'Make In India' - Are We Ready?

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Last year general election of India was a game changer in the history of Indian politics as it signaled the change in the attitude of the people to take charge of their responsibility in changing the government they wanted. It has been almost a year since Prime Minister Narendra Modi assumed office with ambitious plans of making India globally competitive. Modi in his maiden term announced a series of policies that could all together change the scene of India on the global stage and lay back the story of the country’s high growth. One of the highly acclaimed and applauded policies is the Make In India. Does this initiative can really mean something for India or would it just go back in the papers as a mere slogan would depend upon the course of actions taken by the government.

When Modi launched the Make In India campaign the country was upbeat about the project particularly the industry and business group. This is because of the timing of the project. The campaign was launched at a time when the Indian economy is undergoing economic stress of low growth. The industry for a long time has been worried over low demand and reduced consumer spending because of persistent Inflation and poor external prospects. Apart from all the excitement and hullabaloo surrounding the ambitious project one has to carefully look at the situation we are in at present. In India there is a general notion that every government proposes laudable policies to attract media and public attention but none have the clarity about its feasibility and implementation. Will Make In India be a practical reality or a distant dream?

It is always easy to lampoon a government initiative than to understand its implications on the economy. However, before implementing such a big project that is said to have a large scale impact on the economy one has to check the ground reality and the constraints facing the success of the project. If the government blindly goes by talking about the project and promoting the idea of Make In India on global tours it would become just another marketing gimmick.

Much of the growth of India is accelerated by services and its exports. Manufacturing contributes only 15 percent to India’s GDP whereas services contribute to 57 percent. However, in the recent years we see that India also have the potential to become a manufacturing hub and Make In India is exactly trying to tap that potential. Soon after the announcement of the initiative, many companies such as Airbus, spice and UK’s BP plc have expressed their interest and commitment in making the dream project a success. Considering this, there is great enthusiasm and support for the project among the industry but it is imperative for the government to look at the challenges and remove the hurdles in making India truly a global manufacturing hub.

There are quite a lot of hurdles on the domestic front that need to be immediately rectified. Governance is a crucial factor in making any economic policy a great success and it is a serious issue in India. India is plagued by corruption and it is deep rooted in the Indian politics since time immemorial. Corruption is a kind of tax that disrupts economic activity and lowers the prospects for investment. How can India lure foreign companies to carry their production activities here when its own manufacturing sector is in a pathetic state looking for some revival? The first step would be to make the domestic manufacturing sector organized and flourish production activities smoothly without any hindrance. In general many studies have pointed out that investments move from capital rich to another capital rich country. So unless and until India strengthens its own manufacturing sector by going an extra mile in encouraging public and private investments it is quite difficult to attract investments from abroad and even if it does it is not sustainable.

India has not been using the technology advancement optimally to its advantage. Despite high IT and telecom services exports that is extensively built on high end sophisticated technology India still hasn’t grown tech savvy. One important factor that improves production and manufacturing is investment in R&D. For various reasons India is reluctant to show any sign of investing in R&D. Surprisingly there are Indian corporate without any R&D wing at all. E governance has taken shape in India, but it still requires efficiency and accountability. When everything from starting a business to lodging a complaint is done virtually it saves less time and get the things done more efficiently.

India ranks relatively low on the ease of doing business index compared to other emerging nations. According to the latest World Bank report India is ranked at 142 among 189 nations on the ease of doing business. However, the initiatives taken by the new government is promising and is expected to make India business and investment friendly. It is said that it takes 28 days to start a business in India. The average number of procedures in starting a business in India is 12 whereas it is 7 in other South Asian economies. Hence there is much to be done on the clearances and the process of starting a business. Infrastructure is another major problem in India.  Manufacturing and production activities usually concentrate on areas where there is good infrastructure and logistics facilities. India’s infrastructure is not all that developed and supportive in ease of business transaction. Many infrastructure projects are waiting for clearances because of lack of investments. So there is big push needed to improve the infrastructure of the country. It is good to see that the Modi government has committed all the way towards achieving this goal. Another serious problem facing the country is acute power shortage and energy crisis. Electricity availability is one of the critical factors for manufacturing. We are in a nascent stage of developing a more robust and sustainable energy system.

 

The dream project is said to boast itself in making India a powerhouse of manufacturing leading to job creation. It is highly uncertain if the first objective could be met considering all the domestic and external issues but the second objective of creating jobs is highly certain and possible. Before that government needs to clear all the roadblocks concerning the success of the project. Finally, on a concluding note, with all the positives regarding the Make In India initiative a fundamental question is necessary to be raised and is critical in understanding the whole idea about the business initiative. Why Make In India? Why not Make For India as termed by RBI governor Raghuram Rajan? It is true that India has taken inspiration from other emerging Asian economies on export led growth but this growth model is now being questioned by many economists and policymakers. China’s export led growth is now having negative implications on its economy.  India has to understand that it is all the way different from that of china. Replicating the same type of export incentive and import substitution growth could lead to negative effects on the economy in the present global economic scenario where the developed countries have sluggish demand and is still on the middle stages of recovery. Raghuram Rajan have also expressed his concern and cautioned about the ramifications of the program. As of now what India truly needs to concentrate is on creating a conducive environment for domestic manufacturing sector to flourish by encouraging investments, implementing the much talked about GST, easing regulations for business to take off, enhancing infrastructure, investing on skill development that could automatically result in job creation and increase the purchasing power prime minister is talking about. If all this is done and the roadblocks are removed only then Make In India can happen as envisaged.

The Path Towards Inclusive Growth

The New Millennium Growth Story

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The 21^st century begun by seeing growth on a positive note on the event of a series of economic catastrophe that preceded the last decade of the 20^th century like the Asian financial crisis and the dot com burst in USA. Until then growth was the primary goal of the developed countries and many other developing countries. On the other hand there were some third countries that was struck in between growth and development as they were nowhere between the two. Since then international organizations like UNO and OECD have started to explore other pressing issues confronting the world. The 2000 UN millennium summit was an indicative of the shift from the standard growth which redefined growth by targeting a set of goals known as the Millennium Development Goals (MDGs) to be achieved by 2015.

The developed countries took a key lesson from this and the developing nations deep dived into actionable policy making to achieve the target within the timeframe. As the name indicates, most of these goals are development oriented. The key take away from the event was a change in focus from growth to development. This is when the concept of inclusive growth became popular as many economists across the world started to accept that it is the inclusive growth that one has to concentrate on the long run. It is a known fact that, that there exists a short run tradeoff between growth and sustainable development. Other growth concepts that are of prime interest to the present day economists are inclusive and sustainable growth both of which are of long term interest.

Comparison with China

Though the concept of inclusive growth has gained global attention it is more relevant to the emerging nations than the developed nations as there are seen wide disparities in the economic outcomes in the case of former. Considering China a tough competitor to India and with which we often compare ourselves on various grounds is also showing some great affinity towards inclusive growth in the past decade. China has transformed itself has a leading industrialized hub of the Asia Pacific region with export oriented growth in the past three decade. China managed to reduce its poverty sharply compared to India which declined steeply to 12 percent in 2012 from 84 percent three decade ago. The number of people living in absolute poverty line has fallen from 99 million in 2012 to 82.5 million in 2013. It has shown huge scope for inclusive growth in the areas of infrastructure, labor market and agricultural technology.  Social protection system is much stronger in China than India.  The recent policy measure to reduce the number of car ownership in major cities is a good sign of inclusive growth. With more such structural reforms on the ground, China is targeting inclusive growth more efficiently.

The Indian Picture

Taking the Indian picture, it is all the more different. India is a growing population of 1.2 billion people and is likely to overtake China’s population by 2030. With this India will be the highest populated country in the world. Though India has witnessed rapid economic growth over the last two decade, there is high inequality and disparities in many of the social outcomes like quality health and education. This suggests that the growth is not that inclusive as desired. The health indicators are far worse than anything else. Almost one in three children is malnourished from India.  While the literacy rate has increased from 64.8 percent in 2001 to 74.04 percent in 2013, it is still lower compared to the global standard. India ranks 131 on HDI among the medium development countries. Poverty in India has declined to 22.9 percent in 2012 from 68 percent three decade ago. Still India accounts for the highest number of slum dwellers with largest slum in the business centered city of Mumbai.  Still many people do not get access to food and go to bed hungry with around 3000 children dying every day making it is as the hunger capital. The unemployment rate is at 8.8 percent which is very high compared to its other Asian counterparts. The ginni index, a measure of income inequality also suggest the gap between the rich and poor in India is rising. Many economists in the past have pointed out that the only way to tackle inequality is through inclusiveness.  The high growth octane in India is characterized by industrialization and this has led to stagnant agricultural productivity leaving many farmers deprived. All this do not suggest that India is opposed to inclusive growth as it has been embracing inclusive growth since the last decade with sophisticated infrastructure and notable public welfare schemes. These statistics just reiterate that India should plan its policy and adopt fiscal reforms in terms of inclusive growth. Economic policy is not just about promoting economic growth but also to make sure that the fruits of the growth are shared equally by every section of the society in a fair and just manner.

The Need for a Paradigm Shift

Towards this there is a need for big bang reforms that nurtures inclusive growth while Indian policymakers are highly skeptical about the right reforms for the right people. Most of the reforms that are proposed in the past lack the decisive objectives and clarity. Take for instance the controversial Food Security Act proposed by the opposition in 2009; though it was intended to target the vulnerable section of the society to reduce poverty, it did not have strong principals and methods to identify the right people who are eligible for the subsidy. Other programs such as NREGA and the recent Direct Benefit Transfer were also criticized on similar grounds.  In India, subsidies are mainly used to garner votes and put heavy burden on the government's budgets causing fiscal imbalance. Taking lessons from developed countries and our fast growing neighboring countries like China and Singapore can make India truly become inclusive. Instead of promoting subsidies and other populist measures India needs to invest heavily on health, education, skill development and infrastructure to move on the path towards inclusive growth. India as we know is a land of cultural diversity and it is not only the culture and languages that are different but also the social and economic outcomes. Needless to say, there are high variations within the states on many of the development indicators. Hence there is a call for unlocking the fiscal space right from the state level as there is a need for increasing intervention by the state governments to rightly implement policies that promotes inclusive growth. 

Market risks and uncertainty poses great threat to the economic growth in the short run. Business cycle characterized by recession and depression will occur and hence growth is bound to fluctuate. So what one has to concentrate is on inclusive growth. Though some economists argue that inequality always exist no matter what, it may be acceptable on the grounds of income distribution but not in social outcomes as no one is denied or can be excluded from social development. Inclusive growth can happen only when there is rapid growth. So Indian policymakers should not forget the two sides of the coin as to promote growth first and then simultaneously target inclusive growth.  India being a developing country, which is on the forefront of developing nations, should highly target inclusive growth for sustainable development. Modi is a great follower of Inclusive economics and Inclusive governance. So with Modi on the lead we can expect that India targets inclusive growth for a wholesome shared economic prosperity.

“The worst form of inequality is to make unequal things equal” - Aristotle