To spur investment in manufacturing facilities, the government urgently needs to provide infrastructure such as roads and ports

Fifteen years after the government of India started the process of getting out of India Inc.'s way, it still plays a decisive role in industry's fortunes. But there's a crucial difference between then and now. Prior to the 90s, the government was the regulator. It told companies what they could and couldn't do, and it also controlled markets by limiting capacities, mandating licences and setting taxes. It still determines industry competitiveness by tinkering with import duties and local taxes, but the role it is now expected to play is that of a facilitator, not regulator. In fact, all the CEOs that BT spoke to for this survey, had a list of things they would like the government to fix. For instance, Sunil Lalbhai of specialty chemicals manufacturer Atul lamented India's rigid labour laws ("procedures for settlement of labour issues require frequent interventions from the government and that can take three to 10 years", he told us), picture tube maker Samtel's Satish Kaura was upset with the free trade agreements (FTAs) the government was signing outside of the World Trade Organization (WTO) framework ("The Thailand FTA has led to several anomalies for us. While the import duty on a picture tube from Thailand is zero per cent, the duty on importing picture tube glass is at 12.5 per cent," he complained), and foreign manufacturers, although happy with the changes over the recent years, thought more reforms were needed. "The key bottleneck is yet the time taken to clear large projects. I must say that there is a huge improvement over the last few years, but a lot needs to be done still," Siemens India's Juergen Schubert told us. Based on industry inputs, we've compiled a list of five issues the government must address beginning yesterday if Indian manufacturing is to become globally competitive.

Infrastructure: It's a well known problem, but so important that it needs repeating. To ensure that manufacturing facilities are created, the government needs to provide associated infrastructure like wide roads, bigger and better airports, and ports for exports. "If I take into account the extra time and money spent on transit of my goods, there is an extra 7 per cent burden on the selling cost when compared to my Asian competitors who face no such difficulties," says Kaura.

Regulations: Transaction costs and processing time of proposals need to be pared. Labour laws need to be overhauled. In China, companies can hire and fire at will, but in India regulations ensure that the process becomes long-drawn if not impossible. For new (foreign) investors, that is a big concern. In communist Vietnam, for instance, investors' interaction with the state and its philosophy is limited to the extent that the critical checklist includes only two entries-investment quantum and job opportunities. And, there is no state-supported labour union to drag down efficiency or improve the worker's bargaining power.

A chronic power shortage has forced industry to set up captive units

Power: There's a chronic shortage of power in the country, forcing industry to invest in captive power generating units. Needless to say, that adds to the costs and blunts competitiveness of industry. "Uninterrupted power generation is very important for the electronics industry. There are components/products that break down completely if there is a power failure," says Pankaj Gulati of Continent Device India (CDIL), a manufacturer of silicon semiconductor devices. The situation can be improved by hastening power sector reforms-eliminating theft and technical losses and simultaneously reducing the subsidy bill. Given the abundance of coal and evidently, gas, in the country, power costs at the generating end ought not to be more than Rs 1.80 per unit. However, by the time the electrons travel to industrial consumers, they become far more expensive-close to thrice the generation cost. Not surprising, since industry subsidises domestic and farm power. In view of this, a good part of the industry has migrated out of the grid and set up its own captive units that are often inefficient since they lack scale.

Taxation: The government needs to review the taxation structure in all the manufacturing sectors where the duty structure is inverted-taxation on the raw material is higher than that on the finished product. That's not just a problem for the textiles industry, but also picture tubes and chemicals to an extent.

Innovation: There's an urgent need to improve the network between state-owned research institutions across the country and provide more resources to fund research in the pharma sector. The big pharma companies in the US vaulted on the back of research funded by the state decades ago. (Most of the blockbuster drugs were actually developed at government labs.) Hence, government needs to catalyse public-private partnerships in pharma R&D in the country. National pharmaceuticals policy needs to be finalised quickly, striking a balance between making medicines affordable and keeping the sector attractive. While the government has an obligation to keep the price of medicines affordable, it should not do so at the cost of violating intellectual property rights of pharmaceutical companies.

It's impossible to exaggerate how important these issues are to industry. India is at a happy juncture where the world wants to give it business. It would be a pity if the business ended up going elsewhere because the country couldn't address some basic problems.