The Chairman of the State Bank of India recently stated that the corporate sector in India now holds significant cash balances. He further noted that internal estimates of the State Bank of India put cash availability in the corporate sector at Rs. 13.5 trillion, which indicates that capital expenditure expansion and investment in projects can take place to a considerable extent through internal resources. Furthermore, with investors being enthusiastic about subscribing to public issues, there appears to be no constraint on fund availability for setting up manufacturing projects.
While this statement from the State Bank of India is both timely and appropriate, the ground reality is that investment in the manufacturing sector in India is not taking place at the pace required. This scenario should be of great concern to Prime Minister Modi and his government, as Mr Modi has repeatedly stressed the importance of Atmanirbhar Bharat and the need to strengthen manufacturing capacity.
US President Trump has done some “unintentional service” for India by imposing a 50% tariff on exports from India and further scrutinising and restricting the issue of H1B visas, which significantly affects Indians seeking employment in the USA. This “shock treatment” by President Trump has made Indians reconsider their outlook and realise that India must become as self-reliant as possible, and at the earliest.
Millions of Indians still aspire to go to the USA to seek employment, obtain a green card, and ultimately become US citizens, drawn by its prosperity. However, such aspirants are increasingly realising that, under no circumstances, can foreign soil be better than their motherland. Aspiring to become a US citizen may even be regarded as a demeaning exercise in the short and long run. Protests and anti-migrant sentiment in the USA, Canada, and Western European countries are now evident, regardless of how many years migrants have lived there or whether they have acquired citizenship.
The only way for India to respond to this “shock treatment” by President Trump is to rekindle national pride and strengthen its manufacturing base, thereby reducing import dependence and boosting export prospects.
Today, while India is registering rapid economic growth and has already become the world’s fourth-largest economy, the reality is that this growth has been driven largely by the services sector rather than manufacturing. In the long run, the services sector is vulnerable to global pressures and competition, whereas manufacturing can remain resilient by building domestic capacity and strengthening the consumption base. Expanding manufacturing would inevitably stimulate the domestic consumer market in line with overall industrial growth and GDP expansion.
At present, India’s import dependence in several sectors—including pharmaceuticals (Active Pharmaceutical Ingredients), bulk chemicals, fertilisers (including speciality fertilisers for agriculture), and inputs required for solar and wind power generation—is unacceptably high. In addition, India imports more than 80% of its crude oil and 50% of its natural gas requirements. These imports are steadily growing at 6–7% per annum.
A careful review of the challenges in creating manufacturing capacity for many of the products now imported on a large scale in India reveals that the situation is not insurmountable. Appropriate strategies can be developed imaginatively, provided there is the determination to do so.
A product-by-product analysis is needed to formulate strategies for import substitution suited to Indian conditions. In many cases, there are practical ways and means of replacing imports with domestic production.
The main constraint lies in technology, as India’s dependence in this area remains very high. There is therefore a strong case for substantially strengthening India’s R&D base. Indian technologists and engineers can contribute meaningfully if the right climate is fostered in the research and development sector.
Just as reducing imports is essential, boosting exports is equally important. To achieve this, India must establish strong globally operating trading houses, which at present are too few in number.
While the Government of India is playing its proactive role reasonably well, Indian corporate houses—currently with healthy cash balances—must rise to the occasion, particularly in view of the tariffs imposed on Indian exports by President Trump.
So far, efforts by Indian corporates to respond to Prime Minister Modi’s call for strengthening the manufacturing and R&D base have been conspicuously absent.
Indian corporate houses must now come together to discuss broad strategies and approaches, including setting time-bound targets for building manufacturing capacity in various sectors, strengthening R&D, and globalising Indian industry with well-defined export targets and strategies.
To achieve these ends, cooperation between corporate houses is essential. Such collaboration would be highly beneficial in developing technology and expanding into export markets. Corporate houses could pool investments in key areas, coordinating their efforts to maximise outcomes. They need to form a “united front” in which conflicts of interest are avoided. Globally, there are many examples of competitors cooperating in specific areas to achieve quick results and mutual benefits.
