How to Revive Auto and Telecom Sectors

Business Standard     1st October 2020     Save    

Context: Actions in the key economic areas could help them recover.

General Steps to be taken by government to assist economic recovery:

  • Policies for citizens to benefit from public resources (land, minerals, spectrum, water)
  • Systematic, end-to-end design and execution to completion 
  • Cooperation and participation in organisation.
  • Freeing manufacturing potential:
  • Manufacturing and service enclaves must be made to work, with stable infrastructure and social conditions, which is essential for local companies to thrive, as well as to attract international investment
  • Focus on fewer, well-conceived undertakings in the near term, while building for the longer term
    • Develop Model SEZs:
      • Selection of location: to be unbiased and thereafter the stakeholders (government, citizens, builders) must be persuaded to have them built with:
        • Stable infrastructures and governance including competitive tax policies, not getting side-tracked by real estate speculation or assuaging political constituencies.
  • Replicate the successes: based on experience and results.

An analysis of the automotive sector

  • Issues: 
  • Decrease in registration: Vehicle registrations in August 2020 were 1,188,087, a reduction of 27 per cent from August 2019 (1,623,218). 
  • Closure of Companies: Harley-Davidson announced the closure of its plant in India
  • Concerns about high taxes: Toyota expressed concerns about high taxes
  • Vehicle Scrappage Policy: A vehicle scrappage policy at this time may not be opportune, as it may be ineffective, and can cause undue hardship.
  • Shift of focus from India to other manufacturing locations.
  • Importance of Government support to automotive sector
  • Contribution of automotive sector to manufacturing and to other sectors
  • To prevent job losses and reduced employment prospects.
  • Government steps:
  • Tax cuts: Treating small cars as luxury goods is abandoned; reduced Goods and Services Tax (GST) from 28 % to 12 or 5 %

Analysis of the Telecom Sector:

  • Requirements of the sector:
  • National policies on spectrum allocation and assignment:  real issues here are stable policies, taxes, and contracts, resulting in investments that succeed
  • Rights of way and other regulations: Measures such as regulations for spectrum bands of 60GHz, 70-80GHz, and 6GHz, are easier to address for immediate results. 
  • Standardisation
  • Dispute resolution and penalties: 
  • We need to uphold contracts, avoid retrospective changes, and review and modify laws prospectively.
  • For this, recent arbitration award for Vodafone against the government’s claim of taxes with interest of over Rs 20,000 crore should be accepted 
  •  Supreme Court’s 2019 ruling upholding  government claim on adjusted gross revenue (AGR) case is damaging for overall economic prospects
Conclusion: Government should give up their durbar-style of operation, and start applying the principles of cooperative action and shared infrastructure with all stakeholders, to improve collective outcomes.