Make In India Is Mission Possible

Make In India Is Mission Possible

The key to the success of this latest attempt at promoting industrial development lies in

the success of the DMIC project, says Sanjay Baru

      Nobody Makes In India. Those who make, do so in some part of India. They make in Gujarat or Tamil Nadu, in Andhra Pradesh or Maharashtra, in Haryana or Karnataka. Will they ever make in Bihar? Depends. The Narendra Modi government has launched what may be described as the ‘Fifth Attempt’ at promoting the industrial development of India. The first shot was fired by British imperial rulers who, after having contributed to what historians have called the ‘deindustrialisation’ of India in the 19th century, tried to promote manufacturing activity with a policy of ‘discriminating protection’, in the 1930s, that favoured the sugar, cotton textile and an assortment of local resources-dependent industries.

The second attempt at using policy to promote manufacturing was undertaken, albeit in a much more sustained and systematic manner, during the First and Second Five-Year Plan periods of 1950-60, and continued thereon into the 1960s. Thanks to this era of what economists have dubbed “import-substituting industrialisation” the share of manufacturing in India’s national income increased from less than 10 per cent during the 1930s and 1940s to almost 20 per cent by the end of the 1970s.

After the late 1960s Indian industrialisation decelerated and many volumes have been written explaining why. It took the tentative steps towards economic liberalisation in the 1980s and the major reform effort of 1991-92, when industrial licensing and other controls were done away with, for a third surge of manufacturing activity. After stagnanting for years around 20 per cent, the share of manufacturing in national income went up to almost 25 per cent by the end of the century, thanks to the impact of liberalisation, deregulation and privatisation policies. The fourth phase began tentatively during the first tenure of the United Progressive Alliance government when a National Manufacturing Competitiveness Council was set up and a national manufacturing strategy was devised. However, fundamental differences between policy wonks in government like V. Krishnamurthy and V. Govindarajan, on the one hand, and Montek Singh Ahluwalia on the other prevented any clear cut policies from being adopted. While there was a surge in manufacturing activity during UPA’s first term, as is established by all the data available, there was a pullback during UPA-2 owing to what the media have called “policy paralysis”. Thus the gains of UPA-1 were wasted by the damage inflicted on investor sentiment during UPA-2.

Modi’s Make in India campaign is the latest of many such attempts by successive governments to accelerate the pace of manufacturing activity in India. This time the initiative is far more organised and has a focus. The Make in India website — makeinindia.com — is an impressive window into the government’s thinking and priorities. Twenty-five sectors have been identified as areas where India has an existing or potential competitive advantage and where additional policy support can encourage new investment. Having identified the sectors, the Modi government is pushing through policy changes aimed at improving India’s rank on the global ‘Ease of Doing Business’ index. In the 1990s, when there was considerable criticism of India’s record at educating its people and investing in their health, the governments of the day chose to focus on improving India’s ranking in the UNDP’s Human Development Index (HDI) — a summary index measuring the educational, health and livelihood status of a country’s populace. Every year the media would report whether or not India’s rank had improved, and how it compared with its neighbours. Perhaps a similar regular reporting on where India stands on the Ease of Doing Business Index could spur governments to action. In fact, it is worth constructing a state-wise index that would encourage competition between states. The fact is that some Indian states are far ahead of others when it comes to the ease of doing business and that is why no one really ‘makes in India’ — they make in one state or another. Therefore, what the Make in India campaign really means is getting the laggard states to learn from the more business-friendly states so that there are no policy differences or basic infrastructure differences between states. Even so, manufacturers will end up making in some chosen part of India. And, if location is decided by factors such as ‘ease of doing business’, on the one hand, and access to global connectivity (so that Indian manufacturers can be part of a global supply chain and import and export with ease), then it is more than likely that investors would prefer to make

precisely in those parts of India where they have been making for a long time — namely, peninsular India.

     There is no escaping the fact that when it comes to Make in India, businesses will continue to make in peninsular India — Gujarat, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana. The new Delhi-Mumbai Industrial Corridor may incentivise moving manufacturing inland and northwards. However, what the new road and rail links will do is to create the required efficient connectivity. At the end of the day, good infrastructure is a good starting point. Not an end in itself. This has to be combined with good governance and a business-friendly environment. Unless the state governments of Rajasthan, Madhya Pradesh, Haryana and Uttar Pradesh provide a more business-friendly urban environment, it is unlikely that businesses will shift their base away from peninsular India. The key to the success of this latest attempt at promoting industrial development lies in the success of the DMIC project.

     The Make in India (MII) website shows that the government understands this challenge. It has linked MII to the DMIC initiative, which includes building new ‘smart’ cities. After the success of initiatives like Jamshedpur, Kharagpur and Rourkela in the 1950s, never has a programme for India’s industrialisation been so closely linked to a new programme for urbanisation. The combination of the two in the MII-DMIC project suggests that this round is about more than merely improving the competitiveness of Indian  manufacturing. It is a renewed attempt at defining industrial policy in strategic terms. If it succeeds, India could see a surge in the share of manufacturing in national income and an increase in India’s share in world manufacturing. That requires hard work more than just good policy.

The author is Director, Geo-economics & Strategy, International Institute For Strategic Studies

(Published in Businessworld.in)