India’s trade ties with China tell a story about what is wrong with our manufacturing sector. It is trapped in a colonial pattern of trade with China. As trade researchers point out, it essentially exports low technology goods and raw materials and imports finished products. Machinery accounts for nearly half of India’s imports, with chemicals, metals, and textiles and clothing accounting for 35 per cent. Minerals account for half of India’s bilateral exports.

To break out of this lopsided exchange (leading to an ever-rising bilateral trade deficit), India should go up the technology ladder even as it produces labour intensive goods for the domestic market. China is moving out of labour-intensive, low-value manufacturing such as garments to high-technology products such as electronics; therefore, India’s exports need to make that adjustment. For that, India needs to create an ecosystem for innovation, which entails a transformation in science teaching and research. But before that can happen, if at all, foreign investment must be put through a system that ensures technology transfer. Unlike China, the Indian state does not want to impose rules of any sort on overseas investors.

As researchers have observed, China ensured technology transfer by creating SME clusters and routing foreign investments through joint ventures. India has failed to absorb technology as it receives FDI. There is no evidence that this failure is being taken seriously at the policy level. ‘Make in India’ sounds like an indigenisation programme, but it is nothing of the sort. It is an investment policy, not an industrial policy.

Low domestic value addition perhaps explains the poor job creation record of manufacturing over the years. Is it enough for the Prime Minister to go from one country to another, selling India as an investment destination?

Deputy Editor

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