Venu Srinivasan, president of the Confederation of Indian Industry, said his “biggest concern today” is the question where India will derive future competitiveness from in world markets, especially vis-À-vis competitors such as China and Indonesia.
Speaking to The Hindu, Mr. Srinivasan emphasised the role of reform in several key areas of the economy, including the labour market and the tax code, if India is to retain and strengthen its competitive edge in industry.
Touching upon the growing labour supply in India, he said, “For India to become competitive we need to create 15 million jobs. This is the single point that we need to consider.”
“Ultimately we are competing for the same space as large population countries like China, Indonesia and Brazil,” Mr. Srinivasan pointed out, suggesting that failure to improve competitiveness may lead to more jobs going to these countries than India.
“With fiscal deficits being high, we will not have investment in infrastructure. Our social infrastructure is creaking. So is our education system. If you go to schools run by the government or primary health centres and hospitals, they are terrible.”
In some areas such as value-added manufacturing, however, India is more competitive than China, according to Mr. Srinivasan. “This is because our design inputs are higher than China’s. While China is the biggest manufacturer of cellphones and washing machines, their value addition on exports is as low as 10% on electronics and maybe 15-18% on manufactures. India is close to 25% and is much higher in IT,” he said.
Emphasising that India could compete and get a fair share of the world market, he said, “China does see India as a competitive threat, not a political or military threat. Certainly as a competing country they would like to ensure that you are not as competitive as them and you cannot blame them for it. It is for us to make ourselves competitive and not for China to give way.”
On the labour market, Mr. Srinivasan said that despite labour union activity being low during the last few years of rapid growth, India had still not touched labour reform. “We are not talking about hire and fire. In fact, I have always maintained the view that hire and fire will create too much of a social discord in a country like India. But you should have the ability to continuously improve productivity and settle disputes quickly.”
Regarding tax reform, Mr. Srinivasan argued for a reduction in “multiple levels of taxation accumulating and making industry uncomfortable.” Such laws hinder the free movement of goods and services even across States, he said.
The direct tax code is well intended and the tax rates have been reduced. Yet a minimum investment or wealth tax could be a disincentive, for example, to foreign investment in infrastructure, Mr. Srinivasan said. “This has to be debated further,” he said, adding it was still not quite clear why this tax on assets has been imposed.
Mr. Srinivasan stressed the overall concern of labour market disparities across States, saying that while conditions for rural labour have improved in Tamil Nadu, in part due to policies such as the National Rural Employment Guarantee Scheme, in States in eastern and northern India, there would appear to be stagnation.
For India to become competitive we need to create 15 million jobs
It is for us to make ourselves competitive, not for China to give way
