Keeping this reality check in mind, GoI is on the right track with its plan to establish an Export Promotion Mission with an outlay of ₹2,250 cr. Export promotion is what delivered the goods for China, South Korea and other ‘tiger’ economies of East Asia. For ‘Make in India‘ to succeed, that is what India needs to emulate.
The other big idea embedded in the budget is the proposal to set up a high-level committee for regulatory reforms. Together, these two big ideas can provide both demand and supply levers for lifting growth. There is a range of supporting ideas as well, which, if integrated with these ideas, could achieve the goal of large-scale job generation.
Labour focus Focus on labour-intensive sectors such as footwear and leather, toys, food processing and electronics makes sense. GoI should put in place a scheme of well-calibrated employment-linked incentives to support these sectors and make them globally competitive.
Tariffs and duty structures Tariffs often act as an extra tax burden on domestic manufacturers, who use imported inputs, making Indian industry less competitive. BharatTradeNet (BTN), a trade network portal to provide documentation and financing solutions for international trade, should help. There should be further momentum on tariff rationalisation, and GST rationalisation as well.But, as evident, challenges remain. Land and labour are two notorious factors awaiting liberalisation if barriers to industrialisation and job creation are to be overcome. What is less well known, though, is that even in the case of limited stock of land available for industrial use, building regulations across states stunts industrial capacity by locking up productive factory land and raising cost of doing business.Prosperiti’s 2023 report, ‘State of Regulation: Building standards reforms for jobs and growth’, documents how building and land-use regulations ramp up the cost and difficulty of doing business. On average, factories across states are only allowed to create floor space up to 1.3x the plot size.
Indian building standards often exceed those of developed nations with per-capita incomes many times higher than India’s. If Indian Inc is to be competitive, this is not practical. Unfortunately, the opportunity cost of such stringent regulation is loss of factories that never come up and high-wage industrial jobs suitable for India’s labour profile that do not get created.
A comparison among states in terms of restrictiveness of their building regulations has also yielded paradoxical results. For example, while Haryana, Tamil Nadu and Telangana are the least restrictive states for constructing a factory, Bihar, Odisha and Delhi are the most restrictive. While Delhi’s case is understandable, given that it’s a densely populated and service sector-oriented city, Bihar and Odisha should be doing more to encourage industrialisation.
The regulatory reforms committee should benchmark regulation against that of East and Southeast Asian economies, which happen to be India’s industrial competitors. In the Philippines, for example, rear and side setbacks required for factories are minimal. Factories in Singapore don’t need side setbacks if the adjoining plots also house factories. This difference means that a mega factory in Maharashtra loses twice as much land to setbacks as one in the Philippines, and five times more than in Singapore.
Not only does India abound in regulations but inspectors, too, often interpret them whimsically. This makes doing business difficult on the ground, no matter what official parameters say, and hinders job creation. Once the regulatory reforms committee is established, it should see its mission as delivering a boost to GDP growth that lasts a generation by bringing clarity and simplicity to regulation and dismantling the inspector raj.
Dhawan is founder-CEO, and Ganguly is senior fellow, The Convergence Foundation