Make in India: Challenges & Prospects

[op-ed snap] To make India the factory of the world


From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Prospects for India becoming global manufacturing hub


A golden opportunity

  • With the US-China trade war in its second year now, old business arrangements are under severe stress.
  • American companies that have long used Chinese factories to crank out low-cost products for various markets find themselves under US policy pressure to either pull out of China, or to shift key operations elsewhere.
  • US President Donald Trump might just raise tariffs on Chinese imports to 30% this October, enough to disrupt the cost calculations of the most resilient firms that make products in China.
  • This presents India an opportunity to plug a vacuum, and the government has moved in to seize it.

India’s footsteps

  • With new FDI norms, India would open the domestic field of contract manufacturing to 100% foreign ownership of ventures.
  • It is seen as a move explicitly designed to attract global players currently in search of low-cost locations for production units.
  • Coupled with the easing of local-sourcing conditions imposed on foreign single-brand retailers in India, the reform serves as a big welcome board to US firms.
  • It is one thing to issue an invitation, however, and quite another to win decisions in India’s favour.

Plugging loopholes

  • Our country does not have much of a reputation for manufacturing efficiency.
  • The sector has languished, as a proportion of the overall economic pie, even as services have leapt ahead.
  • While it is true that new investors could transform the way products are put together by bringing in practices perfected elsewhere, analysts have long expressed concerns about low productivity here.
  • Excessive red tape, which tends to raise corruption levels, has been another deterrent to foreign investment.
  • However the EODB in India has risen in recent years though, as measured by the World Bank, and inflows from overseas businesses have been rising apace.
  • In other words, the problems of the past need not persist in the future.

Replacing China

  • For India to try replacing China as the world’s factory, a prospect that holds out the dream of job generation by the million, the country would need to enhance its overall competitiveness as a manufacturer.
  • This is primarily about allowing companies to meet high quality standards at the lowest possible cost.
  • Broadly, the Chinese success formula so far has involved the large-scale use—and even diversion—of state resources to subsidize mass production, not to speak of labour conditions that some consider repressive.

Way Forward

  • In a democracy like ours, due caution should be exercised before attempting to emulate such ideas.
  • Even on keeping export price tags low, China is not a good role model.
  • Indeed, integration with global supply chains would require the Indian rupee’s value to be export-oriented, which could mean letting it slide when appropriate, but policymakers must resist currency manipulation.
  • India must make its market and democratic forces work in tandem as it sets about creating conditions that would spur efficiency and turn “Make in India” into a routine sight across the world.
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