Prime Minister Narendra Modi started the ‘Make in India’ campaign to make India a global manufacturing hub.
The success of China in this regard can be an influencing factor. This reporter touched on this matter in the previous issues of BE and mentioned that quite a number of countries have tried to achieve global integration of manufacturing value chains as a way to export-led industrial growth. In most cases, they had to depend on foreign capital. This also involved cross-border movements of technology, capital goods, raw materials, process inputs, and final products, which involved liberalising trade and investment regulations. Most of the countries invited foreign investors from developed countries to build the required infrastructure. But despite such efforts, few were successful in achieving their desired goal.
Additionally, keeping labour discipline according to the requirement of industry and addressing low wage-cost needs would also be a challenging task. Appropriate labour laws, making suitable land policy to supply suitable land for industry, framing proper environmental regulations are also necessary pre-requisites for the programme to be successful in India. This is not an easy task. Now that the focus is on ‘Make in Rural India’, the Chinese experience can be informative.
Chinese experience of rural industrialization
Researchers have identified three types of entrepreneurship in China: (a) small-scale and subsistence (b) large scale and all sector operated, and (b) more recent ventures led by foreign educated Chinese entrepreneurs. The end of the 1980s saw a shift to larger businesses ranging from restaurants to transportation to manufacturing in China. But the Chinese economy relied heavily on Town and Village Entrepreneurs (TVEs) from 1997.
Its government encouraged rural industrialization from early 1950s. But that mostly entailed the commune enterprises which gradually became backward and turned out to be disastrous for the economy, particularly after the second Five Year Plan or Great Leap Forward (1958-63). Then the model of TVEs was brought in.
The Town and Village Entrepreneurs
The TVEs are non-specific and cover a wide range of business types and complexities from the smallest cottage industry producing goods for strictly local consumption to complex factories with foreign investment producing goods for export. Township and village governments are the dominant players in most TVEs and usually exert de facto control over TVEs regardless of their industry, capital structure or governance style. The entrepreneurs are mostly former employees of the erstwhile state-owned enterprises or are young university graduates.
But TVEs are classified into three models: (a) the Southern model depended on principal investment from township and village government; (b) the Wenzhou model with private ownership under a pretended socialist ownership structure; and (c) the Pearl River Delta model of foreign direct investment and export oriented manufacturing. A section of economists think that the second model can be applicable model for potential transfer to other developing countries.
The operation of TVEs
The TVEs in the villages are conglomerates of small or medium units. These are similar to co-operatives and undergo registration in the local blocks or country offices. These units get help to set up, purchase raw materials, in designing the products, and attaining suitable pricing of the products.
Where are the products of the units of these conglomerates sold? These can be sold in local markets or anywhere in China or in the foreign markets. The selling spot data are also available to all the members of the conglomerates who are registered with the country office. The main advantage of this system is that all the matters relating to production, costing, selling, etc. are guided by the country office.
In China, land is owned by the state. Availability of land for industry comes from redistribution of ownership. It is allocated, mainly for agriculture and other purposes, according to the need of the economy. If a family likes to leave from agricultural profession and join industry, their land can be redistributed towards industrial purpose. After the death of a person, his/her allotted land can be redistributed for other purposes. When a group of persons opt for industry, land availability becomes easier. In this way, in the rural sector, land has not been a problem for industry in most of the cases.
Capital has been a chronic problem for the MSMEs, particularly in the developing countries. This is mainly due to the uncertainty relating to the MSME sector. But the uncertainty is less in Chinese TVEs as they are able to engender trust because of their relationship with the TVG and their implicit social contract with the local community.
An article, “Chinese TVEs: A Model for Other Developing Countries” by Jason Field, Michael Garris, Mayuri Guntupalli, Vishaal Rana, and Gabriela Reyes (2006) shows that the TVGs were able to lend or invest modest amounts of locally accumulated capital in TVEs because of a simplified decision making authority, an inherent interest in seeing the local TVE succeed and because of a willingness to accept economic risks. H. Chen and Ashgate Chen in their article in 2000 write, “It is relatively easy for collective TVEs to obtain loans than private enterprises under such rules, since collective TVEs have the community government backing them up.” In effect, the local government would guarantee the loan, and that makes it substantially more active to the lenders.
India’s status of rural industrial industrialization
It is said that India’s journey towards economic development has not followed the course, which has been traversed by almost all developed countries. These countries, at first followed the development of their primary sectors, that is, agriculture and allied areas. Then they attained industrial development and that took the major share in their GDPs. Then ultimately, the service sector takes the major share in GDP and that happens at the highest level of development. But India has bypassed the industrial development but it has achieved high growth in service sector.
A section of observers consider this phenomenon an achievement for India. But from an economic point of view, India’s lack of considerable industrial development has not been a matter of success. The main weakness of India’s development is that, it has not been able to bring a considerable portion of its rural population to more productive sectors like industry or services. This has been one of the major reasons behind India’s lack of economic development. Even today, about 60% of the population are still engaged in agriculture. On the other hand the rural infrastructure and hence the living conditions of the rural people are so poor that migration to urban areas from this sector is high. The lack of opportunity of jobs or livelihood in this sector is another reason behind the migration of the rural population.
In such a situation, rural industrialization is a must. But India has not seriously promoted its rural industries. In India, development of rural industry has mostly been the task of the state governments. But many states are not serious about this. There are departments for the rural industry in every state and they form several favourable rules and declare incentives for the investors. But a full-fledged national policy to set up rural industrial base has been absent in India. Without this, no meaningful realization of ‘Make in Rural India’ can happen.
The Chinese TVE model cannot be replicated in other countries like India. Everything depends on the infrastructure or the background. The Chinese communist system helped the country achieve basic education, health, social discipline.
There were about 2.6 million commune enterprises within a span of a decade of the communist regime. As a result when the commune enterprises lost their quality production, the Chinese economy was able to transform them easily to TVEs or other units producing quality production. But the productivity gain of TVEs was also influenced by the development methods of East Asian economies like Japan, South Korea, Taiwan, Singapore and also the then newly industrial countries like Malaysia, Indonesia and Thailand. The governments in these countries took an active interest in promoting economic develop-ment.. The method of development followed good income distri-bution. This is, particularly, true for Taiwan, Korea and Japan.
Does anyone think of making India’s rural sector a global manufacturing hub in this situation? It does not require a sound economic knowledge to answer that question. Common sense is enough. Actually India needs a real leadership to perform such a task. Are Indians actually thinking of that?