In the last few years, the Indian economy has taken significant strides down the competitiveness road. The success in software, a development of the nineties, followed by business process outsourcing in the present decade, has established clear competitive credentials in services.
But it is only in the last few years that a degree of competitiveness has been seen to be emerging in manufacturing too. This is manifest mostly in auto components and, very lately, textiles.
The latter story is only in the initial stages of unfolding. The impact of the demise of global textile quotas, as also the removal of reservation in garments for the small-scale sector, will be felt over the next few years.
There is also one other area of Indian competitiveness, which emerged in the last decade, pharmaceuticals, but is not seen as representative of prowess in manufacturing. This may be because pharma is considered to be knowledge-based and so not taken to be part of mainstream manufacturing, though pharma products are very much part of the real world of merchandise.
India also has a latent competitive advantage in agriculture, but this is yet to emerge for several reasons. Indian agricultural practices are quite primitive and any competitive advantage there is mostly the result of cost advantages arising out of the extreme poverty of the Indian cultivator.
So there is no shine in this competitiveness. The advantage is also latent as global trade in agricultural goods is far more fettered than in manufactures, thus not allowing any serious gains to be reaped from the competitiveness.
There are also serious health issues relating to Indian agricultural practices. The Indian regulatory system remains negligent on the issue of chemical residues in food. It needed an NGO to establish that pesticides residues in soft drinks were harmfully high for the government to come out with proper standards for soft drinks.
Chemical residues in agricultural foodstuffs remain at unacceptably high levels in the absence of both rules and their enforcement. Health-related standards are undoubtedly being used by developed countries to protect their agriculture but more serious Indian rules and their enforcement will do a lot of good to Indian health and exports.
A clear victim of this laid-back attitude, as also developed country protectionism, is Indian competitiveness in dairy products. The Indian white revolution is a marvellous story of innovativeness -- creating wealth (milk) out of waste (straw) -- and astute marketing on a grand scale.
But phyto-sanitary rules (for example, not only must the milk be bacteria-free, the animals must be machine-milked) and their near absence in India have combined to keep the benefits of Indian competitiveness in this field confined to its borders.
The emerging competitiveness in auto components has resulted out of factors that go to the heart of the change in the attitude of Indian business in response to the policy changes since 1991.
Simply put, sometime in the mid-nineties, Indian businessmen decided that they had to stop lobbying for continued protection and start becoming globally competitive by changing their business practices and technology.
Group restructuring -- allowing focus on core competencies -- plus falling interest rates making investment in technological upgrading affordable, have meant producing auto components of global quality at Indian costs.
This process has been aided by several global auto manufacturers deciding to use their Indian capacities for assembly and supply to the regional market. The rise in auto exports by the likes of Ford and Hyundai predates the sharp rise in domestic demand in the last 18 months.
When an auto major take a geography seriously, a revolution in its auto components sector cannot be far behind. The challenge and opportunity of the future are best captured by two developments.
Toyota will be assembling models in India only for the Indian market but Volvo will use their Indian assembly capacities to supply the regional market. Being competitive means more companies using India as an export base.
A dual challenge faces India. Its infrastructure has to approach global benchmarks and its companies have to keep moving in the right direction. It is instructive to look at the latest results of Maruti Udyog and Tata Steel.
Maruti has posted better margins despite a sharp rise in input costs, made possible by cost saving through better management processes like value analysis. Tata Steel has similarly posted hefty profits despite rising input costs, by being able to lower the percentage cost of raw materials.
Not unexpectedly, both Maruti and Tata Steel have decided to go in for substantial investments because they see a bright future for themselves.
While Maruti will make diesel engines, which will enable it to access a large slice of the domestic market it had been denying itself, Tata Steel seems set to double its capacity in a few years. Thus, the better Indian companies are fighting to grow in a more and more competitive world.
The government has a three-fold role to play in making this emerging competitiveness more broadbased. One, it has to keep lowering tariffs in order to force Indian companies to become more competitive by having to face import competition.
This will probably happen. Two, it has to ease restrictions on foreign direct investment by overcoming the opposition of both entrenched Indian businesses and political interests. There is evidence that this is happening, slowly but steadily.
But the future on the third front is wide open. There is no game plan yet for a sharp boost to infrastructure. When the Prime Minister said last week that China should be a role model, he probably had in mind its rapid growth.
He can take the emulation of China further by vastly upping public support for infrastructure growth. By using appropriate public-private partnership models, this can help crowd in private investment in infrastructure, and promote Indian competitiveness.
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