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Can ‘Make in India’ work? Why India is not going to be the next China – or anything like China ever

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Can ‘Make in India’ work? Why India is not going to be the next China – or anything like China ever

Kanti Bajpai

Prime Minister Narendra Modi promised he would promote a ‘Make in India’ revolution. Nearly four years later, a manufacturing revolution is nowhere in sight. Make in India was supposed to not just boost manufacturing, it was also supposed to generate employment. Estimates show there has been virtually no jobs growth.

To be a manufacturing power, a country needs a strong state which identifies niche areas, supports them and encourages innovation. It enforces contracts and property rights. It also provides public goods including law and order and an efficient bureaucracy. Nobody would pretend that the Indian state is anywhere near being a strong state. It is often violent and despotic, but that is a measure of its weakness, not its strength.

Economic production arises from a combination of land, labour and capital. Here again, the hurdles for businesses are immense. India’s land acquisition laws are impossible. Trying to buy land drives most entrepreneurs to distraction – or corruption. The current land acquisition legislation is unworkable. And given the terrible state of land records, there is no chance anyone can do better. Only the movement of the rural population to urban life will solve the land problem. Unfortunately, India’s urbanisation is one of the slowest in the world.

Worse, India’s labour laws and labour quality simply do not meet the needs of high-quality industrial production. For example, a factory or enterprise with more than 100 workers must get permission, rarely given, to retrench workers. This encourages companies to think small, not think big. In addition, our skilled and unskilled labour do not have the capabilities needed in modern production. Labour is poorly educated and does not have the discipline for the factory floor. Not surprisingly, worker productivity is the lowest amongst emerging markets and major Southeast Asian countries.

To build modern industrial capacity, one needs capital. India’s savings rate is high, and this should translate into lots of investment funds. Unfortunately, our capital markets are underdeveloped and don’t lure investors. Our banks should mobilise our savings for good use. Sadly, the nationalised banks are a disaster. They have made bad loan after bad loan and are unable to recover lost monies. Our savings have disappeared into non-productive enterprises, often public sector companies (think Air India!).

The greatest challenge to Make in India, though, is the Fourth Industrial Revolution. If there has been a growth in manufacturing output since 2014, it has been on the back of automation. Technology could, in theory, help Indian manufacturing be more competitive. But the problem is that the same technology will be available elsewhere in the world, and it is unclear how India would increase productivity relative to competitors. Plus, the new technology will drastically reduce the demand for workers, which means jobless growth at best, at a time when India’s youth population is burgeoning.

The truth is India’s economic destiny is probably elsewhere. You don’t have to be a Gandhian to say that it is more likely to be found in its agriculture and food processing, its crafts such as textiles, garments, leather products, and jewellery, and its light manufacturing.

India has no history of industrial-scale innovation – no world historical inventions that it has scaled up. It is a trading nation and a nation that does well in areas that requires delicate craftsmanship and care, areas that are (for want of a better word) human in scale. It is also a nation that does well in providing services. It could, with better laws, incentives, and technology, be competitive in tourism, hospitality, fintech, and international education and healthcare – areas where human beings still count, where more personalised attention matters and where machines and scale are less important.

In short, India’s road to development and prosperity will be a softer, gentler path, a more sustainable and humanistic path. It won’t be the next China – ever.

Source: The Times of India

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