Entering the matrix

RAVI BHOOTHALINGAM

back to issue

‘Make in India’ is a powerful slogan and a concept that has the potential to transform the country. It has certainly caught the imagination of large numbers of people in India as well as overseas. Sceptics too are many, and there are certainly many pitfalls along the way, some obvious and others which lie submerged amongst the shallows. In this short essay, I offer a few key points that must be addressed to convert the slogan into reality. To create Make in India in its fullest sense and to set India firmly on the road to prosperity – the only worthy goal for such an initiative – we need nothing less than a transformational approach to our economic, external and human governance policies.

The fundamental idea behind Make in India is sound and unexceptionable. Those nations that evolved into becoming manufacturing powers from their early beginnings as agrarian, rural economies, saw a rapid rise in economic growth, productivity, employment and prosperity. The Industrial Revolution in Great Britain is the most quoted example and there are many more instances all over the world. The exceptions are thinly populated states abundantly endowed with particular natural resources. Such nations were able to achieve very high levels of prosperity, but now find themselves at the mercy of price fluctuations of those very resources. States that have not planned for a rainy day are likely to be caught short, as we see happening right now with the collapse in oil prices.

Moreover, manufacturing is much more than just a series of technical operations. We can call it a ‘matrix’ since it consists of a set of multilevel processes that embody a whole way of thinking and living. The manufacturing culture itself generates the rise of a middle class of skilled and educated workers and professionals, along with a general respect for science, education and a need for minimum public norms in health, sanitation and public services. This process tends to smoothen out income inequalities, and to promote a social order of generally higher acceptability. This, at least, was the overall trend during the great century-long manufacturing boom that started in the 1850s and tapered off – in the advanced countries – in the 1980s. (It is not a coincidence that inequalities in these countries have since grown apace, as evidenced by the hollowing out of their middle classes, the higher levels of unemployment and the visibly sharp disparities in income distribution.)

 

Where does India stand in the manufacturing ladder today? If we look at the World Bank figures,1 the share of the manufacturing sector in value-added terms in India’s total GDP stands at 17% (2014). This figure has remained much the same over the last five years. In comparison, Thailand is at 33%, Malaysia at 24%, Indonesia at 22% and the Philippines (popularly considered as India’s competitor in the IT-enabled services sector) is at 21%. Even Sri Lanka is ahead at 18%, whilst Vietnam and Bangladesh keep India company (at 17%) – at least for the time being – as both countries are fast absorbing businesses exiting East Asia to seek low cost destinations. China (31%) and Korea (30%) remain the leaders, and it is noteworthy that their strategy is to move their manufacturing sectors into ever higher value added areas through R&D and innovation.

Finally, it is worthwhile looking at Japan and Germany, which stand at 18% and 22% respectively. Purely in terms of share of manufacturing value added in GDP, these nations have passed their peak, but they remain strong engines of creativity, innovation and manufacturing excellence. We shall have reason to cite the examples of Japan and Germany again later on, for quite different reasons.

Manufacturing is much more than creating widgets in some dusty, smoky factory, with toiling workers driven by heartless and money-mad owners. The manufacturing matrix requires study and understanding if it is to yield the desired results. The heart of this matrix sits right at the centre of its two principal component processes. One of those processes, looking within, applies human labour, technology and ingenuity to raw materials to create saleable goods. The other, looking outside, connects these goods with markets where customers are willing to buy them. Only if we enter the matrix and understand how these two component systems can work seamlessly and in harmony, will Make in India be a success and reach its professed goal of India attaining a 25% share for manufacturing in its GDP by 2022. Let us consider each of these factors in turn.

 

I shall not dwell here on the need to improve India’s dismal infrastructure or to unravel its many transportation and logistical bottlenecks. These subjects have been written about extensively, as indeed have been the areas of labour reform, the ‘ease of doing business’, banking and financial sector reforms, science policy and so on. These are all vitally important areas, but at the end of the day, they represent necessary but not sufficient conditions. The true key to unlock the manufacturing matrix lies in energizing the human resource. This in turn requires the coordinated outcomes of two separate and critical processes – empowerment through education and health, and inspiration through transformational leadership.

Consider China in 1978, when Deng Xiao Ping’s revolutionary process of ‘reform and opening up’ was launched. At that time, India and China were roughly on par in terms of both GDP and GDP per capita (though China was already ahead in terms of human development indicators). Deng’s reforms worked brilliantly, and are credited with China’s 30+ years of high-speed growth which followed, resulting in China’s GDP being five times the size of India’s today. Deng is rightly credited for having raised more than 600 million Chinese people out of poverty – an achievement unique in world history.

But it is often overlooked that Deng could draw on two important dividends of the preceding period of Mao’s rule in China: the successful installation of universal literacy and comprehensive school education, as well as a population which enjoyed basic nutritional, sanitation and health care facilities.2 Although these fell far short of western standards, they enabled the creation of a manufacturing workforce that was both capable and willing to work in Chinese factories, often under difficult conditions.

 

Creating and empowering a manufacturing workforce will be more challenging for India. For a start, the world is no longer tolerant of output produced out of dangerous, polluting or unregulated sweatshops. Modern manufacturing practices worldwide require not only productive efficiencies that result in products being less expensive, but also adherence to high standards of safety, quality and environmental compliance. India will need to revamp its public educational and healthcare infrastructure as also its vocational training programmes to inculcate the habits and attitudes that are integral to industrial efficiency. These include the ability to communicate clearly and to adhere to the norms of cooperation, mutual support and collective endeavour demanded by modern manufacturing systems.

Manual or ‘blue-collar’ work needs to be accorded respect and social dignity so that an artisan or technician is considered as good a marriage partner as a government clerk. It must be noted that any form of discrimination – whether on caste, religious, ethnic or gender grounds – is absolute anathema to the development of a manufacturing culture and hence to the success of Make in India. It is to the credit of the modern Indian workplace – be it factory, office or laboratory – that a sense of common Indian-ness has developed particularly amongst large sections of our youth who now primarily consider themselves as citizens of India and reserve their other identities for the private domain.

 

India is a land of a myriad identities – ‘a million mutinies’ as V.S. Naipaul put it long ago. The role of transformational leadership – at every level – in India is, therefore, vital to create the manufacturing culture referred to in the previous paragraphs, and to develop the will to pull together towards a common and supervening goal. A sense of urgency, too, is key. India has perhaps a window of 10-15 years to achieve its ambition to become a manufacturing hub for the world and thereby create prosperity for its people. Even now, advances in 3-D manufacturing, robotics and digitalization have made inroads into the manufacturing space, and are rapidly hollowing out manufacturing and reducing the labour of human beings.

For all to pull together, a new type of social compact needs to emerge. In the new knowledge intensive and globally connected manufacturing world, the old pattern of opposing or even conflictual relations between labour and capital – with government as a bystander and occasionally as an umpire – just will not work. Employers should be encouraged to cooperate with government to create an empowered workforce, and the fruits of their enhanced productivity should be distributed more evenly, so that over a period of time, economic and social inequalities reduce in spread and intensity.

Blindly following the Anglo-American market model to determine remuneration differentials in the industrial and service workforce will be disastrous for India. Far better to pay heed to the evolution of the patterns developed by the Scandinavian social democracies. It is worth remembering that those countries started the process of building a more egalitarian and socially responsive state a long time ago when they were relatively poor. Their cradle to the grave welfare model (now under stress) was not an afterthought which emerged after they had attained wealth. It is not ‘minimum government’ that most people want, but a purposive, more responsive and efficient one. During the years of Japan’s rise, we can recall the critical role played by its Ministry of Trade and Industry (MITI) in orchestrating Japan’s technological renaissance.

 

It is worthwhile looking at the examples of Germany and Japan – two countries which rose out of the ashes of World War II as states that had suffered total devastation. The leadership in each country accomplished the primary goal of all transformational leaders – to mobilize the entire people to work together and focus on nothing else but to rebuild their country and to remodel their society on wholly new lines. Today, both are geo-economic powers which could wield much greater geo-political heft in world affairs, should they choose to do so. Rather, both nations are strongly pacifist.

In addition, Germany has dealt with the demons of its Nazi past with courage and honesty, and its stance in the recent European refugee crisis is a rare example of the display of moral courage by a leader who could have as easily pandered to prejudice and populist opinion. The message is clear: for Make in India to succeed, India’s leadership must create the enabling environment for every one of its citizens to work in harmony with their compatriots to create the new India.

A final word on urgency. Whilst the stark devastation that faced Japan and Germany in 1945 is not India’s experience today, the dangers ahead for us are no less. But being invisible and insidious, these dangers are more perilous. They are, principally, the effects of climate change which will pose severe challenges to agriculture, on the one hand; and the downside of the ‘demographic dividend’ (which can become a ‘demographic nightmare’ if not enough jobs are generated), on the other. Either of these is a deal breaker for Make in India.

 

When the Make in India initiative was launched last year, Reserve Bank Governor Raghuram Rajan sounded a cautionary note. Pointing to the somewhat listless state of the global economy taken as a whole, he warned that India’s manufacturing revival could not hope to be built on export-led demand, as had those of Japan, China and the East Asian ‘tigers’ for several decades in the past. Rather, he said, ‘Make for India’, thus modifying the strategy to base itself largely on internal demand. The thought is apposite.

But India is too large and complex an economy, and too geographically diverse, to confine itself strictly within either model. And the economic challenge that India faces is too big. The Indian economy needs both the engines of internal and external demand to power it, and so India needs to play on both strings, tuning each as necessary as circumstances change. This essay will only seek to address the question of external demand, but let me make clear that this in no way means that stoking demand within India is an issue of any lesser priority.

To seek and harness the right external engine to complement its domestic efforts, India must look nearby and rediscover its home continent, Asia, which remains the fastest growing and most dynamic region in the world. Reaching out to Asia – and linking into its supply chains and markets – is vital for India’s own growth. Unlike the Southeast Asian and East Asian regions which have grown increasingly integrated economically within themselves as also with each other, India has ploughed somewhat of a lonely furrow. Therefore, India must make a special effort to connect both with its immediately adjacent states in South Asia, and also with its extended neighbourhood.

 

This task has just become a little more difficult with the conclusion of the recent 12-nation agreement on the Trans-Pacific Partnership (TPP). The terms of this trade deal – negotiated in great secrecy and with little public consultation – are yet to emerge fully, as also the implications for countries that have been excluded, like India and China. But some broad contours are clear. Indian and Chinese exports to the TPP nations will be disadvantaged compared to trade movement within that group. This adds strength to the arguments adduced by Governor Rajan earlier. On the other hand, it also throws up another challenge and an opportunity that could make a huge difference for the ‘excluded couple’, India and China, by exploring how they could benefit mutually through enhanced trade, investment and economic partnerships with each other. Enhanced interaction between the second and third largest economies of the world (in PPP terms)3 can only be to the benefit of both.

This external-facing strategy of the Make in India matrix can be summarized through two key words: connectivity and engagement. The first attempts to link India physically and multi-modally with its immediate and extended neighbourhood in Asia. The second deals with the changes in our policy, institutional and psychological make-up that India must address so as to create win-win partnerships with its neighbours, with Asian countries, and indeed with China.

 

Today, the biggest obstacle to trade across national borders is no longer the presence of tariff barriers. Rather, it is a lack of physical infrastructure as also the man-made administrative obstacles such as driving permits, common railway gauges, cumbersome customs and visa procedures and the like, commonly clubbed together under the term ‘trade facilitation’. A visit to any of India’s pitifully few trade and transit stations on the India-Myanmar, India-Nepal and India-Bangladesh borders will confirm how a deficit both in infrastructure and logistics is strangulating trade and tourism potential within the subcontinent.

The reforms process should start first with the administrative and trade facilitation procedures, which can quickly realize the full trade potential available even within the confines of the existing infrastructure limitations. The next step is to draw up and execute, in a phased manner, a multi-modal connectivity master plan which aims to link India with all its neighbours, envisaging the subcontinent essentially as a common market in the process of being born (though that day of delivery may be at the end of a long and painful process if the constituent peoples so choose it to be). The imagined future can never happen if we cannot envision it and then work towards it.

 

In emphasizing connectivity, South Asia will only be catching up with a worldwide trend where regional trade, tourism and other linkages are growing apace. Capital, technology, information and ideas flow (almost) freely across borders today. The only exception is the movement of people, though even here short-term visits in the nature of tourism are becoming easier to undertake in most countries. It is when one comes to long-term human migration – whether for refuge, asylum or just a better life – that the problems arise. But all connectivity ventures share a fundamental principle in common with trade – there is more than one party involved and hence the calculus in such matters must always be one of mutual benefit – with a recognition that such benefits can be measured neither transactionally nor over a short duration. As the largest country in the subcontinent, India must display a corresponding largeness of heart in its dealings with the smaller neighbours, and avoid the temptation of behaviours which still manifest themselves occasionally by way of proconsular interference or assertion of an imagined ‘sphere of influence’.

As India explores the limits of its connectivity projects, we are bound to bump up against similar ventures floated by our neighbours and based on a similar logic. These include, for example, long-standing projects such as the Asian Highway and the Trans-Asian Railway supported by the Asian Development Bank and many Asian countries. But of more recent origin are the ambitious plans outlined by China under its rubric of ‘One Belt One Road’ (OBOR) which in turn consists of the ‘Maritime Silk Road’ and the land-based ‘Silk Road Economic Belt’.

These two gigantic projects envision linking China to Europe across the seas and trans-Asian land networks respectively. They involve a skein of roads, railways, ports, infrastructure and logistics projects, cyber-connectivity, pipelines and the like criss-crossing the lands and seas of Eurasia. Whilst India has no issues with ASEAN or ADB projects, the Chinese initiatives have evoked anxiety and suspicion? How should we react? This foregrounds the larger question of how to engage with China in India’s overall interest.

 

If Make in India is to succeed in being the prime engine that delivers development for India and prosperity for her people, then – to continue the manufacturing metaphor – this engine needs the right design and to be powered with the appropriate fuel. Make in India requires huge investments in infrastructure and logistical networks. The investments in social capital to strengthen the public health and education networks are a necessary addition. In all, around US $1 trillion of investments over the next 10-15 years are probably required to support Make in India and to move India nearer to a full-employment economy. Where will this money come from? Elsewhere, I have argued that India needs to engage in a full-throated economic engagement with China in particular and Asia in general to access a portion of the investments necessary and to tap their vibrant markets as a destination for Indian products and services.4

With Europe, Latin America and Africa becoming riskier for investments, India remains a stable and attractive investment destination for China. Unlike others, the Chinese are not deterred by complicated and non-transparent markets, although sheer bureaucratic delays or ineptness are damaging to all investors. India is a large market and the Make in India programme further offers the possibility of profitably manufacturing in India those items that rising Chinese labour costs have rendered unviable. Thus, India has several complementarities in its favour. But there is competition from Bangladesh, Sri Lanka, Myanmar and the Indo-Chinese peninsular countries who all have Chinese investments in their sights. Some of them host a considerable Chinese diaspora, which is an advantage.

 

With the right approach and planning, Indian goods can penetrate the Chinese market. Others have done it. India has not deployed the right armoury from its arsenal to do so. A deep and thorough understanding of the Chinese markets, both national and regional, and its consumers are necessary to do so, as also an understanding of the trade channels. Indian business needs to have the knowledge, cultural skills, language support and business facilitation processes (legal, diligence, dispute resolution etc) to essay confidently into the Chinese market. Like other countries, India needs to develop a joint government-industry mechanism and plan to penetrate the Chinese market.

India also has some strong assets. Whilst over 100 million Chinese tourists travel overseas each year, a tiny number of 100,000 visit India! There is, therefore, huge scope in tourism. India’s massive English-speaking university and specialist tertiary education sector can – with investment and good management – host a much larger cohort of foreign students and faculty, to mutual benefit all round. The benefits here are even greater in intangible fallouts such as increased mutual understanding and the dilution of stereotypical images and perceptions of each other.

A greater engagement with China and an enhanced understanding of each other’s markets will also facilitate the ongoing negotiations to conclude the Regional Comprehensive Economic Partnership (RCEP) – the trade agreement between 16 Asian countries (including both India and China) which presents both countries with an alternative to the TPP that is more flexible and less exclusionary.

 

So what stops India from engaging with China wholeheartedly in connectivity, trade, investments, tourism or services? To put it simply, it is a conflict between India’s heart and India’s brain. India’s heart warns against dealing with those who delivered us – in popular view – the treacherous ‘stab in the back’ in 1962. There is also a vulnerable self-esteem which rebels against India playing ‘junior partner’ (or even ‘second fiddle’) in an Asia where a rising China seems omnipresent and looming ever larger. On the other hand, India’s brain is fully cognizant that economic connectivity with China across the board can result in huge benefits for India and succeed in accelerating the pace of the Make in India initiative. And that this can be accomplished even while taking prudent risk-weighted measures to ensure that India’s security is not at risk. So how does one resolve this contradiction?

Almost 60 years ago, Chairman Mao wrote an essay ‘on the correct handling of contradictions’. In a strange quirk of history, it is the USA and Japan who seem to have learnt most from the late Chairman’s oration – at least about how they should apply this technique to their ‘correct handling’ of China! Both the USA and Japan have serious political, security, economic and geopolitical differences with China. Yet, both countries are highly engaged – and increasingly so – with China on the economic, trade, investment and tourism fronts. People to people exchanges too – whether between students, academics, think-tanks or civil society groups – continue to grow. Despite the East China Sea issues and their complicated and emotive past history, China is Japan’s largest trade partner and the Chinese and Japanese interact daily with each other in thousands of workplaces, universities and tourist spots in both countries.

In managing its own dilemma, India can learn from both Japan and the USA. Such deft and flexible postures need to be increasingly taken in a world that is becoming more ‘multiplex’ – a vivid term used by Amitav Acharya to describe the multilayer constellation of nations interconnected in complex patterns that characterize global relations today.5 India’s leadership cannot allow elite discomfort to come in the way of an economic engagement with China that is in the national interest of India and which can contribute to the prosperity of its people.

To conclude, Make in India if executed as above, has the potential to be a game changer for India. We have seen that the seemingly mundane and simple act of manufacture reveals – when it is carried out with the right intent and manner – an underlying schema which is deeply respectful of those it serves as well as those it employs. This is in keeping with the spirit that for generations spurred excellence in the artisans and craftsmen of India, and with the notion of karmayoga that must underlie any work of dedication. Such an approach can be truly modern and at the same time reflect a uniquely Indian contribution as to what manufacturing could mean for humanity and the world.

 

* Several of the ideas in this paper arose through stimulating conversations with the late Surinder Kapur, Chairman, Sona Koyo Steering Systems. Surinder was a passionate advocate of the Total Quality movement in India, and was in the forefront of a national initiative to modernize India through a visionary manufacturing revolution.

Footnotes:

1. data.worldbank.org The World Bank Group, World Development Indicators, 2015.

2. Pranab Bardhan, Awakening Giants: Feet of Clay. Oxford University Press, Delhi, 2010.

3. International Monetary Fund, Estimates for 2013 of Country GDP (Purchasing Power Parity), 2013.

4. Ravi Bhoothalingam, ‘Can the Chinese Connection Speed India’s Development?’ Economic and Political Weekly I(19), 9 May 2015.

5. Amitav Acharya, The End of American World Order. Polity Press, Cambridge, 2014; Oxford Univercity Press, Delhi, 2015.

top