The free fall of the rupee and its consequences

The most recent agenda before the nation last month has been the increasing crude oil prices and its effect on the domestic oil prices in the Indian context, which has steadily increased from an average of INR 68 in September 2016 to over INR 82 now. That is an increase of 18 per cent in about two years of weighted average. Whereas, the dollar has strengthened considerably in the last two months to touch INR 73 as we go to press; that is an increase of 10 per cent over a period of three months alone. This is causing huge repercussions in many emerging markets; the Lira has weakened considerably and so has the Rand and Mexico Peso. The Indian currency has been the worst performing currency in this latest free-fall scenario. Though the picture does look dismal at the moment, but as they say, every dark cloud has a silver lining, I think this is a blessing in disguise. In the past, there has been an attempt to change the course of the Indian economy, from a manufacturing base to more of a service-based and consumption based economy. The falling exports and increasing non oil imports are a reason for this belief. Over the last decade or so we have been led to believe that over consumption is good and even if we are not the manufacturers, it is still good enough to trade in goods and services given our large population base. 

I am of a different view here; my belief is that no large economy can build its nation on the notion that just services or trading will suffice to take us through this quagmire. I believe that we have to lay an equal emphasis on the manufacturing sector in our economy to take off in true earnest and we have to lay the polices, which will embolden the entrepreneurs and the investors and industrialists to re-look at manufacturing with fresh perspective, learn from established manufacturing bases like China, for their experiences in manufacturing in myriad industries such as Garments, Toys, Automobiles Ancillaries, Garment Ancillaries, Electronics, Computers and IT, Telecommunications and Personal Care/Hygiene, and FMCG and white goods. The government on its part is doing its best to encourage the SME / MSME and the industrialists to identify the sectors where manufacturing can be increased. The deleterious effect of weaning the manufacturers from manufacturing to trading by the last dispensation has created this alarming situation where the present lot of manufactures are vary of changing government policies and lack of trust factor.

This has to be addressed on a war footing by the present government for manufacturing to take off. Partly, the government has succeeded in the mobile industry and is trying the same in the television and electronics sector where the industry has taken proactive steps to start the manufacturing here in India. The government will have to take intense steps and interact with the industry leaders in solving the immediate hiccups that create impediments in the path of the investors. Likewise, the biggest employment generating sector after retail and agriculture is the textile and garment sector, which employs almost 110 crore people and consists of 5 per cent of our GDP.

The government needs to break this sector further into Domestic and Exports because the problems in each, vary a lot. Within the domestic sector there is organised, semi-organised and the unorganised. With the advent of GST, the industry can be deemed as 40 per cent organised to semi-organised. For entities having a turnover between 2.5 lakh to 75 lakh per year, the rate of GST should not be more than 5 per cent with an upper cap of INR 3.0 lakh GST per year. 

This will increase the revenue tremendously for the government from manufacturing hubs in wholesale mandis throughout India where trade to the tune of crores is carried out every day without proper documentation. The second is, the government should be proactive in promoting the manufacturing of textiles and RMG machinery in India since it has a large user base. 

It is ironical that even after 70 years of independence; we don't have a base for industrial sewing machines, which is largely imported from China. It is a shame that our industry leaders haven't paid much attention to this aspect. But now that the cost of labour and infrastructure have increased in China, like the mobile industry has to be relocated in India. The government and the industry should both be enthusiastic in creating the right environment for the development of this field.