‘Challenge of US tariffs offers opportunity for reforms, deregulation’

I think there are short-, medium- and long-term things we should do. Short-term things are largely related to helping smaller fims that have confirmed orders from customers in the US who are very directly affected. Some of them are at risk and will need immediate support. In the medium term, we should really diversify our customer base by really working on free trade agreements (FTAs) with more and more parts of the world. The big area that we need to relook at is Asia, a very vibrant economic area.

In the long term, we need to dramatically improve the competitiveness of our economy, and that’s looking at the cost of doing business, looking at deregulation at the Union government level and also at a state level. It’s not an (just) issue of the Centre giving states more power, it’s (also) an issue of the states giving their cities more power and more accountability.

Pick up areas around primary health, skilling, where we have many initiatives, but we still struggle with these days. Take urbanisation, our cities broadly are a mess. They’re a mess in terms of traffic, interconnectivity of infrastructure. They’re a mess in terms of bottlenecks in different places. Some cities work better, but they’re relatively few. There are many more cities that work very badly. They need very fundamental addressing of land use regulations.

Competitiveness has been a challenge. There are concerns around the cost of power and quality control orders. What’s your take on how to address them?

Everyone says, shouldn’t we be concerned about quality? Yes. The question would be, as a result of the quality control orders (QCOs), has quality been higher? And if the general view is that they’ve not had a substantive effect on quality, maybe we have to scrap the system or completely rethink it. Today, the general view would be that what you see is being used as a non-tariff barrier, to reflect the interests of particular firms. And I’m not sure that it’s necessarily in the national interest. If you take the tariffs themselves, there’s lots of scope for reduction in tariffs.

We have inverted duty structures. For example, the situation with the garment industry and about 70 per cent of world trade is in synthetic garments, garments made out of synthetic fabric. In India, 70 per cent of our exports are cotton garments. Now why are we so different from the rest of the world? It’s because we protect our synthetic fabric makers with a very high tariff. The same applies to steel. If you have a tariff on steel, you spread inefficiency throughout the engineering industry.

The PM visited China recently after a substantial gap. What kind of association with China can the industry benefit from?

I think we should look at China for two reasons. It has depth in manufacturing, like no other country. There are any number of items where we are very reliant on imports from China. If you look at what we did in 2020 after the problems we had on our border, we basically said we would try to reduce trade with China. The result in five years is that trade with China has increased. We are importing more from China.

We can have all of our security issues in strategic areas, by all means, but I don’t know what the security issues are in fabric, steel and a variety of products in India. We should learn the process as much as we can of how Chinese are so competitive. And then we can see how it helps with the broader competitive situation of Indian industry overall.

It [our association with China] should not be related to the US. This makes sense for us to do, regardless of the US.

Our FDI is only coming into certain states and into very specific sectors, especially IT, and it has not gone into manufacturing. There is a lot of disparity among states too that push migration. What can create a move even in an investment climate?

On foreign investment in manufacturing. We should expect foreign investment in sectors where you have Indian investment first. If we address that question through all the things that we’ve been talking about, we will simultaneously see that foreign investment follows Indian investment.

The second question on where the investments should flow… let the states compete.

The most attractive place for manufacturing is Tamil Nadu. If you look at where the investment has taken place in Tamil Nadu, it’s not just in and around Chennai but in 10 different cities. So it’s very dispersed and very valuable for that state to develop cities in so many different parts of the state. The worst way of attracting investment to a particular state is through financial incentives. That’s a race to the bottom because that’s a race where all the states will lose as a result. I think states should increasingly compete exactly on the cost and ease of doing business, the logistics that they provide, the cheapness of doing business, the transparency with which things can happen, the speed with which things can happen.

Unlike in China, SEZs have not quite fired for India. Is that a missed opportunity? What can the government do in this respect?

The argument for SEZs (special economic zones) was that you would provide a certain particular ease of doing business and low cost of doing business that you could not provide everywhere. But the economic case has always been (to) do it everywhere — why do it only in a few zones.

So, I would say I wouldn’t put too much attention and focus on trying to fix SEZs. I would put much more focus on trying to deregulate.

There are all manner of regulations and (more) regulations that have very little value addition in practice.

Could you elaborate?

There are some issues around land use where we’ve specified that this land should be used for a particular purpose. To change the designation of land use can be very complicated.

If you take GST regulations. We have seen welcome reduction in GST rates with the announcements following the GST Council meeting. There are still unnecessary aspects. For example, a shirt selling for Rs 3,000 carries a GST of 18 per cent a shirt selling for Rs 2,000 carries a GST of 5 per cent. What is the economic logic there? And doesn’t that just create more complications for the end industry?

Take education (for example). We have various norms that the UGC lays down on. What are the qualifications for a chancellor, for a vice-chancellor, etc, you can have these as guidelines. You have the states that each takes those regulations and they add their own layers of complexity. What is the end result? Look around you at the quality of the chancellors and vice-chancellors that we have, are they at the standard that we are really searching for?