Faulty Mission?

India’s Prime Minister Narendra Modi launched “Make in India” to create jobs and attract foreign investment, but the campaign “remains mired in political battles and cultural battles,” explains Nayan Chanda, founding editor of YaleGlobal Online who also consults for the publication. “India’s hope to take up the slack from China’s … increasingly expensive labour force may have come too late.” The median age in India is 27 and projected to rise to 29 by 2020. Even with economic reforms, India struggles to create enough jobs for millions of youth entering the labor market. In the meantime, China and the United States compensate for aging labor forces by embracing automation – 21st century workplaces and products require skilled labor. Such reliance on automation combined with slowing economic growth may “cloud the future of developing economies which aspire to rise,” by harnessing large youthful populations willing to work for low-wages before transitioning toward more education, skilled technology and service economies. Chanda concludes that India may have to focus on making for Indians rather than making products for the rest of the world. – YaleGlobal

Faulty Mission?

Modi’s goal to create millions of jobs for the poorly educated youth under Make in India – and compete with China – remains a distant dream
Nayan Chanda
Tuesday, January 12, 2016

As the year comes to a close, PM Narendra Modi’s 15-month-old effort to turn India into a global manufacturing hub through his signature ‘Make in India’ campaign remains mired in political battles and culture wars. His energetic personal advocacy of the campaign abroad has won some foreign investment promises, but the goal of creating millions of jobs remains a distant dream. Even if by some miracle, the BJP were able to reach political compromise with the opposition to launch the much-needed economic reforms, the resultant uptick in manufacturing would still fall short of creating enough jobs to absorb millions of poorly educated youth coming onto the labour market. It seems India is gearing up to fight yesterday’s battle, counting on the kind of manufacturing upon which China built its economic power. Manufacturing success today increasingly relies on capital investment and automation rather than large factory floors with masses of cheap labour.

The government has tried to identify priority sectors to promote the ‘Make in India’ campaign, and marry them with its ‘Skill India’ and ‘Digital India’ initiatives, but the skilling effort is woefully inadequate — with barely 5 per cent of the potential workforce receiving skills training needed for 21st century work. India’s hope to take up the slack from China’s ageing and increasingly expensive labour force may have come too late; Chinese firms are rapidly automating manufacturing (It has the largest number of industrial robots in the world). And enterprises that rely on cheap labour have been migrating to Vietnam and elsewhere.

Different tax incentives to attract both domestic and foreign capital in export manufacturing could bring investment to India, but it will not provide the needed skilled workers. Some of the foreign investment in mass consumption products like smartphones or electronics could provide relatively low-skilled employment, but these goods would be for domestic consumption rather than export. Expensive handsets and tablets that have large foreign market are increasingly manufactured by robots and supervising engineers with PhD’s, not unskilled workers with high-school educations. It is worth noting that increasing automation has helped the US manufacturing to regain its productivity, but has also pushed down wages of unskilled workers, creating a growing income gap.

Even the major investments announced by foreign partners to build railway engines, aircraft and ships as ‘Make in India’ projects would depend on numerically-controlled machine tools rather than low-wage labour. Even if the number of workers needed by such investment were large, they would have to be highly skilled — and as such they would be in short supply. Any discussion about the future of industrial investment in India is of course overshadowed by the grim picture of existing projects to make things in India. Domestic investment in manufacturing has dropped as plunging demand has prompted producers to cut capacity. Reports that large numbers of potential Indian investors— as high as 50,000 — have chosen to emigrate to avoid new tax rules also cloud the prospect of inward NRI investment helping to fund Make in India.

Broader trends of economic stagnation and especially transformation of manufacturing reliant on robots cloud the future of developing economies which aspire to rise by the traditional route: employ surplus rural population in low-skill consumer industries like textiles and shoes and climb the technology ladder to producing more sophisticate goods and increase participation in well-paid service economy. India’s attempt to leapfrog into the ranks of advanced industrial economies by promoting ‘Make in India’ may have come a decade too late. But with land and labour reform, it may be still possible to Make for India if not Make in India for the world.

Nayan Chanda is the author of Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization and is consulting editor of YaleGlobal Online, published by the MacMillan Center at Yale University.

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