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Is Modi's "Make in India" All Hype?
Some of Prime Minister Narendra Modi's supporters claim that his "Make in India" campaign has brought India to the verge of becoming a manufacturing behemoth 69 years after the nation's independence. Others claim India is already a manufacturing powerhouse. Let's examine these claims based on data.
Manufacturing Ranking:
While India now ranks 6th in the world in terms of total manufacturing output, it still sits at a very low 142nd position terms of manufacturing value added per capita, according to the United Nations Industrial Development Organization's Industrial Development Report 2016. Pakistan's manufacturing value added is ranked 146th by the same report.
Manufacturing Output:
India's 3% share of the world's total manufacturing output puts it at a distant sixth position behind China's 24%, United States' 17%, Japan's 16%, Germany's 7% and South Korea's 4%.
The UNIDO data shows that India's manufacturing value added (MVA) per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014. However, as percentage of GDP at constant 2005 prices in US$, India's MVA decreased from 15.10% in 2005 to 13.85% in 2014
UNIDO reports that Pakistan manufacturing value added (MVA) per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014. Its MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014.
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India's manufacturing output declined 0.7% in April-June 2016-17 |
Make in India:
Prime Minister Narendra Modi has recognized how far behind India is in the manufacturing sector. His government's highly publicized "Make in India" is designed to Change that.
What does India, or for that matter any other developing country, need to boost its manufacturing output? Most experts agree on two essential pre-requisites for industrial development:
1. Energy and Infrastructure
2. Skilled Manpower
China's rapid industrialization over the last few decades has shown that the focus must be on the above two to achieve desired results. Has India learned from the Chinese experience? Let's examine this question.
Energy and Infrastructure Development:
"Infrastructure is the biggest hurdle to the ambitious Make in India program of the government," Standard and Poor Global Ratings Credit Analyst Abhishek Dangra told reporters on a conference call, according to India's Economic Times publication.
"The government is scaling up spending, but its heavy debt burden could derail its ambitions to improve public infrastructure," the Standard and Poor report said.
India suffers from huge energy deficit. Over 300 million of India’s 1.25 billion people live without electricity. Another 250 million get only spotty power from India’s aging grid, with availability limited to three or four hours a day, according to an MIT Energy Report. The lack of electricity affects rural and urban areas alike, limiting efforts to advance both living standards and the country’s manufacturing sector.
Skilled Manpower:
“India doesn’t have a labor shortage—it has a skilled labor shortage,” said Tom Captain, global aerospace and defense industry leader at Deloitte Touche Tohmatsu, according to a Wall Street Journal report.
The WSJ report said that over 80% of engineers in India are “unemployable,” according to Aspiring Minds, an Indian employability assessment firm that did a a study of 150,000 engineering students at 650 engineering colleges in the country.
NPR's Julie McCarthy reported recently that ten million Indians enter the workforce every year. But according to the Labour Bureau, eight labor-intensive sectors, including automobiles, created only 135,000 jobs last year, the lowest in seven years.
Impact on Agriculture:
Prime Minister Modi's focus on manufacturing is talking away resources and attention from India's farmers who are killing themselves at a rate of one every 30 minutes.
Majority of Indian farmers depend on rain to grow crops, making them highly vulnerable to changes in weather patterns. As a comparison, the percentage of irrigated agricultural land in Pakistan is twice that India.
More than half of India's labor force is engaged in agriculture. Value added per capita is among the lowest in the world. Pakistan's agriculture value added per capita is about twice India's. This is the main cause of high levels of poverty across India.
Chinese Experience:
China has shown that it is possible to make huge strides in manufacturing while at the same time achieve high productivity levels in agriculture.
On the manufacturing front, China has taken care of the basics like energy, infrastructure and skilled manpower development to achieve phenomenal growth.
As part of the China-Pakistan Economic Corridor (CPEC) development, Pakistanis are learning from the Chinese to replicate success in manufacturing.
The first phases of CPEC are focused on building power plants, gas pipelines, rail lines, roads and ports at a cost of $46 billion. At the same time, China and Pakistan are also focussing on skills training via vocational schools and Pakistan-China Education Corridor. These projects will lay the foundation necessary to ramp up manufacturing in Pakistan.
Summary:
Both India and Pakistan want to emulate the success of China in the manufacturing sector. The Chinese experience has shown that development of energy, infrastructure and skilled labor are essential to achieve their manufacturing ambitions. The South Asians must move beyond hype to do the hard work necessary for it. Pakistan is working with China via CPEC to make progress toward becoming a manufacturing powerhouse.
Related Links:
Auto Industry in India and Pakistan
UN Industrial Development Report 2016
China-Pakistan Economic Corridor
Riaz Haq
Sushant Singh
@SushantSin
Even after PLI subsidy, iPhones assembled in India are 13% more expensive. This makes little sense.
https://x.com/SushantSin/status/1707950330653159901?s=20
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Apple absorbs higher costs on 'Made in India' iPhones despite PLI scheme
Under the PLI scheme, Apple's contract manufacturers get incentives ranging from an average of 4-6 per cent annually
https://www.business-standard.com/companies/news/why-iphones-are-st...
Sep 30, 2023
Riaz Haq
Sushant Singh
@SushantSin
Even after PLI subsidy, iPhones assembled in India are 13% more expensive. This makes little sense.
https://x.com/SushantSin/status/1707950330653159901?s=20
--------------
Apple absorbs higher costs on 'Made in India' iPhones despite PLI scheme
Under the PLI scheme, Apple's contract manufacturers get incentives ranging from an average of 4-6 per cent annually
https://www.business-standard.com/companies/news/why-iphones-are-st...
Sep 30, 2023
Riaz Haq
Apple CEO Tim Cook: This Is the No. 1 Reason We Make iPhones in China (It's Not What You Think)China is much more than a source of low-cost, low-skilled labor.
https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-numb...
Apple CEO Tim Cook: "I'm not sure what part of China they go to, but the truth is China stopped being the low-labor-cost country many years ago. And that is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location and the type of skill it is"
And China has an abundance of skilled labor unseen elsewhere, says Cook:
The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the U.S., you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China, you could fill multiple football fields.
The number one reason why we like to be in China is the people. China has extraordinary skills. And the part that's the most unknown is there's almost two million application developers in China that write apps for the iOS App Store. These are some of the most innovative mobile apps in the world, and the entrepreneurs that run them are some of the most inspiring and entrepreneurial in the world. Those are sold not only here but exported around the world.
Highly skilled software developers developing apps for the App Store are one reason Apple likes to be in China. But the depth of highly skilled labor in the manufacturing space is why Apple makes its iPhones there:
China has moved into very advanced manufacturing, so you find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world. That intersection, which is very rare to find anywhere, that kind of skill, is very important to our business because of the precision and quality level that we like. The thing that most people focus on if they're a foreigner coming to China is the size of the market, and obviously it's the biggest market in the world in so many areas. But for us, the number one attraction is the quality of the people.
Citing an example of the type of a highly skilled supplier Apple works closely with, Cook talked at length about recently visiting one company that it has collaborated with for several years:
I visited ICT--they manufacture, among other things, the AirPods for us. When you think about AirPods as a user, you might think it couldn't be that hard because it's really small. The AirPods have several hundred components in them, and the level of precision embedded into the audio quality--without getting into really nerdy engineering--it's really hard. And it requires a level of skill that's extremely high.
And the idea that Apple simply hands over the design to a company like ICT, which just manufacturers according to spec, is simply untrue, says Cook:
It's not designed and sent over--that sounds like there's no interaction. The truth is, the process engineering and process development associated with our products require innovation in and of itself. Not only the product but the way that it's made, because we want to make things in the scale of hundreds of millions, and we want the quality level of zero defects. That's always what we strive for, and the way that you get there, particularly when you're pushing the envelope in the type of materials that you have, and the precision that your specifications are forcing, requires a kind of hand-in-glove partnership. You don't do it by throwing it over the chasm. It would never work. I can't imagine how that would be.
Addressing the designed-in-California, made-in-low-cost-China impression that many people have--an impression reinforced by the tagline that is printed on every box containing a new iPhone--Cook had this to say:
Sep 30, 2023