Previous

Page - 19

• Third, there is a need for a shift in the production structure towards more labor intensive industries. The share of capital goods imports in total imports is rather small in India when compared with China and other fast-growing countries in East Asia. This, combined with the fact that India's import-to-GDP ratio is small, suggests that India is far more deeply into the production of capital goods than China and other comparator countries.

  In late 1970s and early 1980s, China also suffered from this problem and adopted policies to change the structure of production in favor of labor-intensive goods. An important part of this strategy was targeting of the sectors, especially for exports. For India, it is perhaps unwise to follow this route. Given the country's generally neutral and rules-based approach to reforms, it is perhaps best to rely on the standard trade policy tools, particularly the structure of tariffs. Recent reduction in tariffs on capital goods should help move the economy towards more labor-intensive goods. What is needed is resistance to policies that reverse the impact of this policy change. In particular, there is need for labor-market reforms. The country will not be able to take advantage of low wages of skilled and unskilled labor unless potential investors are sure that they can operate factories around the year without fears of recurrent labor disputes. This fear has been behind the highly capital-intensive technologies chosen by investors in recent years.

• Fourth, duty exemptions for assembly-type operations combined with rapid processing of imported inputs and materials by customs authorities made a significant contribution to China's export growth. In India, duty exemptions for exporters exist but an improvement in their administration and simplification of procedures leading to speedy processing by customs will help boost exports. Also, for small exporters who rely on duty drawbacks, delay in getting the drawback as well as in obtaining inputs from abroad are common. An improvement in this direction is also desirable.

Next

* Contributed by -
Syam Krishna V. K. ,
B.Tech. (Prod. Engg.), Kerala University,
MBA 2007, DOMS, IIT Madras.