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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
Views: 2116
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Comment by Riaz Haq on September 11, 2024 at 10:11am
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India's bid to match China's factory heft gets a reality check
https://www.reuters.com/business/indias-bid-match-chinas-factory-he...
India considers easing Chinese investment rules to boost manufacturing
Visa issuance for Chinese nationals has been eased to support local manufacturing
India's trade deficit with China has nearly doubled since 2020
NEW DELHI, Sept 11 (Reuters) - India's push to become a factory titan has hit a snag: to become a credible alternative to China for global firms, it first needs to warm up to its long-time rival.
Ties between the world's two most populous countries have been strained since a deadly Himalayan border clash in 2020, slowing the exchange of capital, technology and talent, despite exploding demand for electric vehicles, semiconductors and artificial intelligence.
The Modi government's heightened vetting of all Chinese investment over this period effectively turned away billions of dollars from the likes of BYD, Great Wall Motor and created new layers of red tape for Indian firms with Chinese stakeholders.
But now, New Delhi is looking to loosen some of these restrictions as businesses struggle to scale up manufacturing, even with a host of government subsidies designed to boost local production.
"There is a realisation that you cannot be part of any major supply chains, especially in high technology products and certain areas like solar cells, EVs, where it is not possible for you to do anything without being part of Chinese supply chains," said Sushant Singh, lecturer at Yale University, who has also been a researcher for public policy think tanks in India.
Even businesses that have supported barriers on Chinese imports acknowledge the need for key inputs from up north.
Naveen Jindal, head of one of the country's largest steel firms Jindal Steel & Power and a federal lawmaker, has backed tariffs on Chinese steel but also sees the need for a pragmatic approach to trade.
"A lot of steel companies import equipment and technology from China," Jindal said. "China is the world's largest producer of steel and in certain areas they are very good, but not in every area."
Now, after four years of restrictions on Chinese investments and visas, Prime Minister Narendra Modi's government is looking to pivot closer to the Asian rival and breathe new life into his ambitions to "Make in India".
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@SouthernM46171
Goenka’s remarks reveal a real shift in Indian business thinking. The fear is no longer simply that China may dominate India. It is that India may fall behind while other Global South countries work with China and enter the next round of industrial growth. Refusing cooperation will not create autonomy. For many developing countries, it may mean being left behind altogether.
But his proposed solution reveals an old Indian fantasy. He argues that India should skip traditional stages of industrial development and move directly into digitally integrated, low-touch manufacturing.
This mistakes China’s destination for a shortcut. China automated only after it had learned how to organize production on a vast scale. India cannot automate a manufacturing system it has not yet built.
The hardest part of industrialization is making factories produce reliably, year after year. That capacity comes from long practice. It cannot be imported together with advanced equipment.
Low-touch manufacturing may create a few impressive factories. It will not build a broad industrial economy or provide work for India’s vast labour force.
That is the contradiction in Goenka’s argument. He understands that India cannot afford to stay away from China, yet still hopes to purchase the outcome of industrialization while skipping the process that produces it.
#India #China #MakeInIndia #Manufacturing #GlobalSouth #SupplyChains
If youre not at the table, youre on the menu: FICCI presidents China message businesstoday.in/india/story/if… via @business_today
https://x.com/southernm46171/status/2068906504179319223?s=43
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FICCI President visited China's corporate giants, including BYD. His 3 biggest takeaways - BusinessToday
https://www.businesstoday.in/industry/story/ficci-president-visited...
FICCI President Anant Goenka has shared his observations from a recent CEO delegation visit to China, describing the country's business environment as an intensely competitive ecosystem shaped by aggressive market-share battles, heavy investments in research and development, and extensive state support.
In a post on social media on Monday, Goenka said he led a FICCI CEO delegation to China and visited major companies including BYD, Geely, Midea and Mindray.
'A no-frills fighting ring'
Goenka said China operates as an exceptionally competitive market where companies are willing to sacrifice profitability in pursuit of scale and market dominance.
"China is like a no-frills fighting ring. Extremely competitive. Businesses operate at margins (2-3%), and global boards would never approve. Only market share matters, and there is no concept of ROI. The few who survive are the toughest and the best," he wrote.
According to Goenka, the intensity of competition creates an environment where only the strongest companies emerge as long-term winners.
Long-term bets on R&D and automation
The FICCI chief said one of the most striking features of the companies he visited was their commitment to long-term investment in innovation and manufacturing efficiency.
"R&D and automation are at the highest levels. The scale of automation and R&D investment at these companies is built for a 10-year time horizon, not a quarterly one. They celebrate innovators, have walls of patents and dark factories with unmatched efficiency," he said.
His remarks highlighted what he viewed as a sustained focus on technological advancement and future-oriented industrial planning.
‘The state is a silent shareholder everywhere’
Goenka also pointed to the role of state support in shaping China's industrial competitiveness, arguing that access to low-cost capital and policy backing significantly alters business economics.
“The state is a silent shareholder everywhere. Cheap capital, land, power, and policy support at a scale that fundamentally changes unit economics. As long as you service interest (@ only 2-3%), debt doesn’t have to be paid back. This isn’t a level playing field,” he wrote.
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