It will be tough for India to grow its manufacturing sector by relying exclusively on exports the way China did. India might have to develop its own growth model says Gary C Coleman, global leader, Industries, at Deloitte Touche Tohmatsu, the global professional services network, in a conversation with Krishna Kant.
Edited excerpts:

Prime Minister Narendra Modi plans to make India a major manufacturing destination, on the lines of China. How feasible is this ambition, in view of the economy slowing in Europe and North America?

The continued economic weakness in Europe and shift away from consumer-led growth in the US has surely complicated the export ambitions of emerging economies. It will be much more difficult and challenging for India to grow its manufacturing sector by relying exclusively on exports, the way China did. India might have to develop its own growth model, using a mix of manufacturing, coupled with many factors possibly, for the domestic markets and exports. India already has a significant manufacturing footprint in many industries and it can build upon this through greater foreign direct investment.

There is renewed interest among the world's top companies to either scale-up their existing investments in India or set up a manufacturing base here. This is a positive signal and if policy makers are able to translate this into actual investment, it would give a big boost to India's manufacturing aspirations.

China prospered by manufacturing and exporting basic consumer goods. Can we hope to replace China in this regard as the world's top manufacturing destination?

That was true many years earlier. China is now losing competitiveness in low-end manufacturing and this is moving to more competitive destinations in Asia. There is an opportunity for India to harness a part of this shift. This will, however, require large investments in infrastructure, especially transport networks and power, beside improving the overall business environment and ease of conducting business. India currently ranks very low in the Ease of Doing Business Index and this acts as a deterrent for multinational corporations (MNCs) when they are scouting for investment destinations.

If we compare the list of India's top 50 companies with a similar Chinese listing, ours is dominated by information technology (IT) companies, pharmaceutical exporters and automobile makers. China has the usual manufacturing heavyweights. Isn't it time we focus on our strengths, rather than trying to import another model?

Yes, that is an alternative but we have to see the extent of opportunity available in these industries. India has demonstrated a competitive advantage in IT and knowledge- based sectors but there is a limit to how much more IT services can be exported out of India. Competition is rising from other English-speaking countries and wage arbitrage is narrowing as per capita income rises in India.

In pharma and automobiles, Indian companies mostly operate at the lower end of the value chain and that limits their growth opportunity. They need to move up the chain to capture a larger share of consumer spending in these categories. Given India’s growth challenge, you will need more than a handful of sectors to shine to create enough number of jobs.

However, I must say that global corporations look at India differently than other emerging markets. According to a recent survey of world top CEOs in a leading US magazine, nearly half of the CEOs expressed their desire to set-up a R&D centre in India. A large pool of English speaking graduates and engineers are a great attraction for many MNCs looking for a low cost destination for R&D and product development. India should try to convert R&D centres into manufacturing hubs by fixing the missing pieces.

We are reading about manufacturing revival in USA, currently the world’s top importer of manufactured goods? How will it impact export ambitions of countries like India?

The shale gas discovery and the resulting decline in energy cost are changing the economics of manufacturing in US and after years of decline manufacturing is again expanding. Initially it is most visible in energy intensive sectors such as metals, chemicals and petrochemicals but the circle will widen as labour intensity of manufacturing is declining across the board due to automation and greater use of IT. Over a period of time it will reduce US dependence on imports that may hurt India’s export ambitions. However Indian companies can gain from this by investing in US manufacturing. This is already happening and we expect it to gather pace with time.

Globally interest rates are at all-time low. What happens if US Federal Reserve starts raising interest rates as many expect?

Interest rates may rise going further but don’t think I will have any major impact on businesses especially large corporations. Most of them have been preparing it for some time now and taken advantage of low interest rates to raise capital ahead of time. They are well funded and can easily weather a monetary tightening by the Fed. Secondly, I believe that monetary tightening or or tapering would be gradual and not likely to be disruptive for the global economy.

Source:- business-standard.com