Opposition Leader wishes to transform Indian manufacturing

Opposition Leader wishes to transform Indian manufacturing

Arun Jaitley, leader of India’s main opposition party and likely the next finance minister states that he wants to see India become an export powerhouse like China. Of course this is a statement politicians there made before, but failed to deliver

Jaitley’s views mater, because polls suggest his Bharatiya Janata Party will win enough seats in Parliament to form the next government of India, and a significant part of the BJP’s campaign message has been on economic growth, reports WSJ, The Wall Street Journal to whom he granted a recent interview. He then stated “We will do a massive operation to start the process of moving in the direction of low cost manufacturing”. He also named the need for lower interest rates on corporate borrowing, an overhaul of India’s complex tax structures, and reduction in red tape and bureaucracy.

The obstacles of Indian export competitiveness is the lacking of modern roads, ports and power plants that rival China has started already 25 years ago. The BJP will consider labour law changes, but it will not be its first fix for the economy. Jaitley declined to identify what might be first on the list, but stated that the decision would be made once any new government is formed. In view to labour laws he explained “Reforms are the art of the possible. Nobody should start with the most difficult reform process.”

OG-AB375_IPOLIT_D_20140506095632It is noteworthy that any national government in India trying to expand the economy has to face that state governments control important industrial policies, such as land acquisition and industrial licensing, limiting the central government’s hand.

Jaitley is a lawyer and former commerce minister, and is among the BJP’s most outspoken and influential politicians. He is running for a parliamentary seat from Amritsar, Punjab.

In addition to policies promoting urban development, tourism and property development, he stated that the party wants to focus on creating manufacturing jobs. India’s economy is suffering from high inflation and low growth. The BJP has pledged to crate 10 million new jobs a year for the next five years, if it comes to power. The only way India is to generate that kind of employment is through exports. Jaitley added: “Producing cheaper products is the only way India can compete with countries such as China, South Korea, Malaysia and Indonesia, all known for their low cost manufacturing.

India has some of the lowest wage rates in the world, but has failed to become a really big exporter like other large Asian economies. Manufacturing still amounts to around 15 % of GDP Gross Domestic Product. Despite India’s expansion in the past 20 years, its share of global exports has been stuck below 2 %, rival China cut a slice of the world’s exports, its share climbed from a share of less than 3 % in 1995 to almost 12 %. China has also generated trade surpluses, where as India has been running a huge trade deficit over the years. India’s trade deficit reached USD 138 billion in the financial year ending March 31, up USD 18 billion for the year ending March 31, 2000.

Critics state that BJP makes promises it cannot keep. But polls suggest that the party will be ahead, however a parliamentary majority seems out of reach, thus a coalition government would have to be formed with other parties.

Even an aggressive push to revamp the economy would take years and hundred USD billion to make India more competitive. Rajiv Biswas, chief economist for Asia Pacific at IHS in Singapore, explains: “India has the brain power, but it should impart vocational training to create a skilled manpower for manufacturing companies.”  Jaitley stated that FDI Foreign Direct Investment is always welcome except in certain sectors where we think the Indian economy is not ready for. The BJP has opposed FDI in supermarkets in the past and some other types of retail, but according to Jaitley the party wants to open most other industries, including defence and infrastructure to more foreign control, which could also help exports.

www.wsj.com


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