Reforming Indian Manufacturing Amid US Tariffs
The article discusses the challenges and opportunities presented by US tariffs for India's manufacturing sector. Naushad Forbes, the former president of the Confederation of Indian Industry (CII), argues that these tariffs can serve as a catalyst for much-needed reforms. He advocates for broad-based deregulation, particularly concerning land use, to make manufacturing more appealing for Indian capital. This, he believes, will also pave the way for foreign direct investment in India.
Forbes identifies immediate support for smaller firms affected by US tariffs as a crucial short-term measure. These businesses have confirmed orders from American customers and are at risk, requiring urgent assistance. In the medium term, he emphasizes the importance of diversifying the customer base by working on free trade agreements (FTAs) with various regions, especially in Asia, which is an economically vibrant area.
In the long run, improving the overall competitiveness of India’s economy is essential. This involves addressing the cost of doing business and promoting deregulation at both the Union and state levels. Forbes stresses that enhancing accountability and power at the state and city levels is vital for effective governance.
Moreover, he points out the need to tackle issues in primary health and urbanization, highlighting how many Indian cities are struggling with infrastructure challenges. Land use regulations must be re-evaluated to facilitate better urban planning and development.
Forbes also raises concerns about the impact of quality control orders (QCOs) on product quality. He questions whether these regulations genuinely enhance quality or merely act as non-tariff barriers that serve specific interests. He suggests that a reevaluation of tariffs could help streamline the manufacturing process.
Regarding India’s relationship with China, Forbes believes that India should learn from China’s manufacturing depth and competitiveness. He argues that while security concerns exist, they should not hinder mutually beneficial trade and learning opportunities that can enhance India’s manufacturing landscape.
For foreign investment to flourish in manufacturing, Forbes argues that it should follow Indian investment. States must compete on the basis of ease of doing business rather than financial incentives, which can lead to a detrimental race to the bottom.
Finally, he critiques the current framework of Special Economic Zones (SEZs), suggesting that instead of focusing on fixing these zones, the government should prioritize deregulation across all sectors. By simplifying regulations and reducing unnecessary complexities, India can create a more conducive environment for manufacturing and economic growth.
