US Tariffs: A Catalyst for Indian Reforms
The recent imposition of US tariffs has opened a door for India to rethink its manufacturing landscape. Naushad Forbes, the former president of the Confederation of Indian Industry (CII), believes that this situation presents a unique opportunity for broad-based deregulation, especially in land use. He argues that the government must first make manufacturing appealing for Indian capital, which will, in turn, attract foreign direct investment (FDI).
Forbes emphasizes that immediate support is critical for smaller firms that have confirmed orders from US clients, as they are directly affected by these tariffs. In the medium term, diversifying our customer base through free trade agreements (FTAs) will be essential. Asia, being a vibrant economic area, should be a focus for these agreements.
In the long run, enhancing the competitiveness of the Indian economy is crucial. This involves not only deregulation at the Union level but also empowering states to give their cities more authority and accountability. Urbanization poses a significant challenge, with many Indian cities facing severe traffic issues and inadequate infrastructure.
Forbes also points out that while quality control orders aim to maintain standards, they often serve as non-tariff barriers rather than genuinely enhancing quality. He questions their effectiveness and suggests that if they do not substantially improve quality, they should be scrapped. Additionally, India’s inverted duty structure in industries like garments and steel creates inefficiencies that need addressing.
Regarding India's relationship with China, Forbes believes that learning from China's manufacturing depth is vital. Despite security concerns, he argues that India should not shy away from engaging with China to improve its own competitive standing. He sees this as beneficial regardless of India's relationship with the US.
For foreign investment to flow into manufacturing, Forbes suggests that investment should first come from Indian sources. States should compete based on ease of doing business and logistics rather than through financial incentives, which could lead to a race to the bottom.
Finally, Forbes critiques the effectiveness of Special Economic Zones (SEZs) in India, advocating for a broader approach to deregulation rather than focusing solely on fixing these zones. The complexities of regulations surrounding land use and the Goods and Services Tax (GST) also need simplification to foster a better business environment.
