India firms up ground for Make in India

07-Mar-2016 #MakeInIndia Source: India Inc

Make in India is the Narendra Modi led government’s central plank around which other flagship programmes revolve. The brand has clearly been implanted in the world’s psyche and now it’s time to remove impediments in the way of this brand delivering tangible results.

The recent Budget offered new manufacturing companies a concessional tax rate of 25 per cent on their profits as a means to give Make in India an added impetus. With foreign direct investment (FDI) registering a 40 per cent hike to hit $29.44 billion between April and December 2015, all elements now seem to be in place for this drive to entice multinational companies to manufacture their products in India.

However, the stumbling blocks still lie in structural reforms and a perception problem over the issue of retrospective taxation.

Prashant Jhawar, chairman of Usha Martin, and chairman of CII India Business Forum UK, said: “Retrospective tax was something that we were expecting would be fully addressed [in the Budget] but it has not been fully addressed.”

Cairn Energy is facing a tax demand of around $1.5 billion on a 2006 business reorganisation of its India unit and Vodafone faces a tax liability over its $11 billion acquisition of a 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007. Both cases have grabbed too much global attention and Indian finance minister Arun Jaitley, aware of this hurdle, had announced in his Budget statement that such ongoing cases under the retrospective amendment would have the opportunity of a one-time scheme of dispute resolution. It would certainly be in the interests of Make in India to speedily resolve these niggling issues.

Other areas of concern has been tedious labour regulations and an extremely sluggish judicial process.

“Not surprisingly, India ranks a poor 178th out of 189 countries on enforcing contracts and 136th on resolving insolvencies. India has recently enacted the Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act, 2015 to speed up the resolution of commercial disputes by setting up dedicated courts for the same. But progress has been slow,” points out India Inc. Consulting Editor.

A BCG study on Make in India found: “India is starting from a position that is far from advantageous. India’s manufacturing sector, with a 15 per cent share of GDP, compares poorly with peers like Thailand, Malaysia and Indonesia. India also suffers from such critical drawbacks like a lack of enabling infrastructure, poor perception of India in terms of ease of doing business, and a lack of proven ability to compete on a global scale.

“At the same time, India’s long-term prospects remain intact, with its core strength of human resource, a strong base of entrepreneurs and a robust and growing domestic demand.”

As the ‘India Investment Journal’ recently concluded: “The early reports indicate that Make in India is making a difference on the ground. This is expected to gather pace in the coming quarters. The inflexion point, though, is still some way off. Once that point is reached, more jobs and a visible and tangible feel good factor can once again be expected to pervade the country.”

Read Full Article..