Faulty Mission?

As the year comes to a close, PM Narendra Modi’s 15-month-old effort to turn India into a global manufacturing hub through his signature ‘Make in India’ campaign remains mired in political battles and culture wars. His energetic personal advocacy of the campaign abroad has won some foreign investment promises but the goal of creating millions of jobs remains a distant dream. Even if by some miracle, the BJP were able to reach political compromise with the opposition to launch the much-needed economic reforms, the resultant uptick in manufacturing would still fall short of creating enough jobs to absorb millions of poorly educated youth coming onto the labour market. It seems India is gearing up to fight yesterday’s battle, counting on the kind of manufacturing upon which China built its economic power. Manufacturing success today increasingly relies on capital investment and automation rather than large factory floors with masses of cheap labour.

The government has tried to identify priority sectors to promote the ‘Make in India’ campaign, and marry them with its ‘Skill India’ and ‘Digital India’ initiatives, but the skilling effort is woefully inadequate — with barely 5 per cent of the potential workforce receiving skills training needed for 21st century work. India’s hope to take up the slack from China’s ageing and increasingly expensive labour force may have come too late; Chinese firms are rapidly automating manufacturing (It has the largest number of industrial robots in the world). And enterprises that rely on cheap labour have been migrating to Vietnam and elsewhere.

Different tax incentives to attract both domestic and foreign capital in export manufacturing could bring investment to India, but it will not provide the needed skilled workers. Some of the foreign investment in mass consumption products like smartphones or electronics could provide relatively low-skilled employment, but these goods would be for domestic consumption rather than export. Expensive handsets and tablets that have large foreign market are increasingly manufactured by robots and supervising engineers with PhD’s, not unskilled workers with high-school educations. It is worth noting that increasing automation has helped the US manufacturing to regain its productivity but has also pushed down wages of unskilled workers, creating a growing income gap.

Even the major investments announced by foreign partners to build railway engines, aircraft and ships as ‘Make in India’ projects would depend on numerically-controlled machine tools rather than low-wage labour. Even if the number of workers needed by such investment were large they would have to be highly skilled — and as such they would be in short supply. Any discussion about the future of industrial investment in India is of course overshadowed by the grim picture of existing projects to make things in India. Domestic investment in manufacturing has dropped as plunging demand has prompted producers to cut capacity. Reports that large numbers of potential Indian investors— as high as 50,000 — have chosen to emigrate to avoid new tax rules also cloud the prospect of inward NRI investment helping to fund Make in India.

Broader trend of economic stagnation and especially transformation of manufacturing reliant on robots cloud the future of developing economies which aspire to rise by the traditional route: employ surplus rural population in low-skill consumer industries like textiles and shoes and climb the technology ladder to producing more sophisticate goods and increase participation in well-paid service economy. India’s attempt to leapfrog into the ranks of advanced industrial economies by promoting ‘Make in India’ may have come a decade too late. But with land and labour reform, it may be still possible to Make for India if not Make in India for the world.

(This story was published in BW | Businessworld Issue Dated 11-01-2016)