Preconditions for Sustainability of ‘Make in India’
Dr. Tripurari Pandey
Dr. Tripurari Pandey is Director of Ajay Kumar Garg Institute of Management, Ghaziabad and also a professor in the area of Marketing and Strategy. Before getting associated with AKGIM, he was working with ICFAI. He was also associated with companies like TELCO and Karvy Consultants before moving to academics. He is MA (Economics), MBA (Marketing) and Ph D. Besides, being involved in MDPs, and consultancy, to his credit are a variety of papers published in national and international journals.
The country’s population dependence on Agriculture and manufacturing is 65% and 17 % respectively if one goes by the data of 2014. However, the contribution of agriculture in GDP is a meager 17% only. The dichotomy of agricultural employment and contribution respectively being 65 % and 17%, speaks a lot of the problem the country is entangled with chronically.
The question as to why current dispensation is doing a lot of drumbeating on “Make in India” is not a rocket science to understand. The employment manufacturing sector has been generating in China, has been 32% till 2013 whereas the same is only 17% in India. It however does not mean 65% population dependent on agriculture is actually employed in true sense, because the ICOR (Incremental Capital Output Ratio) in agriculture is either negative or almost zero. Accordingly, marginal labor productivity also in the sector is negative. It directly translates the fact that 65% agriculture population dependent is merely an eye wash in terms of contribution to the GDP.
And therefore, the question that remained unanswered is; can the employment generation be triggered from manufacturing? Can “Make in India” slogan drift the excess so-called employment burden to manufacturing? The answer is unwaveringly “YES”. Though, we have used the words “slogan” and “drumbeating” which of course are not without reasons. Now, the crux of all discussion on various forums on Make in India is, are we as a country ready to meet the pre-conditions of manufacturing take-off?
We have a population of almost 1.3 billion to be fed. Frequent shortages of eatables have been costing the governments heavier from time to time. An impetus on manufacturing shall have to be sufficiently and necessarily preceded by low cost agriculture support. Do we have the essential wherewithal in agriculture? A case of Chinese in this respect is worth emulating. They first laid the foundation of low cost agriculture which is never possible with excess labor dependence on it. Chinese started transferring the excess employment on agriculture to other tiny household sectors which often are not noticed in any economic survey and analysis. They, however, outsourced and created low cost technology in 1970s to compliment low cost agriculture. It not only attracted the attention of the world as a manufacturing hub with Cheap Labor and Resource, also, a huge population of China got self skilling employment.
However, no one can exhort any modern country to copy China’s growth story which is not relevant now due to fast paced information and break-neck technological revolution. The story of low cost manufacturer is never sustainable, consistent and qualitative. The tag “use-and-throw” evolved for Chinese products only. Swiss manufacture ball-pen tips with a technology costly enough to brow-beat any Chinese from buying it. But, the quality of Swiss ball-pen tips is such that the world cannot live without and that too at a price everyone can afford even if the cost of pen is Rs 5/-.
Here there has to be a choice between Low cost and Value Conscientiousness. Conventionally, Indians often takes pride in arranging low cost technology or a deal, even if value is not there. This phenomenon from top to bottom in the system is evident everywhere, though taxpayers have been paying heavy price because of it.
Indians are extremely hopeful of a revolution on employment front in the country if Make in India develops any embryonic shape. Here once again lies a pre-mature misconception of the masses at least. Because, any investment in manufacturing sector in the II decade of 21st century unlike China is not going to be labor intensive in any manner. And, hence it shall fail to generate bulk employment incrementally in new investments. It appears at loggerhead with our way of interpretation which must be clarified before it disappoints the country. And, even if in some conventional areas, labor intensive format of manufacturing does take place, it will not be creating the desired “cascading effect” and resultant, the necessary reinforcement as required shall cease to further due solely to the consumptive income being created. It however does not mean that consumptive income as going in the hands of labor is not good.
The focus of any government in the world is “Capital Formation” as enunciated by economists also. Capital formation refers to net additions of capital stocks like equipments, buildings and other contributing goods. A nation utilizes capital stocks in combination with other resources to reinforce production of goods and services; an increase in this capital stock is known as capital formation.
And, therefore, investment in capital intensive areas is the best and only option. It may not generate immediate employment of the degree and scale expected, but it shall definitely help in capital accumulation to further the investment cycle and help reduce employment though in a phased fashion but sustainable and qualitative.
As mentioned in earlier paragraphs, “Make in India” is more of a day dream and until the bottlenecks impeding its movement are removed. Often, the following are the Stigma; India is attached with when it comes to doing business in the country.
- Bureaucratic Morbidity
- Archaic Labor Laws
- Pragmatic land acquisition laws
- Conventional Ways of fighting inflation with higher rate of interest
- Infrastructural Poverty
Political Immaturity and Childishness
Together, all of the above constitutes what we call is “Cost of doing business”. In India, we will be compelled to ponder and arrive at the conclusion that “Cost of doing business” is much higher than being articulated despite the fact that states are embarking on a race of being branded as a better destination.
Although, the existing leadership has grappled hard to convey the world of a favorable investment climate in India, the result has perceptively been unparalleled FDI ranking in October 2015.
However, an investment has its own understanding of profit and risk. An FDI in restaurant or in a hotel chain is more of a luxurious branding of a country, but, if it falls in value creating sectors like capital goods manufacturing or in sectors where India has import propensity, things will definitely change overtime and for a sustainable and better future on growth and employment which must move together. Further, in India owing to changed socio-economic paradigm, a number of units either have got closed or bleeding in a chugging manner. A lot of value stands tied with such units which if operated with a new mindset and machinery shall unshackle a huge economic and social opportunity.
To conclude, following are the issues that must be worked upon if one thinks of pursuing “Make in India” to its conclusion of meeting ambitious 100 million jobs creation by 2025.
- Value Creating Technology even if investment is a high cost option.
- Capital Intensive Investment for Long run benefits
- Cost of doing business has to be reduced and made favorable
- Promotion of Brownfield investments for value unlocking
If we miss the demographic bus now, it shall take another 100 years for “Make in India” phrase possibly to reappear.