Knowledge-based economy sustained by manufacturing

Promoting and investing in R&D and technology is the key to boosting local hi-tech manufacturing and ensuring sustainable economic growth, feels KS Rao, Group CCO, STL

Countries like China and Israel have developed a long-term plan, in consultation with the industry, to promote domestic manufacturing. The Government of India has launched the PLI and some other schemes to promote manufacturing. How should the government promote some champion sectors through a comprehensive policy?

Promoting local manufacturing is critical for sustainable economic growth as it promotes innovation, boosts productivity, maintains favourable trade and increases employment. Additionally, growth of domestic manufacturing propels the progress of domestic services industry, as domestic manufacturing, with the growing maturity, consumes more services and rely more heavily on services to operate.

Considering a knowledge-based economy cannot be sustained in the long run unless it is adequately supported by a growing manufacturing economy, government has taken various policy initiatives, including PLI, SPECS etc. to boost domestic manufacturing capabilities. However, a comprehensive framework for ‘Make in India’ rather than isolated initiatives would yield much better outcome and impacts.

In the digital communication sector Indian companies have demonstrated strong performance and have the capability to transform into champions with proper government support. India’s self-reliance in 5G can be achieved through comprehensive long-term policy framework in discussion with all the stakeholders. Many countries including China, USA, Germany and Taiwan have successfully built domestic manufacturing champions through long-term comprehensive policies with defined responsibility matrix and timeline.

China has followed such strategy called ‘Make in China 2025’ policy, which paved the roadmap to transform China from being a low-end manufacturer to becoming a high-end producer of goods. The policy focused on all key aspects of strengthening local manufacturing, starting from promoting investment till acquiring new market through financial support, ease of doing business, barriers to protect domestic manufacturing (like imposing a quantitative limit on import to protect the domestic industry, incentives for domestic producers to benefit from reduced costs) and manufacturing excellence, where Chinese companies worked hard to bring manufacturing-excellence tools and approaches to the country’s shop floors. Similarly, USA’s ‘The National Strategy to secure 5G Implementation Plan’ aims at securing and facilitating 5G infrastructure domestically and abroad.

Hence, Government of India may launch a time-bound initiative to create 3-5 domestic champions in the priority sectors like digital communications, to be globally competitive through (a) investment promotion (b) Improving EoDB including efficient implementation of trade remedies & incentives disbursement (c) comprehensive/long term support for industrial R&D.

Industry has been complaining about dumping of cheap imports from China to India and there has been a lot of ad-hocism and delays in government’s investigations. What should the government do to tackle this situation?

In the past it has been observed that investigation of ADD and SGD takes much longer than prescribed timelines, and in some cases, the final decisions were not in line with DGTR recommendations, which impact the competitiveness of domestic manufacturers.

Worth mentioning India has sufficient domestic manufacturing capacity, to cater to local demand,  both current and upcoming demand for BharatNet,  and meet export obligations.

Government should ensure that investigations are conducted within prescribed timelines and preliminary findings be completed within 45 days (prescribed by rules) and levy the duty in case the investigation justifies injury to domestic industry. Government should also give rationale in case it rejects the DGTR recommendations.

Many countries have efficiently used trade remedies to provide a level playing field to domestic manufacturers. Recently the domestic optical fibre manufacturing industry filed a petition to the government seeking anti-dumping duty on cheap imports of optical fibre from China, Indonesia, and South Korea. The government has initiated the investigation as per the procedure. Worth mentioning India has sufficient domestic manufacturing capacity, to cater local demand, both current and upcoming demand for BharatNet, and meet export obligations. Moreover, capacity utilization (local + exports) in China is as low as 53%, which increases the chances of dumping in other countries. Chinese strategy for dumping optical fibre in various countries has already been exposed and Europe has initiated anti-dumping duty investigation against Chinese imports of optical fibre.

In view of the above, for any such domestic industry’s claims of dumping, Government should go ahead with the investigation and impose duty on merit basis on a time-bound and transparent manner to protect the domestic manufacturers.

To promote domestic hi-tech manufacturing, one of the pre-conditions is to create an ecosystem for R&D. How can we create a Gati Shakti like initiative to promote R&D?

Promoting and investing in R&D and technology is the key for boosting local hi-tech manufacturing and to ensure sustainable economic growth.

Recently, government has announced the launch of various policies including Design linked manufacturing (DLI), aland location of 5% USOF fund towards R&D, among other to promote domestic R&D. However, India’s R&D spending is 0.7% of GDP, a fraction of China’s 2.1% and Japan’s 3.1%. The list of top 50 patent applicants filed under the World Intellectual Property Organization’s Patent Cooperation Treaty (PCT), is dominated by telecom companies like ZTE Corp., Huawei Technologies, and Qualcomm Inc., while there is no Indian company in the list.

To create domestic champions and global technology leaders, Governments in many countries provide special incentives in the form of risk sharing to domestic champion companies who are seriously investing in R&D and product development.

“Patent box”, is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents, which many countries like China, Belgium, the United Kingdom, France, the Netherlands, Italy and Belgium, have already enacted to spur innovation and create domestic manufacturing jobs.

India should consider this tool as a component of tax reform legislation to make Indian business more competitive, spur innovation and R&D, and enhance the value of Indian patents. Similarly, government may consider tools including providing additional 5% Income Tax reduction to Indian Corporates who spend over 3% of their turnover on R&D and filing patents/design in India. Alternatively, in order to promote domestic R&D government may provide 10 years Tax holiday on sales of products having Intellectual Property (Patents & Design) developed through R&D.

In the long run government may rollout a separate R&D fund for tech incentive ministries, including IT & Telecom, with the Principle Scientific Advisor’s office to act as the nodal agency of India’s ‘R&D GatiShakti” to ensure better alignment and outcome. It should follow an industry-led approach rather than emphasis only on academia. This process will help to respond to local design and intellectual property (IP) creation and lead to more design-led manufacturing in the country.

By KS Rao

Group CCO, STL

aanchalg@cybermedia.co.in