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‘Make in India’ needs a quality revolution

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While we have a favourable external environment with most global buyers looking to hedge their bets outside China, India must trigger a quality revolution among its manufacturers in order to grab this opportunity 

One of the foremost striking contrasts for global buyers in sourcing products from India vis-a-vis China remains an astonishing lack of attention to quality among an enormous majority of Indian manufacturers. This problem is acutely pronounced in the small and medium scale manufacturing (MSME) sector.

For example, within the apparel and textiles sector, India is home to several world-class and quality-conscious manufacturers. Similarly, other industries even have top-quality manufacturers.

It is outside the big-league players that we see a precipitous decline in adherence to the worldwide quality standards. Contrast this with China, where there's no shortage of small or midsized firms following the strict us and European standards of quality.

The pandemic brought now home once more. In early 2020, because the demand for three-ply masks shot through the roof round the world, our teams struggled to seek out even a couple of manufacturers from India who were making masks that met the US FDA’s or EU CE standards for exports. as compared, many such factories in China — a majority of them small or midsize units — were readily producing their FDA/CE certification on demand.

This experience, among others, has led us to conclude that poor quality control remains perhaps the most important self-inflicted barrier to the expansion of Indian exports. this is often a drag area that needs attention and therefore the gaps got to be addressed.

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To begin with, we'd like to recognize that quality, like charity, begins reception. Most Indian small-scale units were found out to satisfy domestic or local demand, and that they have bought into the self-perpetuating myth that Indian customers are fine with goods of lower quality.

Garments and apparel manufactured in India and sold in Indian retail stores are rarely tested vigorously for strength, stretchability, and tear resistance of the material. this is often readily apparent to anyone in India who has bought a pair of jeans or shirt from the US or Europe — the difference in quality is stark. this is often changing, but not at the pace where Indian brands are often considered globally competitive.

Now, when these very manufacturers aim for growth through exports, they're seldom conscious of quality standards demanded by foreign buyers. In other cases, they decide that implementing higher quality control in factories isn't well worth the significant time and investment for a gift within the distant future.

Education and awareness-building are the keys to addressing this issue at a private unit level. In some cases, local associations have also played an important role. In Ahmedabad, Gujarat, an association of chemical and pharma manufacturers formulated a group of world-class standards for effluent treatment and disposal, which were then mandated for all member units. Pressure from industry peers eventually forced all units to take a position as inexpensive yet effective waste treatment plants, allowing their products to pass even the strictest sourcing requirements from buyers around the world. Exports took off, and every one unit earned a handsome return on their investments.

While the manufacturers don an enormous share of the responsibility to take care of global standards of quality, there's important work to be done by other stakeholders also. Most critically, we'd like a radical overhaul of our domestic standards enshrined under ISI/BIS, bringing the standards themselves also as procedures for checks and audits as on the brink of their global counterparts as possible. Our domestic standards are outdated or weak and are seldom accepted by international buyer of repute.

Even if we were to concede that an entire overhaul of the ISI/BIS specifications could also be a long-drawn and tiresome process, the work at hand also can be accomplished by a myriad of government-funded ‘export promotion councils’, who can each undertake promulgation and audit of world-class standards for industries and units falling under their respective jurisdiction.

For India to be a key player in global exports it necessitates a pervasive attention and adherence to global standards of quality, particularly among small scale manufacturers. While we've a favourable external environment with most global buyers looking to hedge their bets outside China, India must trigger a top quality revolution among its manufacturers so as to grab this chance .

US Fed tapering impact on India unlikely to be as heavy as in 2013

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Today, the RBI has managed to amass $572 billion of foreign currency assets that will come in handy in fighting any speculative attack on the rupee following a bond-buying taper by the US Fed

The world markets were waiting with bated breath for the announcement of the non-farm payroll data from the US. The data was thought to be a critical input for the US Federal Reserve to make up its mind if it was time to reduce the large amount of bond-buying being undertaken every month.

The Jackson Hole commentary of Fed Chair Jerome Powell indicated a broad agreement that the US economy had progressed well and a reduction in the bond-buying was justified.

But, the speech fell short of laying out a timetable. The Fed probably wanted to buy some time to analyze the economic impact of the Delta variant on the US economy. Justifiably so. Recent reports indicate that hospitals in Florida, South Carolina, Texas, and Louisiana are struggling with oxygen scarcity, driven by a large number of people who remain unvaccinated with the variant infecting hundreds of thousands of Americans.

The data flow has been mixed, a likely situation whenever inflection points are reached and especially when the economy is fighting an unknown devil–coronavirus that has played mischief by mutating and creating uncertainty.

The August report indicated that employment underperformed (payrolls rising by only 2,35,000 when the market was expecting around 7,50,000), but the earnings (solid at +0.6 percent MoM) and the average weekly hours worked (very healthy 34.7) remain strong.

Employment gains in the private sector were in line with recent trends, while the bar for workers to return to work in the contact-intensive services is still quite high.

Offsetting some amount of disappointment in the headline employment numbers for August, there was an upward revision in the previous month’s data by 1,34,000.

The inflation confusion

The other guiding factor for the central bankers to gauge the extent of lift-off in economic activity is inflation. Here the script for the Fed and many central bankers across the world remains confusing.

The struggle is to figure out if the high inflation of today is due to supply-side constraints that are biting or whether there is an element of demand-side pressure.

Powell at Jackson Hole continued to indicate that the inflation surge is temporary and importantly, highlighted that the global “disinflationary” forces that prevailed over the past 25 years are simply not going away. “It seems more likely that they will continue to weigh on inflation as the pandemic passes into history,” he said.

This is also the reason why most central bankers are looking at a flexible inflation targeting mechanism that will provide them with some wriggle room in the light of inflation remaining stubbornly high.

The confusion at the central banks across the world is thus apparent. With uncertainty about the virus and its spread, no one can be sure about the timing of the reversal of the monetary policy.

Prepare for taper 

Central banks, thus, are likely to risk a delayed tightening, lest they make a mistake by tightening early and killing the nascent recovery process. But then how late is too late? In that event, the tightening process may have to be faster and this can shock the markets, thereby again leading the economy to slow down.

Central banks can do the next best thing—prepare the markets for change to prevent the surprise and shock element. And this is what the US Fed is probably trying—sensitising financial markets of the need to ultimately move away from Covid-19 induced monetary easing. This will specifically start with withdrawal of liquidity but rate tightening is way off.

Powell clearly indicated that the standards for rate hikes are more stringent. We think that rates hikes may be way off into CY2022 or even early CY2023.

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The Reserve Bank of India (RBI) can breathe a bit easily. Even as the RBI governor indicated that monetary policy in India would be based on domestic conditions, financial markets in emerging economies would be affected if the US Fed curtail its bond-purchase program. But the impact is unlikely to be as heavy as the “Taper Tantrum” days of 2013 when India was struggling with both a fiscal and current account deficit and the forex reserves were relatively low.

Today, the RBI has managed to amass $572 billion worth of foreign currency assets that will be handy in fighting any speculative attack on the rupee, consequent to a reduction in the bond-buying by the US Fed.

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