In the last few months that the
NDA Govt. has come into power, there has been a huge thrust on "Make in
India" campaign, which plans to make India a global manufacturing hub. There
are couple of other reasons also behind this campaign:
1.
India has to import
lot of things from foreign countries and if these things can be made in India, we
can stop this outflow
2.
India has a huge
demographic bulge and the Indian economy is not able to absorb so many people
in the existing framework. It is believed that if India is able to build a
large manufacturing base, employment can be generated for lot of people
While this is a noble thought, I
personally believe that India would be better off by not taking this path. Some
of the reasons why I feel this are as under:
1.
Too Late
to Replicate China Model: We are trying to emulate China and trying to
fight a battle in their own backyard and in a game which they are masters of.
We have to appreciate that China started building manufacturing hubs for the
world some 30 years ago. India will not be able to match what China has
achieved in 30 years in just 3-5 years. Further, China’s growth is slowing down
along with the slowing of major world economies. This will result in excess /
spare capacity within China. So while we’ll not be able to compete with China
on cost, China will have all the incentives to beat us down in the price war.
2.
People
Readiness: Indian Society is not ready for a manufacturing driven economy.
It is not aspirational to work in a factory. Skilled manpower is not available
easily. The cost of acquiring skilled manpower and re-skilling them will be
prohibitively high. Even to train so many people, India currently does not have
a pool of trainers. The performance of our various skilling initiatives is a
testimony to this argument.
Even in terms of labour productivity, India
is far behind China and many other countries like South Korea, Hong Kong,
Malaysia etc. The following World Bank data on labour productivity measured in
terms of GDP per capita (gross domestic product divided by midyear population)
highlights the gap.
Also if we compare the Female Labour force
participation rate, female (% of female population ages 15+) as per World Bank,
India’s LFPR at 27% (2013 estimate) is way below China’s 64% and a world
average of 50%. This clearly indicates that India needs a socio-cultural
revolution alongside the “Make in India” campaign, before it can work.
3.
Lack of
Indigenous Technology: Technology is disrupting all the business models – As
per a famous quote of Warren Bennis, The factory of the future will have only
two employees, a man and a dog. The man will be there to feed the dog. The dog
will be there to keep the man from touching the equipment. What is likely to
happen is that India will need to import foreign technology to create a
manufacturing hub in the country. It has been witnessed that no country will
share the latest technology with India. So what we’ll get is an old technology
at exorbitant price and with innovations like 3D printing etc., it is quite
possible that those technologies may not be able to serve us well and provide
adequate value addition.
4.
Asset
Heavy Model: Companies and Economies are very similar. Asset heavy model has
dented the balance sheets of various infrastructure companies and have brought
them under huge financial duress. I personally don’t see any reason why this
will not happen to a country like India, if it adopts the same strategy.
5.
Lack of
Enabling Infrastructure: India is not ready as far as the basic
infrastructure is ready like roads, rails, ports etc. and the investment
required to bring this up to an international level will not only be huge, but
will also take many years, if not decades. I am not sure if foreign investors
would be willing to wait for 8-10 years before their investments start giving
them returns.
6.
Lack of Excitement
from Indian Corporate: It is observed that in our “Make in India” campaign,
foreign companies are more bullish on India than Indian companies themselves.
One of the reasons for this euphoria is the saturation in their respective
markets and other market related dynamics like cut in govt. spending, etc. We
should not make this a one way affair, where we open up our markets for these
companies without getting an opportunity to tap into their markets.
7.
Lack of
Ease of Doing Business: While the govt. is making all attempts to streamline
our legal processes. India still remains a tough country in terms of “Ease of
Doing Business” and this is not going to change very quickly. Therefore, there
is a huge possibility that these companies which are so excited at the Indian
macro-economic potential right now, after entering the market get frustrated
and decide to quit. Once this FDI money starts to leave the shore and the
sentiment gets reversed, India will land itself in a big financial mess.
8. High Input Costs: It is a well known
fact that India has a high cost of land and capital. The land acquisition
legislation is still in doldrums and the cost of capital will take decades to
come down and at par with that available in developed economies.
9. Governance Framework: India is a
democracy. The regulations and overall governance framework is quite
complicated in the sense that some things are under the purview of Central
Govt. and others in State Govt. Different States have different ideologies and
political motives. This makes things even more difficult for a foreign company
to negotiate.
10.
Climate
and Environment Issues: Last but not the least, in the rush for making
India a manufacturing hub we are most likely to overlook the climate and
environment issues, which will hurt us badly in the long run.
It would be better to continue focussing on the Service
industry, which is asset light and offers high return on investment. The only
tweaking that would be required to be made in the model is that people will
have to be trained for the world and not just India. Another thing on which we
need to focus is creating a strong R&D and innovation ecosystem in the
country.
While the article builds a strong case for not going
overboard on the “Make in India” campaign, it is understood that manufacturing
sector cannot be completely ignored. The only suggestion here is to grow
organically and indigenously rather than burdening India with huge foreign debt
for acquiring outdated technologies.
India is at an inflexion point in our history. The reason
for starting this discourse is to generate views and suggestions for ensuring
that we don’t land our country into a demographic and or financial disaster.
The views
expressed in this article are the personal views of
the author. Comments on this article are most welcome.
