India's manufacturing industry is unbearable

2022-08-16
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Win weekly: the Indian manufacturing industry is unbearable

Guide: the British economist magazine commented on the Indian economy: the Indian economy is more risky than the Chinese economy. Compared with Chinese hotpot, Indian curry seems to be hotter. However, India's manufacturing industry hopes to improve the status quo through special economic zones, but it has not started well

the British economist commented on India's economy: the Indian economy is more risky than China's. Compared with Chinese hotpot, Indian curry seems to be hotter. However, India's manufacturing industry hopes to improve the current situation through special economic zones, but the start is not ideal. The current special economic zone policy is in the wrong direction, and Singh and his team are facing heavy pressure

however, India is also moving towards low-cost manufacturing, which was originally China's strength. In other words, China will soon feel the threat of India, because the salary of Indian blue collar workers is half that of Chinese blue collar workers. This is what China's manufacturing industry has to guard against

Indian Prime Minister Manmohan Singh has led the Indian government for two years. As a reformer of Indian economy, he is actively striving for investment, improving poor infrastructure and creating employment opportunities. However, Singh and his cabinet soon found that the leftists in Singh's Congress party, the Communist Party and other allies were loudly criticizing them, and even some people who supported the reform also made critical voices. What's the problem

originally, the focus of criticism of all parties was on the special economic zones

in fact, the concept of special economic zones has been implemented in many countries, especially in helping countries attract foreign investment, especially in China, which is highly appreciated by Westerners. Looking at Shenzhen, the most famous special economic zone in China, we can see that this is a very feasible way. The original intention of the Indian government is to allow investors to develop export-oriented industries here, but the successful experience of China has made India the target of criticism from all forces

why does this happen? Although India, like China and other developing countries, has set up special economic zones to stimulate economic activities and foreign investment, the problem is that the Indian government regards special economic zones as an expedient measure that should carefully browse the relevant product specifications for a short period of time. Precisely such a concept may hinder the development of India's business environment

India established export processing zones in the early stage, which can be traced back to 1965. In 2000, India turned eight export processing zones into special economic zones, making the route simple and making a new attempt. As a result, many enterprises, including famous Indian enterprises, have applied to the government for the establishment of special economic zones, and then triggered a gold rush of Indian bureaucrats. The number of applications for the establishment of special economic zones reached more than 400, and the government approved more than 200

at the same time, investors hope to buy cheap land to build special zones, invest a small amount of money to build infrastructure, and then sell it. Only 35% of the land is required to be used for manufacturing, even if the Central Bank of India is willing to allocate loans to the special zone for real estate. In this way, farmers will be forced to sell their land and lose their jobs. Sonia Gandhi, chairman of the Congress party, insisted that agricultural land should not be used as special economic zones

India's special zones failed to boost the manufacturing industry

India has shown amazing growth in software development capabilities, but hardware manufacturing is very weak. India's entire manufacturing sector contributes only 17% of GDP. Hardware production is obviously an urgent part to be improved. Therefore, India's electronic products and hardware equipment industry place their hopes on India's special economic zones. Indians believe that the special zone can help them show that India's manufacturing industry also has extraordinary power. They actively contact with Americans and hope that American enterprises can invest in India's special economic zones. Multinational companies such as Nokia and Siemens also set up factories in the special zones. They believe that Americans can become major partners to help India's IT industry grow, and can cooperate greatly in R & D and electronic management

however, the structure of its tax rate is actually very unfavorable for India's manufacturing industry. For example, the tax rate of raw materials is higher than that of finished products, which is not only true in textiles, but also in kinescope and drugs

the Indian government generously gave the special economic zones tax exemption for up to five years, and then changed it to 50% reduction in the next five years. The tax reduction period can only encourage enterprises to transfer from existing factories to new areas, and enterprises will only quietly move their investments that have been made outside the special zone into the new special zone. Of course, the Indian government only allows new investment to enter the special zone, but who can judge which is the new investment? Are you relying on tax inspectors with low salaries? The result is conceivable

in this way, investors, including those who plan to develop manufacturing industry in the special zone, feel that the terms of the special zone are too generous. To be qualified to build factories in the special zone, it only needs to be an enterprise with net profits within five years, but it doesn't matter whether it is a pure export enterprise. The products produced in the special zone can still be sold in the domestic market

up to now, India has 267 special economic zones. Morgan Stanley analysts have done research and found that half of the 267 special economic zones are no more than 1 square kilometer in size, and the average area is no more than 4.2 square kilometers. More than half of the special economic zones are for it and pharmaceutical industries, not manufacturing

the result of this is that India may not get much new funds to build infrastructure, but the country will lose a lot of tax revenue. This is what many economists, including India's finance minister, are worried about. India's huge fiscal deficit cannot afford such losses. Therefore, the small-scale special zones in India benefit from the promoters of the special zones, including officials and speculators, rather than the country itself. Morgan Stanley analysts believe that such small-scale special economic zones are completely out of step with the trend. At least the Indian government should also build some super large-scale special economic zones in several important provinces

the special economic zone policy goes in the wrong direction

why should Indians divide the special economic zone into such small pieces that are difficult to manage uniformly? This has to mention the Indian system

obviously, the policy of India's special economic zones has gone in the wrong direction. India has too many political parties, numerous factions, and complex and changeable relations. Various groups have to rely on alliances to gain general support, but many groups always like to argue in front of their respective interests, and the relationship between alliances is not stable. It is under such a unique, complex and diverse Indian democracy that more than 200 special economic zones with the same decentralized power have emerged

those who are dissatisfied with the SEZ policy also include allies of the Indian Congress Party and their own internal forces. From the beginning, India was full of opposition. Other liberal parties began to feel disappointed. The plan of the special zone meant that the micro level business environment reform and pullout hole had not been put on the agenda. They regarded the reform of Singh and his team in the past two years as a failure. Moreover, opponents believe that this special economic zone has been disabled from the beginning. In recent years, it is almost impossible to create employment opportunities in the manufacturing industry, because the government lacks the courage to liberate the special economic zone from India's strict labor laws. In China, enterprises have the right to hire and dismiss personnel according to their own wishes, but in India, the law of India makes the process of hiring and dismissal as long as possible. For new investors, this is a matter of concern, even within the special economic zones

India's manufacturing industry hopes to improve the current situation through special economic zones. Indians had high hopes for this, but the start is not ideal. Singh and his team are facing heavy pressure. If it continues to develop according to the current special economic zone policy, India's manufacturing industry and exports may be difficult to open up, with tax losses, decentralized management, loss of agricultural land, and the next may be a more difficult mess

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