The problem

AS a share of gross domestic product (GDP), manufacturing in India amounts to a low 17 per cent. One of the more ambitious goals of the Narendra Modi government is to raise this figure to 25 per cent (of a much larger GDP) by the year 2025. Should those projections be realized, the Indian manufacturing sector alone would be worth US$ 1 trillion a decade from now. In a nutshell, this is the aspiration of the ‘Make in India’ initiative. It triggers hopes of large factories, humming machines and armies of industrial jobs.

From Modern Times, that iconic Charlie Chaplin film, to any assessment of contemporary China, the received thinking is that no country, no society can make the leap from chronic underdevelopment to middle income well-being without a significant advance in manufacturing. This year’s Economic Survey has a provocative chapter titled ‘What to Make in India? Manufacturing or Services?’ It begins with a quote from Lee Kuan Yew that best represents the Modi government’s belief. ‘Since the industrial revolution,’ the late Singaporean president said while delivering the Jawaharlal Memorial Lecture in 2005, ‘no country has become a major economy without becoming an industrial power.’

To be fair, the particular chapter in the Economic Survey itself throws up questions about a pure manufacturing approach and suggests it has its limitations, especially given India’s success in services. Nevertheless, that is a point we will return to later in this essay.

Make in India has many motivations. The first, of course, is to create jobs, although even a major manufacturing boom is unlikely to create enough jobs, given that a million are being added to the Indian workforce each month and that this increment will continue for another 15-20 years. The second motivation is simply the volume of defence and military hardware imports, as well as IT and computing and communication technology hardware imports (including mobile phones).

This is seen as both a national embarrassment as well as a national security concern. It found reference in the deliberations and findings of the Task Force on National Security (2012) headed by Naresh Chandra, former cabinet secretary and ambassador to the United States. It speaks of the failures of domestic capacities, such as those of the Defence Research and Development Organization and its network of underachieving factories. It also suggests an abysmal failure in terms of a country with 900 million mobile phone connections, and about every instrument imported or assembled using essentially Chinese and Taiwanese components.

The essential bet of Make in India is to use the allurement of the Indian market to ensure a higher quantum of manufacture in India. Far from the autarky or return to import substitution that uninformed critics have accused the Modi government of, the intention is to integrate India, to the degree feasible – given labour, infrastructure and logistical constraints – with international supply chains. In a sense this amounts to seeking to replicate India’s experience in the automobile sector and in pharmaceuticals.

Yet, there is acknowledgement in the upper echelons of government, though perhaps not so much in popular and populist discourse, that the era of mass manufacture provided millions of low skilled jobs is over. The East Asian-Southeast Asian miracle, which began with postwar Japan, then moved to South Korea and the Asian Tigers and finally found its most expansive home in post-1980s China, is a paradigm of the past. Its template – vast industrial facilities producing low-end products that were shipped to the ever-hungry markets of the West – no longer holds. It is unlikely to repeat itself in India, except perhaps in select commodities and business sectors.

As such, even as India looks enviously at China, the idea that it can replicate the successes of its northern neighbour is tempered with the reality that the world has changed. From slowing consumer markets in Europe to environmental pressures on emissions, which China didn’t need to worry about for the first quarter-century of its modernization programme, India faces very different challenges. It is expected to be the first country to abjure thermal power and yet industrialize, an eventuality that is close to impossible unless clean energy technology revolutionizes itself and becomes dramatically more cost-effective.

What has Make in India got going for it? The primary facilitative factor is the large Indian market. India’s unmet domestic demand for everything, from household furniture to televisions, is enormous and offers a contrast to the export driven model that has distinguished the East/Southeast Asian experience. Second, India is strategically investing in manufacturing and industrialization – or more accurately reversing what has been called a ‘premature deindustrialization’ – at a higher degree of technological advance than its Asian peers.

The potential of Indian prowess in IT software and programming, digital design, and the biosciences to propel relatively high-end manufacture is appreciable. This is true in pharmaceuticals and precision manufacture, covering certain types of machine tools or aerospace components, for instance. Indian skills in these areas approximate those of Japanese and American technicians, and in many cases leave the Chinese behind. Yet, while precision manufacture will create value, it will not create jobs, certainly not as many as we want.

Actually, this points us to a larger debate. The Harvard University political economist Dani Rodrik wrote a perceptive article in January 2015 on the future of manufacturing, jobs and the economy, and the evolution from a ‘welfare state’ to what he called an ‘innovation state’. The article drew conclusions that may be extremely relevant to proponents of Make in India and those who fervently wish for it to succeed, especially as, to quote Rodrik’s first line itself: ‘A spectre is haunting the world economy – the spectre of job-killing technology.’

Three paragraphs from Rodrik’s article are worth noting: ‘The potential benefits of discoveries and new applications in robotics, biotechnology, digital technologies and other areas are all around us and easy to see. Indeed, many believe that the world economy may be on the cusp of another explosion in new technologies.

‘The trouble is that the bulk of these new technologies are labour-saving. They entail the replacement of low and medium-skilled workers with machines operated by a much smaller number of highly skilled workers…

‘A world in which robots and machines do the work of humans need not be a world of high unemployment. But it is certainly a world in which the lion’s share of productivity gains accrues to the owners of the new technologies and the machines that embody them. The bulk of the workforce is condemned either to joblessness or low wages.’

Stressing that ‘disruptive new technologies produce large social gains and private losses simultaneously’, Rodrik argues for a new social contract between state, society and citizen that does not posit unacceptable inequality as a natural and unavoidable corollary to unremitting innovation. To be sure, this is a debate that will dominate the 21st century – and perhaps Make in India will anticipate some of the trade-offs and bargains of the debate.

Some of Rodrik’s academic work – though not the specific media article quoted in the preceding paragraphs – was referred to in the Economic Survey chapter mentioned earlier. In its concluding section, the chapter holds out both the boundlessness as well as the boundaries of Make in India:

‘The choice for India is not manufacturing versus services but comparative advantage deifying (unskilled-intensive) sectors versus comparative advantage defying (skill-intensive) sector development. This is both a positive and a policy question… The policy question is the following. Insofar as the government retains influence over shaping the pattern of development, should it try to rehabilitate unskilled manufacturing or should it accept that that is difficult to achieve, and create the groundwork for sustaining the skill intensive pattern of growth?

‘Attempting the former would be a history-defying achievement because there are not many examples of significant reversals of de-industrialization. A lot would have to change in India – from building the infrastructure and logistics/connectivity that supports un-skill-intensive manufacturing to reforming the panoply of laws and regulations, or perhaps addressing corruption in the manner of their enforcement – that may discourage hiring unskilled labour and achieving scale in the formal sector.

‘Sustaining a skill-intensive pattern on the other hand would require a greater focus on education (and skills development) so that the pattern of development that has been evolving over time does not run into shortages. The cost of this skill intensive model is that one or two generations of those who are currently unskilled will be left behind without the opportunities to advance. But emphasizing skills will at least ensure that future generations can take advantage of lost opportunities…

‘India can either create the conditions to ensure that its existing unlimited supplies of unskilled labour are utilizable. Or, it can make sure that the currently inelastic supply of skilled labour is made more elastic. Both are major challenges. What the analysis suggests is that while Make in India, which has occupied all the prominence, is an important goal, the prime minister’s other goal of "Skilling India" is no less important and perhaps deserves as much attention… The future trajectory of Indian economic development could depend on both.’

The challenge for current and prospective Indian political leaderships, perhaps right up to the middle or third quarter of the 21st century, will be to find this happy mean between innovative technologies that transform manufacturing but don’t create jobs, entrepreneurial energies at the bottom of the pyramid (‘Start-up India’, to complement as it were ‘Skill India’ and ‘Make in India’) that could create service sector (self)-employment as an offshoot to a manufacturing story that by itself may not create as many jobs, and the social engineering that will require Indian society to discriminate between individual and family prosperity and a regular blue-collar job.

This suggests a very different approach to the one followed by the United States of the late 19th and early 20th centuries, in Japan after World War II, and in Southeast Asia and China more recently. It also suggests why Make in India will both determine and be determined by a different type of developmental framework.

It would also be worth considering if Make in India may be seen as not merely a confluence of high-end, high-skilled and so-called ‘modern’ manufacture, but also traditional and folk manufacturing capacities. In an age when ready-made, off-the-rack suits are commonplace, there is a certain snob value to ‘bespoke suits’. Some Savile Row brands have turned up in India in recent years, aiming to target the silly money in the bigger cities here by offering rich Indians ‘bespoke suits’.

This would seem almost laughable given that the vast majority of Indian who wear western suits get them tailored the old-fashioned way, by Indian tailors and suit-makers who use their hands and their eye, and are not dependent on the standardization of a machine. The same goes for handmade shoes or a variety of garments and accoutrements. Travelling to Sweden recently, this writer found a shop selling handmade wooden toys that were advertised as child-friendly, and lead and plastic free. They cost a king’s ransom and offered themselves as a contrast to the ‘Made in China’ flood at any regular toy shop. It is striking that this trend is occurring at a time when traditional artisans in Andhra Pradesh, those whose families have been making wooden Kondapalli toys for generations, are facing an uncertain future. Their toys are being displaced in markets, homes and habits by plastic and metal toys mass-produced by fungible machines.

What role then can traditional crafts play in Make in India? The customers are out there; it is a question of access, contemporary design and sales and marketing. This is also invaluable to job creation and, frankly, vocation preservation.

Another conundrum is the relationship between Make in India and Make for India. Are they identical or irrelevant to each other? How much and to what extent do they intersect? The issue was first raised by Raghuram Rajan, Governor of the Reserve Bank, when he urged that Make in India be seen in conjunction with Make for India because the era of massive export markets was over, and given India’s consumer potential, this was where Indian manufacture would be sold in the final reckoning.

Frankly, here one is confronted with not merely an economic question but a moral dilemma. To what degree is it fair and feasible to ‘Make in India’ when what India makes is not available to its own citizens, to those who need it most, because capacities and delivery systems have not been developed? A standout example is that of pharmaceutical drugs and the vaccines industry, where India is a market leader. Paradoxically, India is also a market leader, if the expression can be so used, in a whole host of diseases, vaccine preventable ailments and childhood mortality.

India is the largest maker and supplier of lifesaving drugs and vaccines to several developing countries, including the United Nations Children’s Fund (UNICEF) and the United Nations Population Fund. As per UNICEF Supply Division data, Indian vaccine manufacturers supplied 1.35 billion doses of a total procurement of 2.79 billion vaccine doses in 2013. This amounted to 48 per cent of total procurement.

Indian vaccines save lives of infants and children across the world, from Asia to Africa to the Americas. Consider the irony that many Indian children themselves don’t get these vaccines and immunization shots. India’s full immunization coverage is 65 per cent, reflecting various issues from lack of awareness and social demand to poor service delivery in the public health system. India accounts for 21 per cent of global deaths among children less than five years of age. As such, one of every five children who die before their fifth birthday is an Indian. She very possibly dies of a disease that can be prevented by a vaccine made in India, but not entirely available to those Indians who most require it.

As it contemplates its arithmetic, its algebra and its geometry, Make in India needs to square that circle.

ASHOK MALIK