Saturday, October 05, 2013

You need to be clever to copy.

East Asian countries such as Japan, China, Taiwan and South Korea became wealthy by imitation of western products. They reverse engineered machines, including cars, and then produced them more cheaply, making use of cheap labor. Apparently 60% of our population is under the age of 30 years which should make India an ideal country to become a manufacturing powerhouse. But that has not happened. Anything we buy, except pharmaceuticals, is either made in China or, if it is made in India, it is by a foreign company. Our most popular cars are made by Suzuki of Japan, smart phones by Apple of the US, refrigerators by LG or Samsung of South Korea and we Google if we want to know anything. This is because our labor laws are so restrictive that mechanics at a motorbike manufacturer earn in excess of Rs 100,000 per month while people with university degrees at private banks get Rs 20,000. Since most of the black money is in properties the price of land is exorbitant, making any project unviable. The recent Land Acquisition Act will make it almost impossible to set up factories or open new mines. If we do not get enough coal we will not generate enough electricity, if we cannot mine for iron or bauxite we will not have the raw materials for manufacture and if we cannot build highways or high speed rail links we will not be able to transport goods and people cheaply. Finally, our taxes are so high that most of our industrialists are looking to manufacture abroad rather than at home. To encourage manufacturing inside India our government decided to copy China and set up special economic zones which would be given tax holidays on importing machinery and export end products. Sadly, it all went pear shaped. Tax relief on importing machinery for the zones became useless as India signed free-trade agreements with Japan, South Korea, Sri Lanka, and Asean countries. A similar FTA with the EU is under discussion. Tax relief on exports is unacceptable under WTO rules. Companies in the zones cannot sell in the domestic market because they would have a tax advantage. " Such a situation does not arise in other countries since their differential tariff rates are much lower than India," said Arpita Mukherjee, Professor at Indian Council for Research on International Economic Relations. Excessive taxes to cover rampant corruption lead to stupid policies. Students copy in exams to cheat. Our government cannot even do that.

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