Big push needed for 'Make in India'

For global capital to 'Make in India', we need three big pushes: incentives, infrastruc-ture and skills.

The pack of a Sony smartphone I purchased revealed that it was manufactured by a communications firm in Nanjing Export Processing Zone (South Area), China.

Now this EPZ, one of the several that China built over the course of three decades starting 1979, is based out of Nanjing, a large and well-connected commercial city in the Yangtze River Delta.

Electronics and other technology-intensive manufacturing should be one of the major pillars of ‘Make in India’ too. It will pave the way for not just gainful employment, skill development and growth, but also help India move up the manufacturing value chain.

This will also help stem India’s ever-rising electronics import bill which is set to touch $400 billion by 2020. Recently, Micromax, the Indian handset-maker, claimed market leadership in the smartphone segment. But Micromax phones are still virtually ‘Made in China’, partly because India lacks a component supply chain worth sourcing from. 

Convincing businesses to look at India not just as a large market, but also as a hub for production would entail making local manufacturing commercially viable.

This will require, in the case of the electronics manufacturing sector for example, careful identification of all the cogs in the entire supply chain, from semi conductors and integrated circuits to touchpads and LCDs, and figuring out why activity hasn’t taken off.

Based on the needs of each sub-sector, the state has to solicit domestic and foreign investment in the same by putting in place an infrastructural support system on its part conducive for such investments.

This also includes bolstering the country’s human resource stock by providing the millions of unskilled youths with vocational skills that are encashable in the job market. Setting up high-tech clusters for manufacturing with all the facilities including reliable power supply, human capital, physical connectivity, modern infrastructure, and fiscal concessions/incentives will make much sense.

The Nanjing EPZ in China was cleared in 2003 and is home to high-tech manufacturing firms where all major electronics giants source their components from. Manufacturing, production and assembly activity is also carried out in large numbers.

The South Area of this EPZ is located in the Jiangning Economic and Technological Development Zone. China has scores of such ETDZs across the country. They have a very specific focus on technological upgradation in manufacturing by attracting high quality FDI.

For decades, these development zones have absorbed lakhs of migrants – trained under China’s successful skill-development system known as Vocational Education and Training (TVET) – who earn a better wage than farms would ever guarantee, and live a better life.

Of course, there are legitimate concerns over China’s dubious labour protection regime especially in EPZs and SEZs. And such concerns already exist in India, even though such zones are in their infancy here, compared to China.

To keep at bay labour exploitation, we need well-implemented maximum hour and minimum wage protection. These wages must be aligned to inflation trends and should be reviewed from time to time. In addition, employees should be provided with adequate social protection, mainly in the sphere of health and wellbeing.

Formal jobs

However, let us not forget the order here: we have to first have formal, semi-skilled jobs for the youth for us to be able to then protect them from exploitation.

As of today, more than 90 per cent of Indian employment is in the unorganised sector, and more than 50 per cent are mostly insecurely/vulnerably self-employed in urban areas. What’s more, at current levels of labour participation rate, 423 million people in India could be unemployed by 2030. At present, the unemployment rate in India is almost 5 per cent.

India’s democracy, upheld by its many pillars (judiciary, civil society, free media, the legislature, etc.), can be trusted to put enough pressure on exploitative capitalism and make it more inclusive. And such examples abound in India. Before it gets too late and Vietnam takes China’s place, India must show the world how it is democratically done.

Finally, the share of India’s dynamic SMEs in total GDP remains in the low bracket of 10-15 per cent while employing as much as 40 per cent of workforce. Many of these SMEs are unregistered and belong to the vast unorganised ecosystem.

They don’t add to the country’s tax base and make do with informal sources of finance for expansion. Unorganised manufacturing is also one of the reasons why real wage growth in manufacturing in India grew at a tardy pace of 2.5 per cent during the period 2000-10 in contrast to almost 12 per cent in China, where the share of the informal sector is much lower. 

The informal sector also brings with it skill stagnation and limited productivity. Just think what expansion of the organised manufacturing sector – which constitutes only 2.79 per cent of total employment in manufacturing – can do to India in terms of wealth generation, job creation, income growth, skill development and social security. For global capital to indeed come and ‘Make in India’, we urgently need the three big pushes: incentives, infrastructure and skills.

(The writer is an associate with a New Delhi-based advisory firm)