 "Here's how 'Made in China' scores over 'Make in India'")
In one of those rare coincidences, China announced a host of incentives under its ‘Made in China’ campaign on the same day that that India’s Prime Minister Narendra Modi issued a clarion call to investors to choose India as a manufacturing destination.
But where the Factory of the World capitalised on is the gap that the Indian Prime Minister left in his announcement. In his speech, Modi said that “Incentive schemes cannot attract businesses, it is important to create the environment of trust and confidence.”
The truth is different – incentives are what attract investments.
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Take the case of the new, downsized state of Andhra Pradesh after the separation if Telengana. On losing Hero Motors plant to Andhra Pradesh, Chief Minister of Karnataka said, “Our government offered maximum concessions in the form of tax holidays, excise duty exemption, concessions in entry tax, and interest-free loan of Central Sales Tax (CST) to the company. But, we cannot give them free land, because other companies will also ask for it. We cannot compete with Andhra Pradesh on this.” Andhra Pradesh managed to bag Hero’s project after it gave away free land over and above the incentives mentioned above.
Tamil Nadu Chief Minister Jayalalita has complained to the Prime Minister, fearing a flight of industries and capital to neighbouring Andhra Pradesh and Telangana on account of incentives awarded to them.
In BJP-ruled Madhya Pradesh, Chief Minister Shivraj Singh Chouhan is framing the incentive policy ahead of the Global Investors Summit (GIS), and is finalising new grants and tax incentives to be announced at the summit. The state found mention in ITC’s Chairman Y C Deveshwar’s speech as his choice of investment destination during the ‘Make in India’ summit.
Modi’s home state of Gujarat has flourished partly because of incentives given by the state, apart from the ease of doing business. The state is readying its new industrial policy and intends to announce 100% exemption on VAT, waiver of stamp duty, electricity duty among others.
Modi in his speech has talked about steps taken in easing and speeding up business start-ups. These might be a new concept for India but they are the norm globally. This is the bare minimum that a country now needs to offer. Modi said in his speech that businesses first look for security of the investment, then growth and then profits. One thing he missed out was businesses look at return on investments. All things being equal, incentives and grants improve the return on investments drastically. Proliferation on industries in tax free states is a clear indication that despite the hardship of starting and operating a business, investment goes to states which offer incentives and better return on capital.
China has taken the offensive, not only in Ladakh but also in attracting businesses by announcing a series of incentives on the same day as Modi made his speech. They know that action in the form of incentives speaks louder than words.