Shift from Made in China to Make In India: What Can the Government Do to Make India a Truly Atmanirbhar Bharat

The world economy is at a standstill. Thanks to ensuing periods of quarantine and lockdown, economic growth has been arrested to a point of seizure. In the midst of an ongoing trade war, global pandemic and slumping economic growth of China, the world’s desire to shift its engines of manufacturing and development away from China can’t be overstated. Consequently, India is one of the few countries who hold the most credence to drive this shift into its own territory, provided it does things the right way.

A Shift From Made in China to Make in India

Since the days when Industrial Revolution began in England, all the major economies of the world have been testaments to the fact that growth of manufacturing and production activities is the exclusive precursor to growth in modernity and development.

Despite all the bounties of nature and means of sustenance that agriculture endows us with, an agricultural labourer earns way less than an industrial labourer. To that effect, the Prime Minister’s ‘Make in India’ initiative that started in 2014 was an ambitious project, which aimed to galvanise India into a global depot of production and manufacturing by attracting investments from all around the world. To its credit, Foreign Direct Investment (FDI) into our shores increased by a mammoth 56% between 2014 and 2019. However, we ranked 8th globally in FDI inflows accounting only for about a third of the FDIs that went into China.

That may not be entirely promising in light of our ambitious agenda but one needs to understand here that FDI incursion is simply the first step towards making in India. If we are to give China a run for its manufacturing money in the post-COVID-19 economic climate, we need to understand the modalities of industrial growth and the reasons that made China a manufacturing powerhouse towards the beginning of 21st Century.

Making India a Truly Atmanirbhar Bharat

For industries to prosper, three things need to be present. First, a large and assured supply of labour; Second, a robust network of infrastructure; Third, a favourable climate for industrial governance.

Supply of Labour

As far as the supply of labour goes, a billion-plus population works to our advantage as it did to China’s. India’s massive demographical divide in the favour of the youth ensures an abundant supply of cheap labour who wouldn’t mind partaking in the joys of the organised sector for better wages.

A Robust Network of Infrastructure

Things get murkier when it comes to infrastructure. According to World Bank’s estimates, India has an infrastructural gap to the tune of $1.7tr.

We spend less than 4% of GDP on education and less than 1% on research and development.

We do have one of the world’s largest railways, spreading over a 100,000 kms and a road density of (roads per 100 square kms) of 166 kms, although most of it is unpaved. We have a fifth of China’s currently-plying airline seat capacity. Although 95% of the population has access to electricity, not much of it is industrial-grade.

While it is true that infrastructure gradually builds itself in consonance with the industries laid, it’s hard to defend against the lack of a basic network of rapid-transit gateways, highly-equipped port infrastructure, feeder and carrier mechanisms and an acute lack of logistical services, to propel the wheels of industrialisation.

Governance over the industrial sector has been liberating since 1990s. However, regulatory bottlenecks and bureaucratic red-taping stand out as the two glaring loopholes in the path to industrial undertaking. Combine that with institutional corruption and we’ve got ourselves a developmental catch-22, balling and chaining the cogs of growth that could single-handedly pull out half-a-billion people out of poverty in record time.

Pulling this number of people out of poverty wasn’t a realistic comprehension thirty years ago. However, the world has witnessed it, acknowledged it and appreciated its achievement in China which made it possible through multiple waves of industrial advancement.

The first wave was by upgrading the industrial ladder from light to heavy machinery. Second was through a shift from labour to capital-intensive scheme of production and third was an incline from manufacturing to financial capitalism. Governmental stability and uninhibited channeling of capital as well as labour mandated via a state-centric communist regime was a key element of China’s success. The enormous support from the government, focus on grassroots development and a guarded amalgamation of free-market policies and domestic protectionism by formulating ‘authoritarian capitalism’ formed the backbone of the Chinese miracle.

As China’s demographic twin, India is blessed with similar, and in some cases, in fact, more quantum of resources by virtue of our geo-strategic position, abundant mineral wealth and a sprawling coastline that leads to the oceanic corridors of high commerce. As to China’s compulsive mode of governance which helped dictate the course of its strictly-adhered economic regimen, we can replace it through popular will and democratic exercise. However, the fact remains that if we want to scale up on the litanies of China’s growth, we might do well to take a few lessons in its making along the way.

Bottom-up approach to reform is crucial to laying the groundwork for making in India. Starting with agriculture, we must revamp every sector by employing modern machinations and bring an end to manual enterprises. A considerable source of our revenue still comes from supplying raw materials (ore, minerals, chemicals etc.) rather than generating finished products via domestic industries. This pattern merits change keeping in mind that yield from manufactured goods surpasses those from natural resources.

The growth of Medium and Small-Scale Enterprises (MSMEs) is crucial to the achievement of these goals. Although successive governments have made continuous efforts to foster the growth of MSMEs, a lot more awaits to be done. More than half of our FDI flows into the capital markets. That could be funnelled instead towards the MSMEs in a phased manner by mandating investments into the smaller domestic industries via amendments in the Foreign Exchange and Management Act (FEMA).

The IT sector in India is lone in terms of developing to an unprecedented level of excellence by catering to outsourced requirements and swift technological assistance. It is time this technology is invested into furthering mainline industries such as engineering, defence, etc. One of the tall orders of Chinese development comes from their eventual progress into manufacturing of key components over assemblage. This involves the making and designing of structural components that go into production of equipment like cellphones or cars. China’s accomplished proficiency over these activities is singularly responsible for turning them into an electronics giant. Incidentally, it is no longer limited to electronics but other sectors too, like chemicals and pharmaceuticals. Chinese predominance over manufacture of over 40% of the world’s Active Pharmaceutical Ingredients (APIs) is what crippled the world’s supply over the shortage of an over-the-counter drug like Paracetamol in May 2020.

The PM’s decision to open up more sectors into the ambit of FDIs is a commendable step. However, even the sectors with limited FDI influx like defence demand modernisation pronto. Our over-dependence on predominantly Russian and American supplies in place of shoring up indigenous functionaries like HAL for the manufacture of basic artillery and equipment needs immediate reconsideration.

A Favourable Climate for Industrial Governance

Easing regulatory norms is yet another precondition to attracting investments and clear the course of establishment for manufacturing businesses. Smooth and single-window deliverance of labour, licensing and environmental clearances is of utmost importance. The amended Land Acquisition and Rehabilitation & Resettlement Act, 2013 has managed to socialise the process of land acquisition by mandating the approval of at least 80% of the settlers residing therein with four times the earlier compensation structures, thus delaying the process and handing it to investors who are impressed upon with the possibility of losing funds owing to months (and sometimes years) of regulatory logjam. Alternatively, archaic labour laws like the Trade Unions Act, 1926 need immediate reform which have earlier occasioned the loss of investor confidence due to lack of a consensual voice at the negotiating table.

The urgency to escape tyranny is what helps redraw the outlines of progression. India’s need to escape the tyranny of hunger is what heralded the Green Revolution in 1960s. The need to outrun economic stagnation is what brought about the banking reforms of 1970s. The need to escape bankruptcy is what pushed us into a regime of economic liberalisation in 1990s. Likewise, the need to escape looming poverty before we’re past the prime of demographic dividend is what must force our hands into scaling up manufacturing operations. It would be pertinent to learn from our north-eastern neighbour in the process of emulating its example.

(Originally published August 17th 2020 in transfin.in)