‘Grow in India’ before ‘Make in India’

As the Narendra Modi administration nears the end of its term, a key initiative of its, ‘Make in India’, appears not to have made much of a difference. In the four years to 2017-18, the index of industrial production has registered an average growth rate of 3.8 per cent and industry’s share in GDP has actually fallen over the 2014-16 period. So was this focus on manufacturing dated, if not misconceived?

Historically, Japan, the Asian Tigers and China have achieved stellar economic progress by becoming successful manufacturing powers. This is attributed in part to these societies being homogeneous, disciplined and built on Confucian foundations. India, on the other hand, is diverse, difficult to rule and actually appears to thrive on chaos. It is argued that this has created an ability to think in the abstract which lies at the root of the success in software.

The counter to this is that Indian software engineers have so far mostly written code and installed and maintained information technology systems, designed by others, at customer locations. This is routine work and a substantial part of Indian IT jobs are now threatened by the advent of automation. What is incontrovertible is that we are now in the age of innovative solutions which embrace both hardware (manufacturing) and software (services).

A half century of arguments over the different economic paths followed by the US and East Asia offer some insights. From the 1980s there was deep anxiety in the US over the onslaught of superior Japanese manufacturing practices symbolised by the challenge posed by Japanese cars and electronics.

Akio Morita, one of the founders of Sony, wrote a defining autobiography Made in Japan . As Japanese giants made their way into even Hollywood, it seemed nothing could hold them back.

Switch to today and where is Sony? Japan looks jaded, its manufacturing challenge hamstrung by a lack of cutting-edge innovation. The world is now dominated, even intimidated, by half a dozen US technology giants like Apple, Microsoft and Alphabet (Google) which are marked out by their ability to innovate.

These two realities defining the US and East Asia in a way meet in Taiwan. Its enormous expertise in semiconductor manufacturing has now symbolically been reduced to supplying chips to Apple. This earns the Taiwan companies a small margin compared to what Apple makes by conceiving and designing its products while outsourcing manufacturing.

Industrial policy required?

The theoretical argument eventually boils down to whether a country needs an industrial policy or not. The US historically has not had one and once thought it suffered because of this. Japan, on the other hand, did. Its planned ascent to manufacturing supremacy was symbolised by the role of what used to be know as MITI or the Ministry of International Trade and Industry.

Today, with hindsight, it seems that the US got its priorities right. It continued to foster an innovative society while neglecting manufacturing per se . This has resulted in a trade deficit, which is an issue but not systemically challenging.

Today, as India seeks to evaluate what worked and did not in the last four years, perhaps what was needed was not the slogan ‘Make in India’ but ‘Grow in India’, that is, not an industrial policy but an agricultural policy. The enormous need for the latter is highlighted by farmers’ distress and suicides to which the Modi administration has no answer.

Even before trying to figure out an agricultural policy, what is needed and over which there is no dispute is a straightforward plan to get the physical infrastructure right. Its key elements are: taking proper roads to every corner of the country, reaching power supply similarly (not just nominally, as has happened, but in terms of round the clock availability and of proper quality), and filling up the gaps in telecom (wireless) and data (broadband) networks.

Will drive demand

Once this is effectively on the way, an integrated agricultural policy can be put in place. Its main elements can be: water management by using sprinklers and drip irrigation, supply of better seeds, in-farm production of bio-fertilisers like azolla and vermi compost, and, what is vital, setting up of storages and cold chains.

The last will sharply reduce produce wastage and enable farmers to supply higher value fresh fruits and vegetables for which there is a growing demand in urban areas. Plus, there needs to be working systems for farmers to get a minimum support price and insurance for protection against loss of crops and income. As some of this gets going there will be rising demand for things like farm equipment and elements that go into the making of a cold chain. And as in step with this farm incomes grow, there will be increasing demand for refrigerators, TV sets and air conditioners.

The point is, as a new agricultural scenery begins to emerge there will be an across-the-board demand for manufactures which will lay the foundations for a sharp rise in industrial activity. Plus, jobs will boom in rural services.

For manufacturing to take off based on demand and cost advantage (Indian wage rates are still low), there is an enormous need to improve the ease of doing business. If to all this is added a decision to keep tariffs low, then it will subdue import costs for manufacturing. Thus to “make in India”, there is a critical need to “grow in India” and do a lot to facilitate that.

The writer is a senior journalist.

COMMENT NOW