The recent advance in GDP estimate of Central Statistical Office (CSO) for 2017-18 has been 6.5% on y-o-y basis. This has been the lowest in 4 years. But the government is hopeful about the turnaround of the economy. Some of the well known business papers are also very proactive to explain the reasons behind the turnaround. On the other hand a section of economists think that even the estimate of CSO may be an overestimation. They are comfortable at 6.2 or at 6.3. Just against the backdrop of this, it is very difficult to explain the status quo of ‘Make in India’.
The general feature of the history of economic development is that there are three consecutive steps that an economy, generally, has to traverse. At the early stage agricultural growth is the most important. Then comes industrial development. The economic power in the second stage is characterized by industrial development. The last stage is the period of service sector. That is, in the third stage, service sector is the biggest contributor of national products. The peculiarity of the Indian economy is that it has by-passed the industrial development phase. At present, service sector contributes almost 55% of the total GDP of India and industrial sector, including manufacturing, contributes about 26%. On the other hand, close to 60% of the population are in the rural economy and are mostly dependent on agricultural sector. The main purpose of the Modi government is to increase the share of manufacturing to 25% of GDP by 2025 from close to 15% at present. In view of that theModi government declared the policy of ‘Make in India’ in September 2014.
‘Make in India’ targets to set up such a congenial industrial base in the country that a lot of globally well known producers of different sectors of the world would set up cost competitive business production units and sell products in India and exports rest of their products to the countries of the world. For this purpose the Modi government identified 25 sectors which range from automobile to Information Technology (IT) & Business Process Management The programme also looks out for huge job creation, facilitating or encouraging innovation, promoting skill development and protecting intellectual property rights. This is why India will have to provide a suitable business environment with appropriate infrastructure facility.
‘Make in India’ and inflow of FDI are two different matters
The point to be noted is that a section thinks FDI inflow has one to one correspondence with ‘Make in India’. But these two are different. In the case of ‘Make in India’ the government’s target is high tech import intensive sectors of India. For example, India imports a huge amount of defence items. These are very high tech products. Government of India likes to set up production units of these products. In that case the cost of production will be lower and there will be a scope to create employment generation in the country. In that case the producers will get a ready market in India and as in India labour is comparably cheap, the products will be produced at a competitive rate. So these units can export their products from India to different countries.
FDI refers to the incoming of foreign money for long run investment. It may be in financial sector or any material production. The Indian government has a proper policy of inflow of FDI in different sectors. In most of the cases
the share of FDI is just a portion like 25% or 49% or even 100% depending on the nature and importance of the sector in the economy. The government can review the situation and can change the FDI share in sectors specifically. So it is clear that the two concepts are different. So one should not confuse with an enhance- ment of inflow of FDI with increasing the intensity of ‘Make in India’
In an earlier issue of the magazine the reporter wrote on this topic and showed that even before the independence of the country, leaders like Jawaharlal Nehru and Subhas Chandra Bose tried to frame the policy of economic self reliance for India. After independence Indian leaders tried to continue the policy. But the policy began to change from the 1970s. From that time a section of corrupt politicians began to consider their interest and the interest of their relatives most. Later the business communities took advantage of that and pressurized for opening of the economy. Later in 1991 the new economic policy started and India began to open up with time.
Why did ‘Make in India’ fail?
Professor Ratan Khasnabis, Advisor to Vice Chancellor and professor emeritus, Adamas University thinks that in both high end and low end products ‘Make in India’ has failed. This is due to following reasons. The main target of the Modi government is that those goods started to be produce in India which is very import intensive. Products like sophisticated war products, telecommunication, IT hardware are some of these. These are all high end products. The problem which lies with economies like India is that there is little chance of coming in to the high-end product. This is because these products are research and development (R&D). The producers of these rich countries and they are not interested in producing them in developing countries. Exporting these products results in much higher economic and financial returns.as they enjoy monopoly in their respective products.
But for low end products ‘Make in India’ policy may be in operation. But surprisingly the indigenous investors are obstacles to it. “This is because they are inefficient and they earn economic rent out of economic inefficiency”, thinks Khasnabis. China is a big threat to Indian businessmen. Khasnabis mentioned two examples. One, the biggest industrialist Mukesh Ambani and second, a comparatively small industrialist Goenka of Calcutta Electricity Supply Corporation (CESC). The Kavery basin natural gas price is one of the highest priced gases of the world, that is, close to Uzbekistan gas price (USD 8 per cubic meter). The government of India did not permit Kaveri Basin Gas to explore gas for ONGC due to some unknown reason. We could get much cheaper gas from Iran.
The second one is CESC. The CESC sells electricity at a much higher price. Does the state government allow other suppliers to sell electricity at much lower price, asks Khasnabis?
It is not suitable infrastructure or tax benefits or other benefits to foreign producers only that can guarantee making a country a production hub of the world. World experience confirms this. We have examples of the economic development models of Taiwan, South Korea, Japan and China. This is the state led development model. Are we ready to accept that?