Cost-cutting path to competitiveness

High costs of manufacturing could wipe out India's gains from ease of doing business reforms and trade agreements

- LAVEESH BHANDARI

What should we do to address the tariff challenge? The problem is a symptom of a deeper underlying issue: Our farms and firms are simply not productive enough, and the cost of business is not low enough for global markets. Solve this problem, and others will become redundant.

Post-tariffs, a slew of reforms have been proposed by many commentators, and indeed almost all of those would be welcome. A range of global trading agreements, whether bilateral or regional, have also been proposed and those are welcome as well. But how would the government address the underlying problem—that of lower productivity and higher costs? This problem causes the government to take a defensive stance in global interactions, protecting our productive entities rather than promoting them globally. If we don't solve this, make Indian producers competitive, all global agreements will eventually become quite pointless.

So what should the policymaker do? First, recognize that we can't do everything at once. Policy needs to focus, achieve early successes, build momentum, and then expand its scope. I would start with strengthening the firms that are the most productive and globally competitive—these happen to be the exporting firms and also the ones most impacted by Trump tariffs. Second, I would focus on a few sectors where early gains are possible. Interestingly, most of these sectors are highly labor-intensive. And finally, the hard part of reforms has to be done. But even there, we would achieve greater success by focusing on a few elements rather than attempting systemic reforms all at once.