2014: 'Make in India' campaign fails to take off

30 December 2014

When every country is trying to be a manufacturing base for the world, Prime Minister Narendra Modi's push for manufacturing exports is unlikely to take off any soon so long as the focus is on manufacturing for exports.

Electric power transmissionWhile China already is the world's factory and the US and other developed countries are trying to retain their edge in high technology manufacturing, India wants to do it on the fringes, as Prime Minister Narendra Modi himself said on Monday.

Addressing a 'Make in India' workshop on Monday, the prime minister admitted that India remained a fringe player in information technology, even when it claimed to be an IT powerhouse.

"We are an IT powerhouse, but Google was not made in India," Modi said, highlighting the need for innovation at the 'Make in India' event in the capital.

India has already lost its low-cost labour advantage with the ever-rising cost of living necessitating constant wage hikes over the years. The country now stands to lose even its near-monoploistic edge in the labour-intensive diamond cutting and polishing industry to China, which has quickly adopted the Surat ways to its own advantage.

The rising cost of labour and the overall difficulties in doing business in India has worked to the disadvantage of India in at least certain sectors.

Perhaps, the PM was more right when he said the government must move away "from the culture of avoid, bypass, confuse and delay" and move to one of "responsibility, ownership, accountability and discipline."

India neither has the labour cost advantage nor the quality edge that would make it an effective base for exports, and it is losing whatever advantage it had with its policies on foreign direct investment that facilitate the so-called joint ventures and foreign takeovers of Indian businesses, as in the case of pharmaceuticals.

But even more important is regaining India's lost advantage in product quality. Like diamonds, India was once the main source of textiles, hand-crafted metal, wood and stone wares. Combined with highly skilled labour and good quality raw materials in the past, India had emerged a global brand in most hand-crafted materials, but it lost that advantage in the machine age.

Consider the following:

  • India may be able to achieve product quality like any other country, but its labour force lacks discipline and education to compete even with China;
  • Infrastructure in India is perhaps the worst among emerging economies, while China has a far superior and efficient infrastructure where electricity and water is provided 24x7 even in remote villages;
  • In India, business costs are high because credit availability is less smooth and interest rates are high. Even with talent and discipline, the costs would rise because of high interest rates;
  • Indians consumers, on the other hand, are very price sensitive. A typical Indian consumer admits that Chinese goods are not of very good quality but are cheap and affordable. That is why India has a huge trade with China;
  • Also, Indians still measure investment in dollar terms, not in terms of employment potential or products. And most foreign investments in India inevitably turns to be capital and technology intensive;

With the 3 D printing technology - which will not only be cheaper but also accessible to individuals to make their own products - already starting to revolutionise production in industrial countries, how will India compete in this technology-driven world with labour-intensive techniques of production?

That is why Reserve Bank Governor Raghuram Rajan said the 'Make for India' slogan should be replaced with 'Made for India' - moving away from import-led consumption to production-led consumption.

There is little growth in external demand especially from the US and the EU to support and sustain export-led growth while the policy changes that would drive 'Make in India' will finally leave the economy overheated.

"I am...cautioning against picking a particular sector such as manufacturing for encouragement, simply because it has worked well for China. India is different, and developing at a different time, and we should be agnostic about what will work," Rajan said while delivering the Ficci's Bharat Ram Memorial Lecture.

He emphasised on "going beyond Make in India and developing India as a global brand by producing zero defect and zero environment effect products," saying brand India must reach every corner of the globe.

But this can happen only if the 'Make in India' campaign leads to achieving excellence in the quality of Indian goods - that Indian products are meticulously finished, have trendy looks and are priced competitive.

However, Modi's 'Make in India' campaign seems to be aimed at foreign investors who are looking only for a market. That has already happened in the automobile sector with India becoming a major market for cars for the world's manufacturers. But that has not made India a manufacturer for the industrialised world as we remain a fringe exporter.

Finance minister Arun Jaitley has, meanwhile, pledged to remove entry barriers to foreign businesses and ensure a competitive tax regime to push manufacturing growth.

The Modi government's push for manufacturing in India as can only be taken with a pinch of salt, as it will have China to contend with in low-cost manufacturing while it is nowhere in high-tech manufacturing where it still needs foreign technology.

At the end of a day of deliberations on Monday, Prime Minister Narendra Modi approved an action plan to create an enabling environment to do business in India and boost domestic manufacturing in 25 sectors and take forward the government's `Make in India' campaign.

The PM promised to address all concerns of investors under his 'Make in India' plan, which aims at smoothening processes to give a big boost to manufacturing in the country. "We are ready to change laws, hasten approvals," said Modi, suggesting a "public-private partnership also in decision making, not just in project investments."

"I want to change the ABCD culture - avoid, bypass, confuse, delay--to the ROAD to success - responsibility, ownership, accountability, discipline," he said at the end of the session at Vigyan Bhawan.

"Responsibilities have been fixed, roadmap has been prepared, required changes in policies have been decided... Now I don't think there is any requirement for paperwork. Now, things will be implemented automatically," the PM said

The plan details what each sector will achieve in the short and medium term or one to three year- there is no long-term view as yet!.

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