can take the country not only towards rapid economic growth but also become the next Economic Superpower. These should be applicable for all manufacturing companies across the board:

1. Credit:

- Capital costs should be brought down at par with the International rates which are in the vicinity of Libor plus 1.50 – 2.00%. Indian banks can easily arrange International finance under this cos as there will be no dearth of money being available especially in a face where the entire global economy will be shrinking and the demand for credit worldwide will be much lower

- Moratorium of 3-5 years should be given for any business to create capacities and generate business cash flows while servicing only interest.

- Another 5-7 year repayment plan should be provided based on their projections.

- The criteria area to land should be based on the past performance and future business projections.

- Instead of collaterals, credit insurance like ECGC should be formulated to cover the risk for the banks. The business with reduced cost of capital would be able to absorb the insurance premiums.

2. Labour Laws & Skilling

- There should be relaxation in labour laws where in hire and fire policy should be allowed based on requirement of skilled manpower which changes both seasonally as well as in the case of project based exports.

- Tax Incentives should be given two entrepreneurs generating higher levels of employment year on year. E.g. If there is an increase in workforce of over an X percentage with respect to last year, tax incentives should be available with various slabs for such businesses.

- The limit of number of employees for formation of trade unions should be increased. Because of a low threshold of hundred people a lot of businesses do not employ largest number of people on the rules and depend on contractual labour which results in an unstable workforce which is both not efficient as well as not quality oriented.

- Government should closely work with all such export oriented business to identify the need for skilled workforce and allow for such skilling under the various schemes currently in place as well amend policies as per any further requirements.

- Red tape should be minimized and more freedom should be given to the industry for self-declaration and self-control.

- Businesses should be encouraged to create internal policy framework for betterment of their workforce and businesses providing various labour welfare should also be incentivized.

- labour skilling would be one area were Government will have to work harder . Currently, the skill and availabilities are only in few pockets and good Educational institutes are also quite limited. The spread of skilling will have to increase to grab this big opportunities. Indian Corporates and manufacturing set-ups also expected to impart trainings to their resources to really have a very high standards.

3. Direct & Indirect Taxes

- Payment of GST and then taking refund should be done available as was the case prior to the GST regime where in all SEZS & registered 100% EOUs were exempt from paying any VAT & EXCISE. the payment of GST and then applying for refund not only chokes critical cash flow for the company it also results in deployment of a lot of resources to get back these refunds and it complicates the entire process.

- Income Tax holiday for a period of at least five years should be given to businesses who are able to increase their export turnover by a minimum 20% year on year with certain safeguards to avoid any misuse of such benefit.

4. Availability of Land

Manufacturing Industry has a very big issue in India specially the Small & Medium sector due to the cost of land for setting up Industrial units. E.g. If one has a budget of Rs 10 CR to set up a manufacturing unit, almost half or more goes towards buying land itself, another 20% on the Building and you are left with 30% of your budgeted capital for Plant & Machinery which is the only productive capital and that is what is plaguing the MSME industry. The government needs to completely relook the industrial policy and my opinion is that we should emulate other countries and either provide developed land FREE to the industry for a period of 15 Years and thereafter recover the cost of the land on some sort of a revenue share or else offer land on a long term lease of 99 year of more with a nominal lease amount, which can go up every 5 years and become more substantial after the first 15 years of operations. This will mean that each Entrepreneur will have more than 80% of the Budget available for use as productive capital hence ensuring 3 times the output, Revenue, Profitability, employment generation and Taxes to the government. This one policy has the ability to boost manufacturing output significantly and making our manufacturing industry much more competitive.

5. Infrastructure

It goes without saying that if India wants to become an export hub there is a drastic need to improve infrastructure in terms of roads, railways, waterways and most importantly the infrastructure to handle 10x volume at our ports.

In the past few years there has been a certain level improvement of the condition on the ports with the advent of private companies however, there are still many bottlenecks which choke our entire effort to have a larger pie of the global manufacturing piece.

Today’s world is all about speed and the infrastructure should aid to improve the speed and not vice versa, which seems the case with us. There needs to be a complete overhauling on the way we look at Infrastructure Planning, development and upgradation as we need to start looking ahead of the curve rather than just playing catch up.

The government needs to bring in International Expertise to implement the projects with speed, agility and finesse. We know we can do it as examples like the Delhi Metro also are in our country which was completed before time. We need to replicate and better such models and use technology & global expertise to our advantage.

I sincerely hope that we take up this once in a lifetime opportunity and make the most of it as a country and fly the MAKE IN INDIA Flag on the top of the WORLD!!