What’s hampering high-tech manufacturing? Unplanned urbanisation

India has been investing heavily in technology and technological education since Independence. The first IIT was set up in Kharagpur in 1951. Today, we have 23 IITs, 31 NITs, 25 IIITs, apart from 2,500 engineering colleges, 1,400 polytechnics, and 200 Schools of Planning and Architecture, both private and State-owned. This is the largest such effort in the world. That’s why ‘India-trained engineers’ have become a significant global community, manning or heading a number of globally renowned technological companies. Such stellar performance is, however, not exhibited by the Indian industry in the global market.

It is well established that the production and export capability of higher technology goods bears a strong correlation to the quality of growth and societal modernisation. UNIDO tracks the technology orientation of exports. Their reports indicate that 58 per cent of the world’s manufacturing exports consist of high-tech and medium-tech products. The share of high-tech products in global manufacturing exports is currently over 20 per cent, after a high-tide mark of 25 per cent prior to the global financial crisis. Countries like the UK, US, Germany, Japan and South Korea have high shares in this.

India’s export performance is below global average. Our ratio of high-tech exports to manufacturing exports is 10-11 per cent. Our medium-tech exports are better – in the 25-29 per cent range. Thus, India’s exports of high and medium-tech goods are much lower than the global average, even if evaluated not in absolutes but in terms of its own exports. This implies that the huge developmental effort, over a long period of time, for setting up a base for the creation of technological skills has not paid societal dividends, although individuals have undeniably benefitted. Additionally, this low ratio of high-tech exports is to be seen within the overall context of our low manufacturing exports-to-GDP ratio at 8-9 per cent.

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This is not to undermine the various efforts of the Indian State in promoting technology-focused manufacturing since Independence, nor understate the landmark achievements of our space, atomic energy and defence research organisations despite their minuscule budgets. Likewise for the current bouquet of PLI schemes to promote a variety of tech-oriented manufacturing, including semiconductor technology. Nor is it an endeavour to overlook the attainments of our new technology startups and the Start-up India scheme. Illustratively, in the field of drone technology, over 220 start-ups are already in the fray. About 37 technology patents, such as those for propeller safety in automated and hybrid aerial vehicles, have been filed by leading drone companies. The show put up by a homegrown drone start-up during the Republic Day celebrations was indeed enthralling!

The challenge is that the results, viewed on a global table, are so far not enthusing. We need to understand why. It is not for want of State effort at the policy level but because of a lack of ‘focus’ amongst its various agencies in jointly trying to create and maintain a viable ecosystem needed to attract, promote and sustain technology manufacturing.

Data from the Annual Survey of Industries indicates that new factory formation has been declining despite the variety of promotional schemes on offer. Our expenditure on R&D continues to be low, and experts rue the lack of adequate industry-academia collaboration. Yet there has been no drive to co-locate or cluster the availability of the variety of components required for tech manufacturing. For instance, the decision on where to locate our technology training institutions and specialised medical institutions is taken independently, instead of clustering them around notified tech manufacturing centres that we are seeking to promote. The various urban enhancement projects and drives for the creation of sports, recreation and entertainment centres are planned separately. Most tech manufacturing, even if FDI-driven, is by entrepreneur-driven medium-sized ventures. Co-location of all such amenities would make that geography an attractive location for families of those entrepreneurs, while non-availability of these amenities would render it unattractive. Currently, barring some metros and capital cities, other centres are unable to attract tech-oriented investments, including tech FDI. Our metros and capital cities are mostly overcrowded and lack adequate ‘spare’ capacity for absorbing large numbers of greenfield manufacturing investments. This could be why new factory formation is not happening.

We are in a critical phase of geopolitics. The ongoing US-China trade war and Xi Jinping’s governance style have placed a question mark on China’s future as the manufacturing capital of the world. Thousands of foreign companies currently making their wares in China are re-evaluating their China strategy. An opportunity to correct our earlier failures has thus emerged. We should grab it.

(The former chairman of the Export Import Bank of India is a banker with a theory of everything@tcartca)