Taking a wrong turn
Make in India’ has been a consistent theme of the Narendra Modi government in the past nine years. The Union Budget presented by then Finance Minister Arun Jaitley in 2014 had set up a Rs 10,000-crore venture capital fund for micro, medium and small industries and given six months’ extension of excise concession for automobiles and consumer durables. In his maiden Independence Day speech, Prime Minister Modi made the grand declaration, “Come and make in India. Be it plastics, cars or satellites or agricultural products, come make in India.” This continues to be a refrain in PM Modi’s speeches, as was seen when he pushed for global firms to set up shop in India for semiconductor manufacturing during Semicon India 2023 held in Gujarat last month.
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In May 2020, when India and the world were dealing with the first tide of Covid-19 and the Prime Minister had announced a countrywide lockdown, he came up with the mantra of Atmanirbhar Bharat (self-reliant India). He said India should make things for itself and for the world. But the August 15, 2014, speech had contained the seeds of a self-contained economy. He had said, “We should strive to be a nation that doesn’t import, but exports. I urge the youth to reduce dependence on imported goods.”
So, how did the plan pan out? The manufacturing sector remains a tardy performer. There have been some global firms such as Apple which have moved their assembly lines to India, but not fully. Though the FDI flows have increased, from $45 billion in 2014-15 to $85 billion in 2021-22, they have not really pushed manufacturing up. India’s manufacturing output was worth $450.86 billion in 2022, which formed 13.32 per cent of the GDP, a decline from the 2021 figure of $455.91 billion (14.47 per cent of the GDP). In 2015, the manufacturing output was worth $327.82 billion, which was 15.58 per cent of the GDP, the highest in terms of the share in the GDP in the past nine years.
The employment in manufacturing was in decline from its 60-million peak in 2010-11 up to 2020-21, and it increased to 63 million in 2022. The exports in manufacturing touched $447.26 billion in 2022-23, while imports were worth $714.24 billion. But the export-import balancing should not be a focal point. The imports should not be curbed to save foreign exchange. That is a sign of an economy in straitened circumstances, not of a vibrant one.
The Modi government’s assumption that imports need to be blocked to encourage exports is a faulty one. Exports grow on the basis of the competence of the exporting country. If India develops its competence in certain sectors, it will be easier for the exports to grow. Import substitution has been a failed policy measure before the 1991 reforms era. Without competition from foreign goods, indigenous manufacturing would not be able to improve its products and reduce export prices. The Modi government is falling into the same trap as the Congress governments from the times of Nehru to Indira Gandhi did.
The other strategy adopted by the Modi government is to persuade, and if necessary, arm-twist foreign companies to set up manufacturing units in India and also share knowhow through transfer of technology. But it has proved to be a tried-tested-and-failed formula. The transfer of technology is confined to the product that is being imported, while the foreign manufacturer will continue to improve on its own systems and not be obliged to share it with the trading partner. So, whether it is French fighter plane Rafale or even the jet engine being imported from the US to be fitted to the Tejas fighter plane, the problem will remain. There will be no improvisation in the product. India has to build its own competency.
There was, indeed, a note of desperation when the government decided to immediately impose curbs on the imports of laptops, tablets and personal computers. The deadline had to be extended to November 1 when private companies stopped their shipments. The imports can be replaced by homemade stuff when the domestic manufacturers are able to make products that are as sophisticated as the imported ones.
Invoking patriotism to promote made-in-India items does not make economic sense; in the long run, it will harm India’s economic growth in terms of exports. Though Modi speaks in the grand manner of making things for the world and Finance Minister Nirmala Sitharaman has taken pains to explain that Atmanirbhar Bharat does not mean a closed economy, the plan to reduce imports and increase exports is an outdated one.
The aim of the Modi government to achieve results in as short a time as possible is wrongheaded. The government’s financial support for innovations can go some way in helping the Indian industry achieve breakthroughs, but a research and development infrastructure is needed in terms of universities and private industry research facilities. The government cannot do it alone.
The attempt to bring foreign manufacturers to India will not help India gain an edge in manufacturing. China has done it by offering incentives and cheap labour for global players to relocate, but it has not helped China become a technology giant in its own right, like Japan, Germany and South Korea.
What is being flaunted as a manufacturing hub is merely creating facilities for foreign players to make things and export — as an entrepot for manufacturers.
Unfortunately, the Modi government is taking the wrong Chinese turn in choosing foreign players to set shop in India in order to become a manufacturing hub. It is a good short-term measure to make the economy grow, increase exports and become a vital part of the global supply chain. But it ends there. The foreign companies can relocate whenever they want to, and which is what some of them are doing, while wanting to relocate from China to India, or from China to Vietnam. At a later date, foreign manufacturers will relocate from India to another country.
