A K Bhattacharya: Pre-reforms mindset

RAISINA HILL

Industry chambers still lobby for relief for specific sectors instead of asking for broader changes based on a principle.

Industry lobbies in India have refused to change. This is what many bureaucrats in North Block will tell you. Pre-Budget exercises in the finance ministry have begun. But a close look at the various pre-Budget memoranda received from various industry organisations will reveal that the demands pertain more to seeking specific relief for some sectors and less to asking for a change in policy based on a principle. This is exactly what used to happen even twenty years ago, much before economic reforms began in the 1990s.

Consequently, most pre-Budget memoranda sent by various industry organisations gather dust in the cupboards of finance ministry bureaucrats. A few years ago, so harassed were these bureaucrats, that they requested the industry organisations to summarise their demands in single-sentence points and limit those in one page. Many industry organisations complied with that request. But that practice was given up the very following year.

Finance ministry bureaucrats continue to be flooded with thick volumes of pre-budget memoranda from different industry organisations. The joke in the finance ministry is that the smaller the industry organisation, the thicker is its pre-Budget memorandum!

The absence of change in industry lobbies is noticeable in another crucial area "" the perception of threat from imports. Last month, the Federation of Indian Chambers of Commerce and Industry (FICCI) got wind of a finance ministry proposal to reduce customs duty on manufactured goods. Promptly, it shot off a letter to the government and followed it up with a detailed assessment of how a sharp rise in imports has already created problems for domestic manufacturers of goods. It further argued that any further cut in the customs duty would spell disaster for them even as the steady appreciation of the rupee against the dollar had made imports cheaper.

FICCI's assessment was based on imports in the two-year period from April 2005 to March 2007. According to its data, imports in these two years increased by 89 per cent for transport equipment, 57 per cent for iron and steel, 55 per cent for machine tools, 54 per cent for primary steel and pig iron-based items, 42 per cent for non-electrical machinery, 42 per cent for paper board, 41 per cent for non-ferrous metals, 28 per cent for electrical machinery, 27 per cent for electronic goods and 26 per cent for chemical products.

In order to place these imports in context, the FICCI note also pointed out that total imports during this period went up by 30 per cent. In other words, the imports growth in respect of transport equipment, iron and steel, machine tools, steel items, non-electrical machinery and non-ferrous metals was more than what overall rate of increase.

Now, the Confederation of Indian Industry (CII) wants that there must be a national manufacturing policy to encourage production of critical engineering equipment within the country. Its demand seems to have got the backing of leading machinery manufacturers like Larsen & Toubro and Bharat Heavy Electricals Limited, who claim that they are hurt by increased machinery imports from China. CII's fear is that if a national manufacturing policy is not put in place, rising imports from China may sound the death knell for the domestic capital goods industry.

What this national manufacturing policy should do is not clear. But it should be safe to assume that the domestic capital goods industry wants the new policy to ensure that foreign suppliers of machineries are discouraged from importing them from their countries and instead set up a manufacturing base in India and produce the machineries here. The domestic capital goods industry also expects the local taxes to be reduced so that imports do not enjoy any special advantage over locally manufactured machineries.

In the 1980s, the domestic capital goods industry had raised a similar demand, seeking protection for itself against imports. This was soon after the government had taken an IMF loan and there were pressures on it to reduce import duties. But so powerful was the domestic capital goods industry lobbying that the government finally gave in and, in fact, duties were marginally raised on imports of several machinery items.

Today, the economic policy environment has changed. The demand for framing a national manufacturing policy or a plea to the government against reducing import duty are not likely to cut much ice with the government. But industry lobbies in India have not changed. They continue to plead for protection, instead of asking for better infrastructure and unhindered access to cheap capital and technology. Bureaucrats in North Block may well now demand that industry lobbies too needed a strong dose of reforms.