“Since the industrial revolution, no country has become a major economy without becoming an industrial power. Just as China is learning from India to improve its performance in the IT sector, so India must emulate China’s success in attracting FDIs and the jobs they create in manufacturing. It can do this by building infrastructure and educating and raising the skill levels of its workers.” — Lee Kuan Yew, first Prime Minister of Singapore
India’s unique development path
Countries normally make the journey from being a developing country to becoming a developed country by following the standard path of transitioning from an agrarian economy to a manufacturing (industrial) economy, and finally developing into an economy fuelled largely by its service sector. India, however, ‘skipped’ the phase and leapt directly from agriculture to services. We have hence ‘missed out’ the huge enabler of strong economies — manufacturing and industrialisation.
This jump has not ushered good tidings for India. Missing out on manufacturing has come at a cost — a feature that economist Debraj Ray has described as “the classic structural feature of underdevelopment”. A big share of the GDP is coming from the huge informal and unorganised sector that employs workers without providing any benefits, security, or social protection. The slow growth of manufacturing sector is not in tandem with the number of jobs sought as a result of rural-urban migration. Clearly, India cannot become developed without building a strong industrial base.
Taking the ‘lion’ step
The focus should be first on manufacturing and then on innovation. The purpose of ‘Make in India’ is to take ‘the step of a lion’ by increasing manufacturing activity to generate jobs. More jobs will give more purchasing power to people. The aim is to help the “poor reach the middle class faster”. Manufacturing has always been considered as one of the essential cogs in the wheel of development, and the striding lion made of cogs seems to be making up for the lost opportunity of the past. Innovation in manufacturing will follow once manufacturing activity in the country gets the required push. Manufacturing promotes innovation, since there is global competition for better goods in world trade.
Why India needs the ‘roar’
Self-reliance: The Green Revolution rid India of its dependence on USA’s PL-480 scheme. Make in India can similarly rid the country of its dependence on exports — especially of defence and medical equipment — together with an improved position in geopolitics and diplomacy.
Demographic dividend: With more than half of its population below the age of 25, it is India’s chance to employ and engage it with Make in India. If utilised appropriately, it has the potential to become the industrial revolution that India missed.
Employment generation and skill development: Manufacturing, followed by innovation, will help turn the unskilled and semi-skilled workers into skilled workers.
Boosting exports: Manufacturing at home opens avenues to export more, which has a positive impact on the Current Account Deficit.
Avoiding the trap
Make in India should encourage not just the big industrial houses, but also SMEs that form the backbone of manufacturing. Innovation per se may not be the highlight right now but it is the food which the lion needs. In the long run, India will have to innovate to compete. Innovation is essential to drive Make in India but building that ecosystem requires the platform which only manufacturing can offer. The education system must promote innovative thinking as well as skill-building at an early stage.
First gather the pride, then get Innovation-ready
Land reforms, labour reforms, legal changes to improve the ease of doing business are some changes needed for building a sustainable and friendly climate for manufacturers and investors. More clarity in Intellectual Property Rights and winning the trust and confidence of innovators is the key to stir innovation. For all the work the Make in India campaign aims to do to by urging companies to manufacture locally, it cannot escape an educated observer’s eye that the campaign itself has been outsourced to an independently-owned American advertising agency. Ironic, right?
(The winners are from MICA)