Can ‘Make in India’ Deliver?

(Published in The Tribune, December 30, 2014)

The ‘Make in India’ campaign of Prime Minister Narendra Modi is a very compelling slogan and has an instant appeal. Indeed why not invite people from all over the world to make goods in India? In the past India had highly skilled labour and good quality raw materials and people craved for Indian products specially hand crafted metal, wood and stone wares. Indian handloom shawls were much prized and Napoleon’s wife Josephine had a large collection of Kashmiri Jamewar shawls. Can India reclaim that reputation once again? Only if Make in India campaign leads to achieving excellence in the quality of Indian goods. Make in India will have to be accompanied with efforts at giving Indian products better finish and trendy looks and they should not be exorbitantly priced.

Typically the Make in India campaign is aimed at foreign investors. Indeed that is what China did after opening up in 1978. It invited the western foreign investors to set up factories in China and produce branded goods with Chinese labour and raw materials. Thus all famous western brand names went to China and got their products made only to be exported back to the home countries. Multinational companies sold products in the west under their own brand name and only a tiny tag hidden inside revealed: “Made in China”. Billions of dollars flowed in and China became the factory of the world. Today in almost every US store and across the stores in the EU, products made in China are sold in the high price range and not among the cheap stuff.

Now China is encountering problems and its economy is experiencing a slow down. The labour costs are rising and manufacturing growth has slowed down. But China still remains ahead of India in attracting foreign direct investment. Its FDI was $ 117.6 billion in 2013 whereas India’s was $ 28 billion. China’s factories are worth seeing because they give the impression of a well supervised disciplined labour force working under close supervision and producing zero defects goods.

The question is can we fill in the niche that China may be leaving? Perhaps, at least in a few things India can also produce equally well. But our labour force is not as disciplined or educated. Hence first, we have to train them well and introduce a work culture which is similar to China’s.

Secondly China’s infrastructure is far superior and efficient. Even in remote villages there is water supply 24×7 and power. Many of the intensive manufacturing activities are carried on in villages. I visited a village near Hangzhou which was the biggest producer of socks and lighters in the world.

Third, for Indian enterprises, business costs are high because credit availability is less smooth and interest rates are high. Even with talent and discipline, the costs would rise because of high interest rates. Indians consumers on the other hand are very price sensitive. They don’t care where the product comes from as long as it is of reasonable quality and cheap. If Indian products are placed alongside cheaper products made in other countries, Indians will always go for the foreign made ones. A typical Indian consumer admits that Chinese goods are not of very good quality but are cheap and affordable. That is why India has a huge trade with China.

Another question is about what kind of production technique should be used? Is it possible to produce cost effectively with labour- intensive techniques? If so, our problem of finding jobs for the youth would be solved. But as is now clear globally, most production operations require more technology and less and less labour. Already the 3 D printing has started in industrial countries which will not only be cheaper but accessible to individuals to make their own products. How can India compete in this technology driven world with labour intensive techniques of production?

If foreign investors as well as domestic investors have to adopt labour intensive techniques, unless productivity of labour rises and wages remain low there will be a danger of rising costs as in Germany, leading to falling exports.

Another point raised by the Reserve Bank governor Raghuram Rajan is that ‘Make for India’ slogan should be replaced with ‘Made for India’. It means that like the Chinese who have moved away from the export led growth model and are concentrating on production geared to domestic demand, Indian manufacturers should also cater to domestic demand. This is because the global scene is not as upbeat as before and external demand coming from US and the EU are weak and not enough to sustain export led growth.

Basically Make in India will require a lot of policy changes starting from skill development, better infrastructure, educating the labour force and making credit more accessible and cheap. Other hurdles may be land acquisition and environmental clearances which are much more difficult to surmount in India than in a totalitarian state like China. To make India a choice investment destination will require many changes in the bureaucratic machinery so that India climbs up in World Bank’s index for Ease of doing Business. Its current rank is 142nd and foreign investors are aware of the problems they are likely to encounter.

Does ‘Make in India’ campaign mean that consumer goods’ imports will be restricted? In the 1960s and 70s, people bought Indian goods not out of choice but because there was nothing else available. Thus Make in India should be accompanied with the exhortation that everyone should ‘Buy Indian’ just like the slogan “Buy British” during the 1980s.

Make in India thus has to be accompanied by psychological change in the consumption pattern. It should be accompanied by a genuine love for ‘made in India’ products like Gandhi ji’s urging all Indians to buy Swadeshi. Otherwise the Make in India campaign may not yield the expected results.

On the whole ‘Make in India’ campaign seems outdated because in today’s world it doesn’t matter where a product is made because even high exporting countries like China basically assembles parts made elsewhere in the world.

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