Any new Government at the Centre will have to put in place a “country strategy” for the manufacturing sector for its elevation into a global scale, says A. Vellayan, Executive Chairman of Murugappa Group. The competitiveness of the domestic manufacturing sector has been eroded due to inadequate infrastructure and bottlenecks in supply of basic inputs, he told Business Line in an interview. Edited excerpts:

With elections round the corner, what are the expectations of industry from the new government?

In the last few years, there has been an erosion of competitiveness in the manufacturing sector. Power availability and cost are totally out of line vis-à-vis competition. Most industries are based on the premise that there is local coal and iron for steel. But if there are bottlenecks in supply, how competitive can we be. We need a country strategy for the manufacturing sector. Say, as a country we decide to be big players in select areas such as food grains, IT, leather, engineering and automobile and do everything to achieve this. Brazil, for instance, has identified a range of sectors like soya, sugar and ethanol.

The new government needs to decide where India is going to be a world class player and push to achieve this.

We have achieved economies of scale in a range of industries including sugar. We export automobiles. Where is the gap?

We are large for the domestic sector, but not on a global scale. We need to emulate Brazil, China and Australia.

The sugar industry has a huge potential. Countries like Brazil and Australia have nurtured the industry to be globally competitive. But unfortunately in India, the industry is mired in a combination of State and Central Government politics and this has blunted the commercial edge.

The Centre only half implemented the recommendations of the Rangarajan Committee that would have freed the industry to face market competition. For long-term viability of the industry, sugarcane price and sugar price have to be linked. Otherwise, it defies the economic logic.

Unless the government clarifies ethanol pricing, links it to import parity with oil or ethanol, the benefits of the ethanol programme cannot be fully realised in terms of forex savings and benefit to industry. There is no coordination between the various ministries relating to sugar including the agriculture, petroleum and food ministries. If these are not done you are going to see capacities going out of commission.

But in fertilisers, there has been a significant policy shift. Why has that not helped?

Fertilisers are an agricultural input, so policies including subsidies should address soil requirements to increase crop productivity with balanced fertiliser application. The nutrient-based subsidy (NBS) scheme, introduced a couple of years back, was aimed at this. But in implementation, again the government stopped half way. NBS was introduced for phosphatic fertiliser, but not for urea, which is heavily subsidised. With urea price just one-fourth that of phosphatic fertiliser over-application of urea has ruined the soil and yields of crop after crops are dropping in Punjab and other States. The government should have either included urea in the NBS scheme or not done it at all. Now, they are talking of cutting subsidy and limiting prices. This should not be done. Gas prices are on the increase. This means urea prices will go up to pay for gas.

The government needs to look at ways to create a base for the fertiliser industry in India. At least 70-80 per cent domestic base has to be established as fertiliser security has an implication in food security. India is self-sufficient in foodgrains and is also an exporter. How can this be sustained if it has to depend on fertiliser imports?

On insurance…

The government should no longer hold back FDI in insurance to 49 per cent. It should go ahead and free the sector for better insurance penetration.

The entire reinsurance is done by overseas companies. GIC (General Insurance Corp of India) does not have the adequate financial capability so it is only the joint venture/foreign partners who are taking the reinsurance. Only if they are allowed to bring in more capital, they will be more engaged in the domestic market and with a larger stake, they will more readily be willing to do reinsurance.

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