Updated: December 2, 2014 07:21 IST
An economic blueprint for Mr. Modi
The boom under the UPA has ended; to achieve respectable growth, the NDA government will have to do something in terms of reforms and the Prime Minister will have to go beyond simply designing excellent websites and think out of the box
This year has altered the political picture in striking ways. The most
conspicuous change is in prime ministers: reclusive, modest,
uncommunicative Manmohan Singh has given way to vocal, expressive,
dramatic Narendra Modi. A less-noticed change is in the government:
Manmohan Singh had 77 Ministers; Modi’s Cabinet has 66,
and the average experience of his Ministers is far briefer. This is
only partly because the Congress stayed in power for a decade; Modi has
also brought in much fresh blood.
His Ministers talk less — they may have been told to, they may be in awe
of him, they may be more self-contained, or they may not have the
self-confidence. That is a pity, since some of them are capable of such
wonderful faux pas. Manmohan Singh’s Ministers had no compunction about
accepting invitations to speak, inaugurating events and displaying
themselves; Modi’s Ministers are more circumspect. But Modi’s sound
bites dominate official noise, and addicts as well as connoisseurs of
politics hang on his words.
It is not just words people hang on. The people who elected him have
great hopes of him. “Intuitively, I feel we are sitting at the cusp of
one of the biggest changes since 1850,” said a director of TCS. His
optimism is shared by the 17 crore voters who brought the Bharatiya
Janata Party to power. Expectations are high; it will no doubt want to
exceed them.
Topping UPA’s robust growth
That would mean bettering the performance of the preceding UPA government. It was by no means insignificant. The UPA period saw the highest GDP growth rates in India’s history. The annual growth rates of close to 9 per cent between 2005-06 and 2007-08 have been exceeded only once — in 1987-88, when growth shot up because the previous year had seen an unprecedented drought. During UPA’s decade in power, national income almost doubled; income per head went up 69 per cent. These figures are supported by the rise in consumer durable ownership shown by National Sample Survey.
That would mean bettering the performance of the preceding UPA government. It was by no means insignificant. The UPA period saw the highest GDP growth rates in India’s history. The annual growth rates of close to 9 per cent between 2005-06 and 2007-08 have been exceeded only once — in 1987-88, when growth shot up because the previous year had seen an unprecedented drought. During UPA’s decade in power, national income almost doubled; income per head went up 69 per cent. These figures are supported by the rise in consumer durable ownership shown by National Sample Survey.
The boom witnessed under the UPA’s tenure has ended; growth in the past
two years has been under 5 per cent a year. Industrial growth has
collapsed. Even to achieve respectable growth, the NDA government will
have to do something, which politicians like to call reforms. But they
will be nothing like the reforms of 1991-93. The economy was hobbled
with such controls then that all Narasimha Rao had to do was to remove
them. “Nara-indra” Modi has no such easy option. He needs to think out
of the box.
One idea he had was “Make in India”.
Make what? There is an excellent new website; the government certainly
knows how to make them. It opens with a contrived lion made of racks and
pinions. It lists 25 sectors — 14 in industry, five in services, four
in transport, and two vague ones, namely space and biotechnology — which
are little different from what the old government would have
prioritised. It gives pride of place to the Delhi-Mumbai industrial
corridor. For the rest, it summarises industrial policy, which repeats
all the convolutions of the UPA era. It is remarkable how little it has
changed. There is a longing for revolution, but there is no idea of
where to go next and how.
“There is longing for revolution, but there is no idea of where to go next and how”
To begin with, is manufacturing worth bothering about? Before the
industrial revolution, India was the world’s most industrialised nation;
after the revolution, it fell far behind. That has left a longing for
lost glory. But the share of manufacturing in GDP has been falling
everywhere. The only exception is China, which achieved outstanding
growth in the past quarter century through industrialisation. The
Chinese story is complex, but some of its components are well-known.
Beginning in the 1970s, China set up an efficient steel industry, which
has kept its costs of engineering and construction low. It built
world-class railways, highways and ports, which took its manufactures
cheaply across the country and the world. Its banks gave cheap loans to
industry. It kept its exchange rate competitive. Such closely
coordinated policies were possible in China; they have not been in our
federal democracy.
India has had its own successes, though not on China’s scale. After the
desktop was invented in the late 1970s, demand for packaged, small-scale
software boomed in the United States. It ran short of programmers, and
took away all whom it could find in India. That led to mass training of
programmers in corner shops across South India, where people still knew
some English.
They were first exported to the U.S., and later, manned the software
industry that emerged in South India, where costs were lower. That was
India’s last growth story.
Where might the next one come from? There must be a number of options;
every economist can choose his. Mine goes something like this.
India’s Achilles’ heel is electricity: it is expensive and uncertain. My solution for it is twofold.
First, the Centre owns a quarter of power generation capacity, and
supplies fuel for over two-thirds of the power. It should give power
only to State electricity boards that charge a single price for their
power, which must cover long-term costs of generation. State governments
must corporatise state electricity boards; if they want to give any
consumer subsidies, they must finance them from State budgets. The same
principle of long-term viability pricing must be applied to the Centre’s
coal, oil and power enterprises.
Second, the Centre must buy floating thermal power plants like those in
the West Indies, anchor them in ports, and use them to supply power to
those States whose governments corporatise their electricity boards.
Finally, the Centre must abolish all imposts on coal and oil products
and create a national energy exchange where they are freely bought and
sold; that will minimise the costs of energy. If it must impose taxes,
they must be the same per Btu for all forms of energy and only on energy
consumed by final users.
As with power, the Centre must create an integrated, efficient transport
industry. The railways must offer door-to-door delivery services to
every factory, mandi, and port, and give free access to road transport
companies. The Centre must build a dozen new medium ports with a draft
of 15 meters, and finance the creation of a commercial fleet of
Sub-Panamax vessels up to 50,000 tons to provide freight and passenger
service along the coast as well as with our neighbouring countries. Sea
transport will develop our coastline, move traffic away from crowded and
expensive onland routes, and promote our links with the Indian Ocean
area.
The SEBI rulebook
The financial industry is overregulated and consequently underdeveloped. Financial institutions are poorly designed. As a result, there is too little capital for small producers and traders, and too little risk capital in general. SEBI’s enormous rulebook and its partiality towards the so-called qualified institutional investors have turned the capital market into an oligopoly; and restrictions on entry into banking and competition have led to collusion between banks and their larger clients.
The financial industry is overregulated and consequently underdeveloped. Financial institutions are poorly designed. As a result, there is too little capital for small producers and traders, and too little risk capital in general. SEBI’s enormous rulebook and its partiality towards the so-called qualified institutional investors have turned the capital market into an oligopoly; and restrictions on entry into banking and competition have led to collusion between banks and their larger clients.
The underdeveloped mutual fund industry must be merged with the banking
industry. Banks must give their clients both loans and equity, in
varying combinations; and offer similar hybrid investments to their
depositors. In every major city, banks must together create an exchange,
trade the equity and loans of their larger and more solid clients on
it, and thereby bring knowledge about the clients’ financial worth into
the market. The clients should equally be able to borrow or raise equity
directly from the market.
This is my initial list of reforms. An economist can theorise and
imagine endlessly. But policy is not a product of dreams; it emerges
from a bargaining process in which an economist is only one participant.
My list would give an idea of how one starts with a problem and applies
economic principles to it to draw policy conclusions. Policy is made by
policymakers, brought into the public sphere by media, administered by
civil servants, enjoyed or suffered by common people and reshaped by
democratic processes. Those who are elected may think they have arrived
and only have to wave a magic wand; those who have elected them may soar
with hope. But good policy requires a robust process of which elections
are a small part.
The new government still has to design the process, let alone implement it.
(Ashok Desai is an itinerant economist who has taught, done research, coordinated projects and helped make policy.)
This article has been corrected for a factual error.
Sunday Anchor
October 26, 2014
Updated: October 26, 2014 07:58 IST
Make in India vs. Make in China
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The Hindu
Illustration by Prathap Ravishankar
Markets across Indian towns and cities that are flooded with Chinese products, more so around festivals such as Diwali, are grim reminders of how Made-in-China has come to dominate our offices and homes.
Last Tuesday, Tata Motor’s Jaguar Land Rover (JLR)
opened its first plant in Changshu, China. The luxury car-maker’s
$1.78-billion Make-in-China push has come a little over a month after
Tata Group chairman Cyrus Mistry confessed to be greatly encouraged
under Prime Minister Narendra Modi’s leadership to join the “Make In
India” programme that, he said, brings together industry and government
for crafting a new future.
This was at the glittery
launch of “Make in India” in Delhi where a galaxy of global corporate
leaders ranging from Mukesh Ambani of Reliance Industries Ltd. to
Lockheed Martin India CEO Phil Shaw in response to Mr. Modi’s call had
pledged to invest and manufacture in India.
The pitch
had its origin in the Prime Minister’s Independence Day speech when he
invited global companies to pick India to locate factories, promising to
replace red tape with red-carpet welcomes.
The jobs and incomes for Indians these factories would generate, he said, would in turn create the market for their output.
The
goal the Modi government has set is to make India break into the top 50
in the World Bank’s ease of business index ranking from the current
134th position.
When companies such as Tata Motors
choose where to locate a new factory, they consider a range of factors.
But India fares badly on most of the counts. For instance, contract
enforcement takes 1,420 days and going through the 12 procedures for
starting business typically takes 27 days.
India’s
chronic infrastructure and logistics deficit with inefficient transport
networks makes it tough for manufacturing companies to achieve
just-in-time production.
The Modi government has said
it wants to radically de-bureaucratise, deregulate, change officers’
mindsets, cut paperwork and remove the notorious legal and
infrastructure hurdles to starting and doing business in India. This is
not the first time India is focussing on its manufacturing sector. In
2006, the UPA government put out a national strategy for manufacturing.
It even dubbed 2006-15 as the “decade of manufacturing in India.” The
five-year period of 2005-06 to 2009-10 was one of a smart 10 per cent
plus growth for the manufacturing sector when several advantages —
engineering skills, a growing domestic market, a raw material base and a
large pool of skilled labour — trumped the vast barriers to doing
business in India.
JLR’s China launch has set alarm
bells ringing for the Modi government: “Make in India” will have to go
quickly from being a statement of intent to real action on the ground.
Markets across Indian towns and cities that are flooded with Chinese
products, more so around festivals such as Deepavali, are grim reminders
of how Made-in-China has come to dominate homes and offices. From
furniture and gadgets to industrial equipment, India is importing almost
all products from its neighbour, even yarn for saris. It is estimated
that over 99 per cent of Bangalore silk saris are being made with
Chinese silk yarn.
As a result, the rapidly growing
bilateral trade between the two neighbours is tilting heavily in China’s
favour, at a rate that India has termed unsustainable. Bilateral trade
crossed $65 billion in 2013, but while India exported $15 billion worth
of goods to China, but imported $51 bn. The quality of trade also goes
against India. India exports raw materials such as iron ore but imports
manufactured goods.
In pursuit of its reforms agenda
of 1979, China has followed a more-exports-at-any-cost policy to boost
its economy. The Chinese government’s support to manufacturing in the
form of affordable cost of funds, cheap inputs and world-class
infrastructure gives it an advantage over Indian manufacturers. The
Confederation of Indian Industry estimates that Chinese manufacturing as
a result enjoys a cost advantage of about 10 per cent over Indian
manufacturing.
A fallout of which is dumping of
products on big markets like India. To protect domestic manufacturers,
India has been imposing an anti-dumping duty on 159 products — ranging
from chemicals, petrochemicals, pharmaceutical, steel, fibres and
consumer goods — imported from China since 1992.
The
spurt in factory imports from China has coincided with a sharp slide in
India’s manufacturing sector despite the UPA government’s efforts to
push the sector.
Manufacturing output grew barely 1
per cent in 2012-13. In 2013-14, factory output contracted (-) 0.7 per
cent. The share of the jobs-creating sector in the GDP has declined to
14.9 per cent in 2013-14 from the peak level of 16.2 per cent in
2009-10.
India’s advantage
But there is hope
still. A new index of manufacturing costs, including
productivity-adjusted wages, electricity, natural gas and currency
movements, created by the Boston Consulting Group (BCG) of the world’s
25 biggest exporters shows China’s traditional cost advantage is now
under pressure denting its attractiveness. Under pressure from the U.S.,
China has had to appreciate its currency by 30 per cent since 2006,
which is eroding its exports’ cost competitiveness. Just-in data from
the International Monetary Fund show that China is no longer the largest
trade surplus economy in the world.
Therein lies an
opportunity “Make in India” must tap. India’s labour costs are among the
lowest in the world. According to the U.S. Bureau of Labor Statistics,
average labour compensation (including pay, benefits, social insurance,
and taxes) in India’s organised manufacturing sector increased only
marginally, from $0.68 an hour in 1999 to $1.50 an hour currently. The
average compensation in China’s manufacturing sector in contrast rose 20
percent year-on-year in the same period to $3 an hour.
Besides,
the cost competitiveness, India boasts a nearly 500-million-strong
labour force comprising unskilled workers and English-speaking
scientists, researchers, and engineers, making it a potential
destination for cost-effective research and development-oriented
manufacturing.
Recent sporadic instances of the odd
Chinese manufacturer setting up shop in India and a few Indian companies
moving production bases back home from China are encouraging. Havells,
Godrej, Micromax and auto-components maker Bosch are amongst a handful
of companies that have recently moved back to India some part of their
manufacturing or outsourcing in China owing to currency, labour and
other cost advantages.
As Chinese factories move up
the value-chain to hi-tech manufacturing, opportunities would open up
for Indian entrepreneurs but they are up against stiff competition. On
the BCG ranking, however, several countries, including the U.S. and
Mexico, are better poised and ranked above India as of now to take gain
from China’s loss of competitiveness. The coming together of smart
entrepreneurs, employees, infrastructure and know-how could overtime
become a durable advantage, as had happened in China’s case.
- AnunayaWe need good roads roads,power transmission lines,water and dedicated freight and road corridors for transportion.We have everything in this country we need for an industry to thrive:dedicated labour,decent education facilities,resources and surplus of private initiative among our people.I feel what is pushing us back is mainly the red tape and lack of infrastructure.To the people citing our labor efficiency they need to look at our people who are the most hardworking in the world and we have also the largest no. of doctors and engineers in the world.about a month ago · (4) · (0) · reply (0) ·
- ArpitI would rather Ask govt. to prove effectiveness in its own operating costs... And reduce Central and State Taxes on the manufacturers... Things will automatically fall in place..about a month ago · (4) · (6) · reply (1) ·
Jaya Palan
Dear Arpit. Your arguments has no meaning in the existing unfair trade situation created by Chinese dumping . Dumping of surplus is against all the international trade laws and norms of fair competition. Even to promote effectiveness in its own operating cost India have to crush Chinese dumping.about a month ago · (3) · (1) · reply (0) ·Joseph Down Voted
- BalaWe all know that MNCs who made huge investments in China, are not making money, they expect to make money, which perhaps, may never happen., they are only capturing some market share at the risk of losing their patents and Intellectual property rights ( not for car and consumer product companies).about a month ago · (6) · (4) · reply (0) ·Points630anvikk Down Voted
- Prof.T.DevidasIndian Sale of Goods Act, as left here by the British, has caveat emptor (buyer beware) for its underlying policy. This itself was in modification of policy of caveat venditur (seller beware) when a need arose to incentivise private actors to risk their private time and money in then uncertain ventures into exploration of inventions and discoveries. This has been show over time as creating an unequal power advantage for the entrepreneur with the disadvantage for the buyer in respect of quality of the product. The Consumer (Protection) Act places a duty of care to represent the product honestly and correctly in the properties claimed for the product, but its non-conformity with the claimed attributes is not an offence. When equality of status and opportunity is now a byword, it is necessary that caveat venditur should be the principle and the state should assure quality by random testing and certification. This is a must or Made in India products to hit the market as dependable.about a month ago · (2) · (2) · reply (0) ·anvikk Down Voted
- SRI somehow do not believe in the idea of banning imports but it is somehow disturbing to see that our country that is so advanced otherwise is buying all these junk from the chinese, those cheap toys, household items, lightings, simple machinery..the list goes on and on. Perhaps we should re-look into export of precious iron ore to China. They import our ore, convert into steel, make those junk and dump it back on us - we can easily do it ourselves.about a month ago · (10) · (3) · reply (1) ·Joseph Down Voted
- JosephPray tell me how" somehow and why it disturbs you to see that our country that is so advanced" . If you are referring to the recent success of the Space Agency to launch its rocket, or the explosion of a few nuclear bombs as a tit-for tat with either China or Pakistan, you are deluded like most Indians who do not know the meaning of science or technology , yet, vaunt about it. Only when everyone has clean uncontaminated air and water, only when the streets are cleaned every day and the quality of healthcare and education catch up with nearby nations like Korea and Malaysia etc, you can be proud of India. No one is going to , or will be able to, arrest the progress of China.about a month ago · (6) · (1) · reply (0) ·
- I think the pathetic labor export of Hindi Belt and Northeast frontier to other states is linked to the underdevelopment of the region. This some how promoted by the Chinese dumping. This has grievous political and security consequences. India has no strategy to manage globalization in its favor. Dumping of Chinese goods through illegal importing should be crushed immediately. It is an urgent problem.about a month ago · (10) · (2) · reply (0) ·Points735anvikk Up Voted
- I think the pathetic labor export of Hindi Belt and Northeast frontier to other states is linked to the underdevelopment of the region. This some how promoted by the Chinese dumping. This has grievous political and security consequences. India has no strategy to manage globalization in its favor. Dumping of Chinese goods through illegal importing should be crushed immediately. It is an urgent problem.about a month ago · (4) · (1) · reply (0) ·Points735
- vipeshChander is quite correct in his analyse that Indian politics of pandering people to get sole power has been caused huge loss in long terms. We can not adopt single party system or hold elections like China one thing. Only we can uplift from poor politics. This poor politics can only wipe out by educating the masses in noble way rather classical way, which is quite Herculean task. Second reservations, caste, religion and other stupid things (Congress legacy) needs to obliterate. there is no doubt we are rising. But limiting these evils we can rise non-discriminatory, equally and at the same time fast to tap Indian potential.about a month ago · (1) · (3) · reply (0) ·Points320
- margaritaA lot to blame on the bureaucracy-politicians nexus for the present state of affairs. The way the politicians and bureaucrats are chosen is itself bad. The bureaucrats who are forced not to develop their opinion but to depend on opinions of so called intellects resist far reaching changes to our system. As a result we remain a status quo country. It is high time the professionals - engineers, doctors and management take over the politics and bureaucracy for real development and not mere rhetoric of development. Our system is infested with lawyers and people from social science background in important positions. What else can be expected of these!!about a month ago · (2) · (1) · reply (0) ·
- DhanushThe greatest difference is that people in China are manufacturing things on their own unlike India which is expecting other countries to set up manufacturing units in India. Secondly I do not see today's youth interested in any kind of manufacturing work. All of them like posh jobs in a/c offices. Today's engineers cannot even fix a tubelight or repair a leaking tap.about a month ago · (8) · (1) · reply (0) ·Points1120
- ChanderIndia's problems highlight the downside of "democracy" when the majority of the electorate is illiterate, poor, ignorant, and divided into numerous factions. In such an environment, unscrupulous politicians can win elections by creating vote banks and pandering to select groups. Building infrastructure and developing the economy does not win elections. Pandering to vote banks wins elections. This is why Indian infrastructure has suffered so badly and why politicians are able to enjoy limitless power through their vote banks even in shambolic states like Jharkhand and UP. This is also why we are dangerously overpopulated; politicians encourage their vote banks to multiply recklessly to increase their votes. By contrast, the Chinese government has no need to pander to vote banks since they don't hold elections. So they go ahead and provide the necessary infrastructure and facilities that help people prosper and thereby avoid unrest that can threaten the status quo.about a month ago · (64) · (4) · reply (0) ·Points390
- RameshIf Indian small scale industry has to come up fast, reduce the taxes and payment of all taxes should be made under one head The Government should make such araangment to distribute the paid amount to respective departments and save money and time of the small timer industries.about a month ago · (29) · (2) · reply (1) ·
- S.BalakrishnanOne wonders why we import so much of junk goods from China with the low Indian wages? Are there no real Indian entrepreneurs and Indian workers who can make these goods in India. We even import most of our God's pictures, idols, and other religious items from China while our god fearing Indian artisans are without work. It is time India puts a strict ban on imports from China over and above our exports and provide a subsidy for those who start making goods here in India. A proactive Govt is what is needed and not an inactive Govt or one that only talks but does not do any action to match those talks.about a month ago · (33) · (8) · reply (2) ·Points660
Sony Jim at Sony Pictures
That is destructive as you would want China to buy Indian products. They have the biggest market for consumption as they have disposable income. Getting into import bans and tariff wars is silly... I suggest looking at the areas China needs help with and partnering with them. They have capital to invest. India should really be filling the gap in Russia too... They are a very loyal partner for India and I am sure the Russian people would like to replace as many US imports as possible. China, Brazil, Indonesia, Russia, Iran... These are all huge markets that would be friendly to India. Think about what these countries need and then build industries to meet those needs.about a month ago · (4) · (2) · reply (1) ·- S.BalakrishnaniF you think that China would allow India to export things you are grossly mistaken. The Chinese do not want India to prosper. They may have funds to invest but beware. As far as Russia is concerned it is another matter. We must try to find what Russia needs and produce them. With the current situation to trust the Chinese is a dangerous proposition. If China changes we may change also. But as it is China is not in a mood to allow any of its neighbors to grow and prosper. Their aim is to trap all these countries as their own vasal state like what we used to be under the British less direct rule. We will have a subservient democracy that obeys Chinese dictum if they have their way. Our growth will slow down to promote the Chinese needs to export. Trusting China is inviting danger.about a month ago · (2) · (1) · reply (0) ·
- AIt is the productivity that matters. Chinese are far ahead of us on that count. Besides, we have a rotten system which does not encourage entrepreneurship. The chalta hai attitude of Indians must change in order to be competitive. --- A.R.Bharadwajabout a month ago · (22) · (2) · reply (0) ·Points475
- N.R.Jothi NarayananThe author of this article has to accept the fact we all are forcing the pragmatic government of Mr.Modi to set right the policies of the paper tiger government of the UPA into reality in a lightning speed by breaking the indigenous lethargy of the Indian bureaucracy. Chinese crackers started making high decibel in India prior to the FDI by China in India. China is fast in approach and still we live in the past. 15billion $ worth of goods are exported and 51billion $ worth goods are imported - A good example to learn about business by India. The population of China & India is almost equal. India has more number of technical manpower than China. There is no dearth of labour force. The crux of the issue is the bureaucratic obsession to come out of the inherited lethargic attitude on each and every issue with a question, "This is way we have done the things in the past 68years, why should we have to change the procedure now?" If not now then never.about a month ago · (25) · (3) · reply (0) ·Points2960seshan Up Voted
- josephIts true timing is wrong but if anybody who follows Nokia will know it has nothing to do with this government or Make in India. It has to do with Microsoft, the facility would have closed much before but it was in legal entangle so it is closing now.about a month ago · (8) · (3) · reply (0) ·
- SaratchandranBut, why lion!? Lion is more associated with Africa than India! Is it not the beautiful tiger, the national animal? That will then be 'the crouching tiger and the hidden dragon' !!about a month ago · (97) · (6) · reply (1) ·Points1715
- dguptaRising compensation cost in China means the Chinese workers are making more money than their Indian counterparts. They are wealthier, healthier and in turn have higher productivity. And Indians are counting on lower cost to beat them...about a month ago · (17) · (1) · reply (0) ·Source: Hindu...and I am Sid Harth
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