What Ails Indian Manufacturing?

Keith Bradsher has a terrific must-read report in The New York Times today that encapsulates many aspects of the nightmare that Indian manufacturing is in. Here are some highlights: A factory owner employs fewer than 50 workers and holds on to antiquated equipment for fear of exceeding employment and investment limits that would trigger suffocating labor laws. The 35-mile trip from the factory to the nearest port takes 4 to 7 hours. And yet, speeds any faster would ruin the factory's trucks because of the potholes. As a result of a serious lack of highways, factories need to locate in urban areas, making them uncompetitive because of the high rents. Elsewhere, rent control reduces investment in buildings that could house factories. A seven-employee factory that makes aluminum wire "is regulated by more than a dozen government agencies, each of which sends a separate inspector each year before issuing licenses for things as diverse as electricity use and water pollution. Many of the inspectors demand bribes." The factory's electricity costs are twice what Chinese competitors pay. Domestic firms have stopped investing. Foreign firms have taken an anywhere-but-India approach. (Check out this graph that compares foreign direct investment per capita in China, India, and Cambodia.)

It is scarcely possible to imagine worse government than what India has had for the last God-knows-how-many years. If we classify governments into two groups -- those that primarily see themselves as the only restraint on business rapacity, and those that primarily see themselves as an essential support system for business success -- it is abundantly clear -- at least from Bradsher's reference to all those government inspectors and to the terrible infrastructure -- which kind of government India now has.

India is a vibrant democracy. Her citizens must demand a reorientation of government. The business-throttling government must go, and a business-supportive government must take its place. The people must learn to harangue every administrator with a simple question: "What have you done lately to make Indian businesses more competitive?"