Pro-manufacturing laws need of the hour

The 'Make in India' Week in Mumbai, which ended last Thursday, served as a welcome platform for states to make their cases for being business-friendly destinations to investors. Seventeen states had pavilions at the exposition centre in the Bandra-Kurla Complex, and several had special seminars. Chief ministers of states including Gujarat, Odisha, Haryana, Andhra Pradesh, Chhattisgarh and Jharkhand were present. It is unfortunate perhaps that most of the chief ministers from states not ruled by parties in the National Democratic Alliance did not turn up - the leaders of Tamil Nadu, Uttar Pradesh and Karnataka, all large states seeking investment, were not present. However, most states that were present did indeed make many ambitious announcements - there was news of several new collaborations and plans for manufacturing projects. This spurt of activity should certainly help in reviving a sector that had slowed considerably. The states subsequently issued statements adding up the notional value of promised investments. The total investment promised, if these promises are taken seriously, would amount to Rs 15.2 lakh crore, with the host state of Maharashtra accounting for Rs 8 lakh crore out of that. However, the proportion of such promises that fructify depends crucially on whether investors believe that a genuinely business-friendly environment has been created. In the past, only a small fraction of such memoranda of understanding has turned into actual investments. Indeed, as this newspaper has reported, even as the number of industrial investment proposals made in 2015 went up by eight per cent over that in 2014, the value of such investment proposals has declined by 23 per cent in the same period.

It is unfortunate, therefore, that in spite of assurances given to investors at the 'Make in India' Week that a stable business-friendly environment has indeed been created, the tax office chose the precise time of this important exposition to send a threatening notice to Vodafone about a tax demand that is currently in arbitration. This action, coming as it did at a time when senior leaders of the government were assuring investors that "tax terrorism" was a thing of the past, should serve to remind all concerned that no amount of assurances can take away the need for genuine and deep-seated reforms to institutions and governance. The overall impact of the 'Make in India' Week will be positive going forward if it also provides a similar energy to the governments deregulation and reform efforts. Both states and Centre need to do more in this respect.

There is an entire gamut of manufacturing-friendly policies that states and Centre need to work on. The Centre has unfortunately put labour market reforms on the back burner, although some states have been freed to move forward. However, a patchwork of state-level laws is not the same for manufacturers as simplified national regulations. Other factor markets too need to be reformed. Land availability is in many places a genuine problem. The Centre has abandoned its amendment to the land acquisition law that was meant to make acquisition for public purpose easier. However, it should at least work - as should states - towards a functional free market for land perhaps through relaxations in land leasing laws. The focus on infrastructure is welcome, but should be accompanied by deregulation that allows infrastructure to be properly used. New highways are not that useful if outdated laws keep trucks waiting at inter-state border; new ports will not help if turnaround times remain slow thanks to excessive red tape. And, finally, as the Vodafone issue shows, reform of the tax department and making it less arbitrary and confrontational is long overdue.