Kalvakuntla Kavitha
Almost a year ago, Prime Minister Narendra Modi announced his ambitious programme ‘Make in India’. His new idea for India’s manufacturing sector created an economic sensation across India and the globe. It was hailed as one of the most path-breaking initiatives taken by Modi to make our country a manufacturing hub. We are aware that since 1980, the share of manufacturing in India’s gross domestic product has stagnated at 15 per cent to 16 per cent, while the share in comparable economies in Asia is much higher at 24 per cent to 25 per cent. Obviously, there is an urgent need to increase investments in the manufacturing sector and also invest to improve the quality of manufacturing processes.
Modi’s plans for India is welcome, but have we achieved anything substantial in the last one year? The answer is not so encouraging even though the Make in India Twitter handle and websites are full of information on the new initiatives and information about new investments. What is surprising is that there is no structured policy document that outlines the Make in India plan for it is a campaign and not a policy.
Reflecting on the completion of one year of the Modi Government, The Wall Street Journal, while analysing Modi’s Make in India campaign, said the aim of supercharging manufacturing growth to 12 per cent to 14 per cent a year “is so far mostly hype”.
In India, exports have fallen for 14 months and borrowing costs are relatively high. In the past year, however, foreign direct investments increased 33 per cent to $64 billion from the previous 20-month period. Yet, that mostly went into an e-commerce sector that heavily imports consumer electronics, “while job-intensive sectors like construction and energy have either seen declining investments or muted flows”, according to Emkay Global Financial Services Ltd.
As far as the workforce capability is concerned, it is heartening to hear the Government is commitment to train 400 million workers by 2022. Yet the Ministry of Skill Development and Entrepreneurship has furnished data according to which the target of training 400 million workers will only be achieved by 2319 – precisely 297 years after the target year.
As far as the policy structure is concerned, in the haste of doling out favours too early, little has been offered which makes the charm of Make in India brand unable to match its reputation. For example, the Government has decided to extend the validity of industrial licenses by three years. ‘Too little’ are the two words to describe this!
Further, the Government while opening new industrial corridors, is conveniently ignoring the earlier failure of Special Economic Zones in India. Just like the lack of success of Central Sales Tax hasn’t kept the Government from promulgating Goods and Services Tax, which like the prior, is complicated and has inflationary effects, the failure of SEZs has not kept the Government from serving an old wine in a new bottle in form of the five industrial corridors. It is not comparing apples with oranges, as some would object, but it is rather a case of comparing old apples with new ones.
As the Boston Consulting Group puts it, “Many industries are reaching an inflection point at which, for the first time, an attractive return on investment is possible for replacing manual labour with machines on a wide-scale.” Undoubtedly, industries entering India are looking at maximising their returns on investment and their choice modus operandi will not be the manual labour, but rather automation and robotics.
We cannot expect to have more employment through the manufacturing industry as it happened in China for the simple reason that comparison between India and China is surely one between apples and oranges.
If the current Government believes that Make in India will help boost the economy and alleviate poverty, that too is not truism. The pledged investment commitments worth Rs 15.2 lakh crore have raised hopes, but the actual inflow can be more than a disappointment as has been argued by many academicians such as Sanjoy Chakraborty from Temple University.
Research commissioned by the free-market Friedrich Naumann and Cato institutes has found the rate of conversion of such pledges into real investments in India has typically been low – with no State exceeding 20 per cent, as has also been observed in the recent Vibrant Gujarat event, when Modi was the Chief Minister of Gujarat. In fact, merely eight per cent of nearly 40 trillion rupees proposed at investment summits during Modi’s 11-year tenure as the Chief Minister of Gujarat was actually implemented, according to data from the State’s Directorate of Economics and Statistics.
The dangers of ostentatious industrial policies can never be underestimated from a macro-economic perspective, especially in agriculture-based economies. We may be on a brink of a ‘scissors crisis’ in India where farmers are not able to sell their produce at high prices on the one hand, and on the other, the prices of consumer as well as industrial goods are so high that they become unaffordable for the agricultural class.
The imbalance between the earnings of the farmers and the prices of consumer products can lead to disastrous market conditions. Indeed the Soviet Russia underwent such a crises in their drive for industrial protectionism during the new economic policy years. Monetary reform and attraction of foreign capital was their prime agenda too, which led to disastrous effects for the Soviet economy. That nearly a century later, a Right-wing Government today mirrors the same mistakes of the Leftist Soviets, is an irony.
