Friday April 12, 09:00 AM
Taking on global competition... |
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By Equitymaster.com
While the Indian industry can pride to have the world's largest grass root refinery, largest manufacturer of motorcycles globally and lowest cost steel producer among all the steel producing countries, all is not well.
Recently, Gillette closed its Duracell factory in India as it found the operations to be unprofitable. The company will now import batteries. Tata Steel (TISC.BO, news) is planning to put a Fero-Chrome alloy plant in South Africa. The country was chosen over India as the cost of unit of power in South Africa works out to be Rs 0.6 per unit as compared to Rs 4 per unit domestically.
As India integrates more and more with the global economy, the domestic industry will have to face fierce competition. Globally, for past few years the general trend has been to shift manufacturing facilities to countries that have comparatively lower labour and other production related costs. While the labour costs in India are perhaps the lowest the in world, where India looses out is due to the systemic inefficiency.
A glaring example is Uttar Pradesh. The state is estimated to have about 2 m illegal power connections. However, instead of regularizing and penalizing the people stealing electricity, power tariffs were hiked by about 40% in Uttar Pradesh as part of the reforms. Thus, the honest consumer who has all along been paying his bills will now have to pay for misdeeds of the dishonest. The transmission and distribution losses in the state are 50% as compared to an average 15% in the country.
While the government has at least shifted its reform focus from power generation to transmission and distribution, a lot need to be done and the time is running out. The government delivering on this front is critical.
Meanwhile, the software industry primary that uses human resources as the key input has proved the competitive ability of the Indian industry time and again. TCS winning a US$ 100 m contract from GE-Medical Systems is a glaring example. The project will be executed over a period of two years. This is perhaps the largest project won by the Indian software industry.
It is strange that an economy raring to take on global competition is held back by the some very basic reasons, which would be taken for granted in most countries.
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