Reform Essential for Global Competitiveness
ECONOMY & POLICY

Reform Essential for Global Competitiveness

India’s exports are likely to suffer a setback as US tariffs of 25 per cent, plus another 25 per cent in penalties, have kicked in. According to Federation of Indian Export Organisations (FIEO), India’s exports to the US worth $ 47-48 billion are now exposed to pricing disadvantages of 30-3...

India’s exports are likely to suffer a setback as US tariffs of 25 per cent, plus another 25 per cent in penalties, have kicked in. According to Federation of Indian Export Organisations (FIEO), India’s exports to the US worth $ 47-48 billion are now exposed to pricing disadvantages of 30-35 per cent, rendering them uncompetitive compared to competitors from China, Vietnam, Cambodia, the Philippines and other Southeast and South Asian countries. This has another ripple effect: any FDI targeting production in India for US markets will seek other countries with a more favourable tariff environment. Further, the social consequences would also take a huge toll – with job losses, financial ruin, supply chain disruptions, and so on. But this has happened. Now what?It is time for the Government to get back to pursuing its reform agenda, which, during this NDA term, has taken a backseat. Fortunately, the GST reform is on the table. Cement could be a beneficiary. Like cement, more than 80 per cent of earthmoving and other heavy machinery and construction equipment fall under the 28 per cent GST category. These segments, too, could heave a sigh of relief. However, we need the following reforms to withstand the geopolitical pressures – and now is the time for the Government to fire on all cylinders:Labour reform: The need to harmonise regulations across all 36 states and Union Territories under four labour codes has faced opposition. These reforms aim to consolidate the myriad existing labour laws into four unified codes: the Code on Wages, the Code on Social Security, the Code on Industrial Relations, and the Code on Occupational Health & Safety. Trade unions are opposing this as they face extinction. Union leaders claim the codes restrict the right to strike, complicate union registration and introduce cumbersome adjudication processes. They also raise concerns about the derecognition of unions and the centralisation of power to deregister unions.Divestment: The Government has consistently failed to meet disinvestment targets in recent years. Notably, only about 66 per cent of the FY24-25 disinvestment target was achieved. Disinvestment proceeds in FY24-25 are estimated to be among the lowest since FY15, largely owing to a shift away from target-driven stake sales. This represents a shift in strategy: instead of pursuing aggressive stake sales, the Government has pivoted to raising dividends, optimising PSU performance, and selective market dilution.Ease of doing business: Single-window clearances are required. Currently, an allotted mine requires multiple permissions, resulting in the allottee becoming operational only after five years! As per a TeamLease Regtech Report, a chemical manufacturing enterprise with a single unit in Maharashtra faces 635 unique obligations: 299 (47.1 per cent) at the union level, 332 (52.3 per cent) at the state level, and 4 (0.6 per cent) at the municipal level. However, this figure inflates to 1,545 once the frequency of these obligations is factored in. For instance, there are 53 monthly, 93 quarterly and 48 half-yearly compliance requirements. The company must also obtain 72 licenses, permissions and approvals under 52 acts. Even before construction begins, the corporation must complete over 60 one-time registrations and approvals, including 10 certificates/approvals under the Maharashtra Regional and Town Planning Act, 1966. Further, a typical MSME manufacturing unit must comply with up to 998 unique obligations and a total of 1,450 tasks annually, encompassing central, state and local laws.India’s inverted duty structure (IDS): This structure, where import duties or GST on raw materials and intermediate goods exceed those on finished products, undermines exporters’ competitiveness by raising input costs, eroding margins and choking cash flow.India is too important a market for the US to ignore and, therefore, I foresee a thawing of this punitive action in some form over time. However, this wakeup call – that we hardly have any leverage – is indeed an opportunity for us to fortify our policies so they help build unique competencies. Providing protection to our industries has not yielded much as we are unable to compete globally. Global competitiveness and efficiency are key to marching ahead toward our 2047 goals.

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