Post-Covid India needs trust in biz for value

Meeta Rajivlochan

Bureaucrat

BUILDING trust in reliable product quality will be the mantra for ensuring that India is able to meaningfully use the opportunity in the post-Covid world. For too long, the Indian industry thought that producing a cheap product with cheap quality will allow it to grow. We also had a fond understanding that Chinese products, low-priced as they are, are also of low quality.

Nothing could be further from the truth. In a recent visit to the Bata showroom at Connaught Place in New Delhi, I was being cajoled into buying a costly pair of shoes. The showroom owner who was present in a shop that was near-empty because of the impending Covid lockdown, explained to me that the pair was worth buying since it indeed was of high quality and manufactured in China. It is only our low-quality shoes, he said, that are manufactured in India.

India needs to understand the importance of being higher on the value chain. For example, the much-touted Indian pharma industry supplies 75% of the volume of medicines procured by the World Health Organization (WHO). However, the entire medicine supply from India is only worth 25% of the value of medicines purchased by the WHO. Similarly, the Indian gems and jewellery sector supplies more than 70% of the volume of cut and polished diamonds to the world. However, in terms of value, this only amounts to a measly 25% of the value of global trade in diamonds.

For creating value and capturing markets, trust and quality remain two key ingredients. And the only way to build trust is to focus on improving product quality and integrating quality assurance protocols with all industrial processes.

The government has already announced several key economic measures to rebuild an economy seriously battered by the Covid pandemic. In order to consolidate those measures and to ensure that the cash being offered helps to ramp up productivity instead of becoming a permanent subsidy, a great deal more needs to be done.

The economy needs help in different time frames — the short-term, the medium-term and the long-term. All three need very different kinds of strategies.

First, let us consider the short-term. Key to addressing short-term needs is to improve the liquidity position of businesses. In addition to what has already been done, the government should put its own house in order by simply ensuring that payments for goods and services purchased are made on time. For many decades now, the government has been rather lax on this matter. It is a different matter that government bodies routinely, unknowingly, fully following the L1 tendering system, pay anything up to 25-40% more on every purchase because of this laxity in paying vendors.

I recall some years ago in one of my earlier charges, I had introduced an e-procurement and e-payment system for medical goods in government purchases with the full support of the then Health Minister Suresh Shetty and Chief Minister Prithviraj Chavan. The sum total of this action was to ensure payment in 45 days, but the results were remarkable. Procurement prices of medical goods came down by 25% in Maharashtra immediately. One of the lasting results was the price of the USFDA (Food and Drug Administration) stents coming down from Rs 64,000 to Rs 23,500. Stent prices in Maharashtra came down not due to the diktat but simply by collating the demand and assuring the suppliers that they would be paid on time.

So, the government should ensure that specific officers are held responsible for delayed payments.

Now for the medium term. Here, the key measure would be to put in place institutional mechanisms for quality assurance in industry. Many businesses tend to see quality assurance as an avoidable cost. They pay the price by being lower in the value chain. Quality assurance is no longer a matter of choice. One sector where few businesses have learnt this lesson is the pharma industry. But those self-same businesses that apply Good Manufacturing Practices for making medicines for export, use different criteria for the domestic market. If physicians in India prefer to prescribe branded drugs, this is often because suppliers of generic medicines have been unable to build trust in the quality of their products.

If Indian manufacturers insist on quality assurance and productivity as key performance indicators, they are likely to generate greater trust and respect for their products.

If the industry is to deliver better quality products, to support the industry in this task, the government would do well to have policies that do not disincentivise quality and productivity. It would be even better if the government departments and officers could actually handhold businesses and help them grow. Till now, the role of the government mostly has been that of a master with a whip, trying to control recalcitrant students. It hasn’t worked. Students have turned out to be smarter than the master.

The government could set up three kinds of groups — data analytics groups whose only job is to read reports; problem-solving groups; a third group whose task is to ensure that the manufacturers and workers have access to the problem-solving groups. Even more important would be to see that the problem solvers craft solutions in a language comprehensible to the common people. The vast majority of manufacturers today are at best, matriculates. We should remember that the manner in which rules and regulations are currently drafted, are incomprehensible to most people. Perhaps, the government needs to set up a simple language committee which vets all rules and regulations.

For the long-term, the most important measure would be to free up the higher education sector from the micro-management to which it is constantly subjected. This alone can create students with high order generic skills. To achieve this, governments can offer unconditional autonomy to all colleges without reducing the existing grants. Colleges could be asked to sign performance contracts with the government. This would leave colleges free to interact with local businesses, to design courses per need and to generate knowledge that can be of value. This is an important freedom that higher education institutions need, to ensure that they have a deep stake in the well-being and prosperity of society.

The second long-term measure would be to encourage Indian businesses to use IT to improve product quality. Currently, 95% of the total IT work done in India is for foreign clients. Indian businesses by and large have remained immune to the IT revolution. For example, the Bengaluru unit of Asea Brown Boveri was providing online feedback and learning to 125 cement manufacturing plants in Europe to improve their processes. Indian businesses remained away from any learning. As far as India is concerned, the Fourth Industrial Revolution remains largely confined to smart power-point presentations rather than on the shop floor.

Last, swift and certain punishment should be visited on corrupt officials. This perhaps more than anything else, in the short, medium and long-term, would go a long way in building trust between state and business and would leave businesses free to create value.