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A report Mr. Ranjit Pandit, Country Head, McKinsey & Company, addressed the SPJIMR fraternity as a part of the CEO Lecture series. He spoke on China's competitiveness in the manufacturing sector and shared some aspects of the report presented to CII on the same topic. The CEO Lecture Series at SPJIMR is an endeavour to bridge the gap between academics and practice. China's astounding economic growth has left many in India as to how it managed to achieve so much in so little time. But what concerns us more is that Chinese goods today threaten some Indian industries into extinction. But this has not happened overnight or out of a miracle, Mr. Pandit pointed out. It has been a result of well thought out and planned policy measures across the last two decades. What is ironic is that China was well behind India in GDP terms in 1980 and today it has marched far ahead. In the next decade, as India was pre-occupied in political scandals, half of China was engaged in service compared to one third in 1980. So, what were these measures? In 1979, it set up Special Economic Zones (SEZ's), which resulted in a lot of fiscal benefits accruing to the economy. In 1984 labour reforms were introduced. In 1990, excise duties were cut, interest rates were reduced and import duties were reduced to 10%. These have resulted in significantly higher productivity of labour and a large domestic market. The latter issue is worth noting. China produces more steel than India but the consumption is the highest in the domestic sector. This defies the myth that only export competitiveness can grow an economy. This only proves that even in 2002, a decade after liberalisation, India is way behind China and the reasons seem obvious. But all is not lost for India. In several sectors, India's quality of goods is far better than that of China's. In sectors like steel, India has emerged as one of the lowest cost producers in the world. India's knowledge workers give us the edge over China in many ways. In BPO India has a chance to cash on an opportunity that is bigger than even information technology. Mr. Pandit said that there is a need to move to VAT to revitalize industries. He cited the example of the motorcycle industry where duties were brought down from 40% to 16%. Consequently production has increased from 1 million units annually to 4.5 million units. This along with other strong economic measures would take India's economy to the place it deserves, he concluded. |
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