India's cost competitiveness in manufacturing vis-a-vis Europe may decline to 30 per cent by 2023 from the current level of about 44 per cent on account of growing labour costs, a report says.
The Assocham-Roland Berger Strategy Consultants joint study cited poor infrastructure and inland logistics services as major impediments for growth, suggesting that the government must cut the red tape as bureaucratic hurdles and convoluted processes are primary reasons for India's tough business environment.
"Manufacturing in India is currently 15 per cent cheaper than Europe, but the cost difference is reducing due to increasing wages and other costs in India. By 2023, India is expected to still be 30 per cent cheaper than Europe," noted the study.
It highlighted that India has a natural cost advantage in engineering works vis-a-vis Europe at over 44 per cent currently and by 2023, India is expected to still be 30 per cent cheaper than Europe.
"There is a need to encourage industry-academia collaborations to understand innovation requirements better. Besides, funds should be attracted from the private sector to support research at academic and research and development (R&D) institutions," recommended the study.
"Availability of both basic infrastructure facilities and skilled workforce can increase the scope for R&D centres in smaller cities and towns," it added.
Suggesting policy measures for growth of automobiles and the manufacturing sector in India, the study suggested doing away with archaic labour laws to usher in labour reforms.
"There is a need to change the 1971 Contract Labour Law to limit discrepancy between permanent and temporary labour, set clear guidelines on compensation of contract workers and permit downsizing of contract and permanent labour with proper compensation," it said.
"There is a need to upgrade basic infrastructure as poor infrastructure and inland logistics services are major impediments for growth."
It also favoured deregulation of tariffs in major ports to attract private investment, investing in inland ports, cranes and handling equipment, expanding inland container depots, installing roll on-roll off facilities in all major ports and developing freight corridors and logistics parks.
