India’s cost competitiveness in manufacturing vis-à-vis Europe may decline from current level of about 44 per cent to 30 per cent by 2023 owing to growing labour costs, according to an ASSOCHAM-Roland Berger joint study.
“Manufacturing in India is currently 15 per cent cheaper than Europe but the cost difference is reducing due to increasing wages and other costs,” noted a study titled ‘Indian Auto Industry: The way ahead,’ conducted by The Associated Chambers of Commerce and Industry of Industry of India (ASSOCHAM) and Roland Berger Strategy Consultants.
It highlighted that India has a natural cost advantage in engineering works vis-à-vis Europe, being over 44 per cent currently and by 2023, India is expected to still be 30 per cent cheaper than Europe.
“There is a need to encourage industry-academia collaborations to understand innovation requirements better, besides funds should be attracted from private sector to support research at academic and research & development (R&D) institutions,” recommended the ASSOCHAM-Roland Berger study.
“Availability of both basic infrastructure facilities and skilled workforce can increase the scope for R&D centers in smaller cities and towns,” it added.
Suggesting various policy measures for growth of automobile and manufacturing sector in India, the study has suggested that it is imperative to do away with archaic labour laws thereby addressing the issue of labour reforms.
“There is a need to change the 1971 Contract Labour Law to limit discrepancy between permanent and temporary labour, set clear guidelines on compensation of contract workers and permit downsizing of contract and permanent labour with proper compensation.”
The ASSOCHAM-Roland Berger study has also suggested that Government must cut red tape as bureaucratic hurdles and convoluted processes are primary reasons for India’s tough business environment.
There should be clear guidelines and strict enforcement of All India Service (Conduct) Rules, 1968. Besides, the Government should set up consultation mechanisms to provide procedural guidance for entrepreneurs. Documentation requirement must be reduced and transparent procedures should be introduced to foster growth of startups.
There is a need to upgrade basic infrastructure as poor infrastructure and inland logistics services are major impediments for growth.
ASSOCHAM-Roland Berger study has also suggested to deregulate tariffs in major ports to attract private investment, invest in inland ports, expand inland container depots, install roll on-roll off facilities in all major ports, invest in cranes and handling equipment, develop freight corridors and logistics parks.
Considering that Indian market is price sensitive, it has been recommended that tax reduction measures would expand the domestic market potential. “There is a need to implement goods and services tax (GST) to integrate state economies, eliminate local body taxes and implement the proposed plan to levy pan-India road tax of six per cent or subsume in GST.”
Highlighting that implementation of National Rural Employment Guarantee Act (NREGA) and wage assurance have created an acute labour shortage and wage hike pressures, the ASSOCHAM-Roland Berger study has said, “Rather than an employer, the Government should be a facilitator for private sector to absorb the rural workforce and promote skill development in rural areas.”
As lack of initiatives to address India’s rapid urbanization poses a major threat for inclusive development, the study has further suggested the Government to encourage foreign direct investment (FDI) by providing benefits for special economic zones (SEZs) and providing tax holidays to overseas investors.