Posted in Marketing & Strategy Articles, Total Reads: 1775
, Published on 19 March 2016
India has been an independent nation for close to 70 years now and yet remains a ‘developing’ nation. Primary understanding of economies of various developing and developed nations reveals a clear differentiation - the contribution of organized manufacturing sector to the nation's GDP, which is alarmingly low for India. As we continue to perceive our economy as ‘rapidly growing’, this number remains under 17% while it is above 40% for developed nations like China and Malaysia.
Not very surprisingly, the contribution of Indian manufacturing sector to the global markets is devastatingly low at 1.4% while for China this number stand at a whopping 13%. This everlasting hunger to see us as a ‘developed’ nation clearly calls for breakthrough economic reforms and the current government being led by Mr. Narendra Modi sought to kindle the sluggish domestic manufacturing sector. The Make in India campaign seems to be sought after as an instrument to address this issue. While this campaign is seemingly an effective one, it has got multiple shortcomings that challenge its effectiveness. There is a large group of people who believe that the rosy presentations and promises made in the press conferences during the Make in India campaign seldom hold true.
At this juncture, understanding the core idea of the campaign is essential before we go ahead and evaluate it. The Make in India campaign is not professing making in India but rather Manufacturing in India. Although they might mean the same thing, there is a fine difference between these terms. What Mr. Modi and the government are trying to do right now is to encourage foreign companies to set up manufacturing plants in India. The idea of Make in India is so rhetorical by itself; the shortcomings will be easily looked over. Although it would lead to increased job opportunities for the youth of India, it would not have any other benefits. Foreign MNCs would get subsidies to construct plants or carry out operations in our country, fuelled by the income tax paid by the citizens of India.
The exorbitant profits they earn aren't very likely to be reflected in India’s economy. The only advantage for India will be creation of job opportunities. But the scale of job opportunities required to accommodate roughly 9 Million Indians joining the workforce every year is still under question. In a competitive global economy, once the foreign manufacturers or investors find economies that offer cheaper labor with a relatively high ease of doing business, it is likely that the business would be shifted out of India. As of date, India’s rank in the ‘Ease of doing business’ list is around 130, standing behind nations like Russia (51), Brazil (116) and countries like Philippines (109) and Thailand (49) which could compete with us by adopting the same model of Make in India.
While the above-discussed issues remain as threats from external environment, there is a strong resistance from within the nation itself. There needs to be a paradigm shift to create manufacturing-friendly ecosystem for businesses. Considering that a minimum contribution of 20% from the manufacturing sector towards the GDP is required, 2020 seems to be a little ambitious target to realize the results of this movement, owing to the labor, infrastructural and procedural delays, which are inherent in the Indian ecosystem. The Make in India movement could result in various adverse domestic scenarios like increasing pollution, shortage of power, property boom, negative equity, growing inequalities in the income levels, undervaluation of Rupee etc. A strong lesson can be learnt from the Chinese model that pioneered this idea of establishing itself as a manufacturing powerhouse. As can be seen, this model is substitutable. China has lately realized the shortcoming of this model of economy and has started implementing a change in their economic structure. Like many economists believe, China is strongly committed to seeing itself as an innovation hub in the coming 5-10 years. China certainly set an example of how an overheating economy can end up resulting in slumps that are hard to recover from.
Due to increasing technological advancements, the near future seems to be a highly mechanized world, which would require very little human labor, questioning this model. Where would be India’s competitive advantage if they go ahead with this model? There is no value addition to India either, other than more jobs for the ever-growing population. India has a very strong reputation of being the land of the knowledgeable. The maximum number of doctors, scientists and engineers emerge from our nation. India has always been known as a country with brains. The government should leverage this reputation of India instead of making it a manufacturing hub, which would lead to India’s image being blemished and its talent drained. ‘Innovate in India’ is the best strategy the government can focus on right now.
There is a huge demand for new technologies and breakthroughs, which the Indian gentry are capable of achieving. Innovation is something you can ever have enough of. Everyone wants an easy or a new solution to make his or her lives easier. This is where India can play a unique role, if only with the right kind of motivation. This model cannot be substituted, or replaced, It valuable and will sustain India’s growth in the long run. Whatever India has been able to achieve till date, pre and post independence, is because of the minds of its people. Lee Iacocca, in his book also spoke about how innovation is what leads a company to success, develop and grow. This book was published in 1984, 30 years ago. If he learnt the lesson then, why can’t we today?
This article has been authored by Paridhi Agarwal and Rahul Sundeep from IIM Indore
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