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Make In India And Make For India Debate: A Student’s Take On Manufacturing A New India
 
Make-in India will orient the resources for producing high quality goods for foreign consumers. Not only will it decrease the amount of resources available for Indian masses but also produce goods which have no use for India.

By Darshan Yadav




  • The plan to make India a manufacturing power-house through ‘Make in India’ is laudable.
  • But one should also be aware of its pit-falls and give adequate weight-age to what the RBI governor has to say: ‘Make in India’ largely for India.
  • We need to create a hybrid model which satisfies the domestic developmental deficit while giving space for dynamically adjusting to international economic climate.

Economists are fascinated by the South-East Asian countries’ export led growth model and the recent rise of China as a manufacturing super-power.

After the new Modi Government came to power India has put focus on manufacturing sector. The “Make-in India” programme which takes cues from these instances and also from the domestic factors to encourage manufacturing in India.

Per contra, even this ambitious plan has come under the long hard look of the RBI Governor Raghuram Rajan. In a famous speech he warned against the possible perils in pursuing an export led growth model. His call was for ‘Make in India’ largely for India. Rajan has the credentials of predicting the sub-prime crisis in 2007, making it imperative to critically analyse the issue of Make-in India vis-à-vis Make-for India.

File Image (Credits: AFP PHOTO/PUNIT PARANJPE/FILES)
File Image (Credits: AFP PHOTO/PUNIT PARANJPE/FILES)

The Historical Context

Economic growth of all developed economies has followed a certain, clocklike path. The developed countries had primary sector at frontier of growth first, touching on the pre-industrial era; followed by manufacturing industries becoming the centre of the growth, providing maximum revenues and employment to masses; and finally the phase of transition to service economics, indicating the post-industrial era.

However, India appears to have leapfrogged from primary sector to tertiary sector. This is palpable from the marginal contribution of agriculture to Gross Domestic Product (GDP) vis-à-vis the service sector. Service sector contributes circa 56 percent whereas agriculture contributes circa 18 percent to GDP. This apparent success of Indian service sector or IT sector has worried policy makers because agriculture employs over 50 percent of the Indian population. The service sector, being able to provide “blue collar” jobs only, is incapable of being a mass employer, thus leading to a jobless economic growth.

The reason behind this discrepancy lies in the lack-luster growth of the manufacturing sector. To be remembered, only the manufacturing sector, with its ability to absorb labour of low as well as medium skills, can employ masses and help us reap the demographic sweet spot. Aware of all these concerns, the government of India embarked upon a mission to turn India into a manufacturing power-house by inviting foreign and local stakeholders to leverage India’s cheap labour and make it the “factory of the world”.

The success of the policy adopted for “Make-in India” is contingent upon trends in the international economy and the domestic issues. This, essentially, implies that the nature of policy adopted for industrializing India will depend on the state of the world economy, given international demand has been slow since the crisis and nadir commodity-prices have put serious constraints on exports.

De-Constructing ‘Make-in-India’ and ‘Make-for-India’

Make in India, as stated previously, takes cues from export oriented growth. Leveraging the cheap labour and other resources, to keep costs low, will boost exports to strengthen the domestic production base.

On the other hand, Make for India entails production for consumption in India itself. Given India is one of the largest consumer market, concept of “Make-for India”could be the name of the game. Barring making our growth independent of international economic scene, this archetype of ‘Make-for India’ helps to take care of India’s specific needs in view of high poverty in our country. This builds upon the idea of creating a symbiotic production-consumption cycle in India itself.

The difference between the two can be explained with an instance. Say, India exports leather goods. Now the demand for such goods depends on economic situation of importing countries which, as of now, do not have good economic prospects. As a result, the leather industry becomes vulnerable to international markets. However, if those goods were produced for Indian consumers, as India embarks upon high growth trajectory, many hitherto poor consumers will now be interested in buying more things. This may be more sustainable in the long run.

Another crucial difference between the two lies in the focus area. Make-in India will be geared on “manufacturing” as prime moving force while Make-for India may or may not be solely based on “export-styled manufacturing”. This sectoral favouritism for high growth may not be viable given the state of our manufacturing unit.

In India, Micro, Small and Medium Enterprises (MSME) sector is most labour-intensive industrial segment. Reports by OECD assert that 65 percent manufacturing employment stems from these MSME units. It is this sector on which hopes of Make-in India hing on.

But the MSME sector’s labour productivity is low. If this sector were chosen as key pillar of growth by giving parental allocation of resources and credit, it just might end up in a towering number of large inefficient units. This might further stress the already stressed banks who are reeling under the high NPAs (Non-Performing Assets).

Make-in India also smacks of the old Import Substitution Industrialization, though that experiment failed, it still inspires Indian policy-makers to make the same old mistake again. This is based on production economics rather than consumption economics. In this epoch of internationalization of production, producing for import substitution might not be doable. It would be far easier to hack into global chains and be a part of a larger process rather than creating a secluded zone of production.

The Structural Aspect

The structure of the Indian economy has often put economists on pins and needles, given the fact that despite having high growth rates, employment has not increased at the same rate as economic growth and poverty still haunts one-third of the population. Truth is growth of the Indian economy has been skewed and an average Indian “consumer” remains poor.

In this scenario, only very specific mode of manufacturing policy can address the need and “Make-in India” archetype does not appear to be solving the nature of problems, India is currently facing. The way it affects, “Make-in India” versus “Make-for India” debate is our policy choice of producing low quality goods for Indian markets or producing inexpensive products for foreign consumers. The latter and former choices , however, do not operate in same industrial setup; production process will have to be tactically designed specifically for either choice we make.

The “Make-for India” choice leaves or rather forces us into a low-quality level equilibrium and in future, it might get hard to escape such equilibrium. Given the market dynamics, it is difficult for manufacturers to re-orient production lines to meet export markets.

The latter choice, namely “Make-in India” will require quantum jump in technological and professional expertise, which only a small workforce in India possesses, and a very dynamic infrastructure as well as policy environment, which hardly exists. To achieve this model, a large investment in R&D and infrastructure is needed, but this will re-orient entire manufacturing towards foreign consumers making it difficult for Indian poor consumers as they seek low/medium quality goods and export-quality material is not affordable to them.

Can The World Accommodate Another China?

If two big economies start competing for producing cheaper goods, it will become a race to the bottom for both. Also in the scenario of both the economies losing profits, it will make the economics of scale of producing cheap products uneconomical. China has embraced this emerging reality of lowered world demand and production lines have already started moving, not to India but to Vietnam and other countries. So, our comparative advantage is being lost to South East Asian nations who can literally make things work with rock-bottom labour wages. India with all its labour laws and regulatory complexities may drop a bundle.

Another key development has been the Trans-Pacific Partnership (TPP) deal. Though it looks like another free trade deal, it has strong geo-political angle which is primarily excluding China and India out of the world trade. TPP is a 21st century deal, in regard to its commitment for higher labour, environmental standards and strong emphasis on Intellectual Property Rights.

TPP Member Countries/Getty Images
TPP Member Countries/Getty Images

Now, given China and India both cannot adhere to these standards, they cannot be a part of this deal. It poses key danger to India’s“Make in India” dream. Our strengths presently do not allow us to become member of the TPP, ergo, for a while, until we develop more and can adhere to higher standards, should focus on “Make for India”. A sufficient development at home for a decade will make us capable of exporting quality goods while adhering to all standards.

Whether we choose “Make-in India” or “Make-for India”, it will also affect the pattern of resource usage. Make-in India will orient the resources for producing high quality goods for foreign consumers. Not only will it decrease the amount of resources available for Indian masses but also produce goods which have no use for India. This will introduce a “luxury bias” in Indian production system and it will make life of millions of the poor strata more stressful as they won’t have cheaper goods.

Make-for India, antithetically, might take a decentralized approach to development, where local resources will be used to produce goods for local population. India needs this approach mainly because the growth we have had in the last two decades had differential fruits for different groups. Usage of local resources for outside-use has been universal theme for conflict and under-development. Make-for India can help India have a balanced growth for its population. Inclusive is already a recognized priority of the India and should be adopted through Make-for India.

Beyond Manufacturing

Make-in India shows a continuity with previous approaches of industrialization in India, focusing on non-consumer goods, leading to situations much the same as that of we having a big foreign company producing potato chips for India and earning billions. This calls for tweaking of our developmental approach. Make-in India shows the same proclivity for skewed growth in view of inter-sectoral parity.

Make-in India almost lose sight of the fact that agriculture is still the key employment provider. Make-for India can have a rather different approach towards agriculture. We know that India itself has large consumer base. Ergo, treating agriculture as an industry will solve both, the farmer suicide problem as well as the ubiquitous food inflation problem, which we are facing from the last few years and bound to face it more prominently in the future given our youth bulge needs to be properly fed.

False Dichotomy

Both “Make-in India” and “Make-for India” are outcomes; outcomes that generally bode well for India. Though both differ in approach but have a similar aim of developing India and have considerable overlap. Both need an underlying climate that is crucial for success.

Economies do not grow according to a specific model, how hard we try. We need to create a hybrid model which satisfies the domestic developmental deficit while giving considerable policy space for dynamically adjusting to international economic climate. The emerging fourth industrial revolution essentially requires a blend of “Make-for India” and “Make-in India”.

Whatever be the final approach we choose, the quintessential pre-requisite is domestic legal/financial reforms. India has vexed taxation structure;having an adversarial taxation bureaucratic environment. The regulatory regime for businesses is still not development friendly neither for “Make-in India” nor “Make-for India”. The reforms at home will be the key contributing factor to India becoming an industrial power.

(Courtesy:Swarajya)

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