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Review of 'Make in India' follows RBI governor's tough talk

Last Updated 26 December 2014, 20:15 IST

Prime Minister Narendra Modi is expected to review the progress of his ambitious “Make in India” programme before we enter into the new year. Call it Rajan effect or Modi’s own style of functioning where he makes frequent assessments of the way his government is functioning.

The Reserve Bank of India Governor Raghuram Rajan has triggered a debate on the much-hyped campaign which has been designed keeping the stuttering manufacturing sector at the centre.

Rajan has not found many supporters for his argument certainly not anyone from the government. Officials are busy defending the government’s focus on manufacturing and exports in the ‘Make in India’ campaign despite conditions not being conducive either for manufacturing or for exports.

Earlier this month at the Bharat Ram Memorial Lecture held in New Delhi, Rajan – he says it should be “Make for India” - argued that “Make in India” should mean improving the efficiency of producing in India, whether of agricultural commodities, mining, manufacturing or services.

The RBI governor cautioned against picking up a particular sector such as manufacturing for encouragement simply because it has worked well for China. He has a point. India and China are different and developing at different times. China’s manufacturing and exports grew when the global economic growth too was at its peak.

Though India has been talking of raising the share of its manufacturing in the GDP from the beginning of this decade, not much has been achieved. And now, when the new government has started everything afresh in this sector, the muted global growth and demand is providing little help.

On the domestic turf, demand has long been weak as evident from the lower industrial production numbers month after month. Indian factories have started producing less because there are very few takers for their products. Jobs in the factories are not being created because there is no production.

The way forward in the short term is not excessive dependence on manufacturing because even if you manufacture, where are the takers? So an equal attention to sectors such as agriculture which still supports 50 per cent of our workforce but contributes to a meagre 15 per cent of GDP and others like tourism which have great potential for development in India must contribute in “Make in India”.

Alongside, the government has to focus on public savings which eventually translates into investment and creates goods and services and enhances employment prospects. India’s household savings have a taken a hit in the past decade due to high rate of inflation and slow economic growth.

Even on manufacturing front, the “Make in India” has to look at labour law reforms and infrastructure development very carefully. India does not have many manufacturing hubs. There are only a handful of industrialised states in India such as Gujarat, Maharashtra, Tamil Nadu, Karnataka and a few others.

That does not suffice for a country of the size of India where “Make in India” is a national slogan. India still has 90 per cent of its working population employed in informal sector. About 20-25 years ago, the number was more or less the same. This means that 100 per cent job creation has taken place in India in informal sectors in the past 25 years.

It is this informal sector which gets affected by the labour laws in terms of working hours, leave and salary determination. But very little has been done to correct the remunerations in this sector let alone other things. Experts opine that providing a job to a member in a family of five is thousand times better than doling out subsidy to all five members of the family.

Poverty and subsidy

Jobs lift people out of poverty faster than subsidies do. But the whole question is whether the jobs should travel to people or people should travel up to jobs. For jobs to travel to people, the government needs to create more jobs in every nook and corner of India.

If jobs are confined only to more industrialised states, the migration from farm to factories will be very slow and the whole idea of giving a push to manufacturing will be defeated. An estimated 40 crore people in China migrated from agriculture to manufacturing last year whereas in India, only 12 per cent people are employed in the manufacturing sector for many years.

Along with manufacturing, India also has an ambitious target of skilling 500 million youth in the next seven to eight years. The new government has created a full-fledged ministry for skill development.

Under Modi, the ministry may have been working overtime to meet the target but the question here too is – what after that? Where is the demand for so many skilled workers when factories are not producing, when people are not buying and when the economy has no strength. We certainly need to create a condition for manufacturing to flourish and wait until global economy revives for manufacturing-led exports to take off.

Rajan laid emphasis exactly on these things. He said, if external demand growth is muted, India has to produce for the internal market. That means creation of a sustainable unified market, improvement in physical transportation network for better supply chain from producer to the consumer. He also sought to discourage the “Make in India” which talks of too many incentives to a particular sector in the name of enhancing exports.

This is probably the first time that a critical analysis has been attempted on the prime minister’s pet programme by none other than the RBI Governor himself who is also an economist of global repute. Should the government pay heed to his suggestions when the prime minister is due to review the “Make in India” on December 29?

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(Published 26 December 2014, 20:15 IST)

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