We Need a New Paradigm
A decade is an eternity in global trade. The manufacturing sector has undergone a tumultuous decade and is still evolving. Its role has changed too. Manufacturing is a ‘progress’ multiplier, an employment generator and a growth driver. And much more. It stands for productivity, innovation and trade. It feeds the services sector and is a wealth creator.
Manufacturers will have substantial new opportunities sparked by innovation and the emergence of a new global consuming class. While we were rejoicing the progress as a result of reforms, developed nations, particularly China, envisioned the big picture. It focused on innovation, scale, productivity and R&D to the ‘highway’ of competitiveness and has perched itself as the ‘workshop’ of the world and eventual prosperity. We remain at the beginning of the curve, our share – a miniscule two per cent. We focussed on ‘serving’ the world. Manufacturing was reduced to a ‘path to urbanisation’ from subsistence agriculture. Admittedly many leapt out of poverty, into dignity.
In today’s generation war is a lose-lose. The global trade war more so. The winner is comforted with a consolation prize. People of all hues are demanding boycott of Chinese goods. The noise is getting shriller by the day, many are taken in. The globe is concerned too. About 16 trillion and a fifth of the world economy is at play and account for 40 per cent of the people. Large economies are intertwined; both India and China are engines and growth drivers, and have the potential to grow for the next 50 years.
Cutting the nose to spite the face
Goaded by the frenzy, our policymakers may resort to the easy and popular panacea i.e. ‘ban Chinese, adopt Indian’. At stake is about Rs 1.5 lakh crores of imports. Boycotting ‘Made in China’ has taken on an emotional fervour. Jingoism adds to the clamour. Imports are the visible end of the trade. But what most don’t realise is that these ‘cheap’ imports make our exports competitive. We must face the harsh facts. Why is it that despite being the third largest economy our share of global trade is less than two per cent?
China has ‘replaced’ our domestic production across 500 categories and 3,000 products, including mobile phones, toys and several sundry household items. Banning these items won’t hurt us.
China will bleed us by ‘denying’ us the ‘intermediaries’ that ‘nourish’ our exports, undermining competitiveness. Sectors like pharma, automobiles, electronics, telecommunications will be on their knees, spiralling bankruptcies. The cascading effect may wipe out about 15 per cent of profit- making MSMEs, rendering millions unemployed.
Consumers will suffer too. Banning cheaper imports could cause inflation, hurting the middle class and denying the poorest cheaper consumables. At the macro level import substitution will mean reallocating resources that can be better and more meaningfully deployed. Is this in our interest? The solution lies not in boycotting Chinese goods but in a pragmatic and holistic plan.
We are not competitive because our policies have created bottlenecks. Our governments chose the lazy solution; jugaad, short-termism and populist decision making. It offered subsidy and protectionism, encouraged incompetent policymakers and pushed through disbanded and sketchy legislation.
Atma Nirbharata is not make ‘everything’
Economies take time and leadership to build. China planned for decades and implemented its policies rapidly and better. Fortunately, India is at present better off compared to China when they planned global domination. Our economy is at the inflection point. We are consumer-led, domestically dependent. The demography supports us. Democracy is healthy. However, ‘Make in India’ should be an abject lesson. Modern manufacturing necessitates specialised and cutting-edge technology. Quality is the currency to compete with; capital and skill the key differentiators.
Our labour laws are archaic and unfair. The tax structure is too complex. Land acquisition is fraught with political overtones and is a cesspool. The government’s approach to trade negotiation is indifferent, timid, often aggressive, but always inadequate. Infrastructure is the big elephant in the room. Bureaucratic overreach and Inspector Raj only diminish competitiveness.
Our industries are precariously leveraged. Debt is expensive. Equity is scarce. The skill ecosystem is 20 years behind time, with the best opting to ‘serve’ and the rest choosing to ‘code’ for the USA market. Even the shop floor lacks ‘trained and technical’ staff; with most preferring ‘white collar’ jobs and call centres. The young don’t see manufacturing as a career option.
Our supply chain is broken. Actually, it was never sufficiently built. A Crux insight across 18 major sectors shows that every two per cent incremental share of the global manufacturing market will add 20 million jobs and is a three-fold multiplier. It highlights domestic bottlenecks as a result of poor policy frameworks that cost the economy about ten per cent of the GDP. The bottlenecks add to the woe. We have competitive advantage in about ten sectors and must focus on those. A Crux study indicates that an intensive approach across six sectors (especially labour-intensive ones) where we have strength and the base to be competitive, with adequate government support alone will create four million jobs and reduce dependence on Chinese imports by 70 per cent. We could be more competitive if the government could negotiate trade and tariff better, especially where we lose out marginally as in the textile sector.
Industry lacks the support of effective tributaries and suppliers, reducing competitiveness, subtracting value and hurting growth. Similarly, they face regulatory hurdles and policy upheavals when the dispensation changes. There is more collateral damage. The rupee is overvalued but needs a calibrated call. The exchange rate is a double-edged sword. A cheaper rupee would make our exports competitive. A stronger rupee will bring down the cost of imported intermediaries. It is a delicate balance.
China is a ‘forced’ choice for most economies. Their product quality is poor and their trade practices are unethical. It is a bully and a rogue trader. India can fill in, and chart a labour- intensive trade trajectory. But we must not day dream. India is straddled between the dragon (China) and the agile others (Vietnam, Bangladesh) and armed with a knife when a bazooka is needed. We need a new paradigm. Sacrifices may need to be made. Decisive policy actions that address a holistic and sustainable approach are needed to secure the future.
Our goal should go beyond establishing India as a global hub for manufacturing, design and innovation. We have tried and often put the rail back on track. The leadership needs to lay new tracks. While the PM begins to ‘manufacture from the start’ the larger goal should be to keep the momentum, fuel growth, capitalise on the demographic dividend and propel India to the league of developed nations.
But it will not be easy. It never is. Sadly, leadership alone will not be able to achieve it. It will require courage, skill, and wisdom and overwhelming support from every corner.
This article was first published in the print issue of (25 June- 09 July) BW Businessworld. Click Here to Subscribe to BW Businessworld magazine.
