It is flattering to hear the head of a global bank applaud India for unlocking its economy via a simpler tax structure and digitisation. Noel Quinn, Group CEO, HSBC, recently in the country, commended the government for lessening bureaucratic red tape and initiating reforms such as the Goods and Services Tax (GST). More specifically, Quinn pointed out that India could be a huge beneficiary of the post-Covid process of ‘re-globalisation’ where buyers in markets like the US seek more than one source of supply to avoid dependence on traditional manufacturers like China. The banker said that India has ‘all the raw material it needs’ and a significant supply of labour to be a supplier to the world.
All this praise was not without reason. After all, HSBC’s operations out of India reported a pre-tax profit last year of $1.11 billion. However, reading between the lines, Quinn urged India to build on a scale—construct large-scale manufacturing plants within reliable timelines; ease regulations and approval processes to make them more business-friendly, and improve supply chains and logistics for better efficiency.
But despite the window of opportunity, India cannot emerge as a significant global manufacturing hub. The fact is the ground reality is quite different from all the production and tax incentives promised to foreign investors and domestic manufacturers. From running the gauntlet of pre-production permissions to the harassment of the Tax Man, foreign companies hoping to set up a base in the country have not experienced a smooth ride. Last December, the government admitted in Parliament that as many as 2,783 foreign companies ceased operations between 2014 and November 2021.
These included some big names such as Cairn Energy, Holcim, Daiichi Sankyo, Carrefour, Henkel, Harley Davidson and Ford. The inability to manage quality control is another area denting perception. The instance of Ranbaxy falling foul of the US regulator for gaining approvals for drugs by falsifying records is a classic case of low production ethics. Unless we get our regulatory systems in line with international standards, it will be difficult to emerge as a manufacturing destination of choice.