By Disha Rawal
There is a certain sense of defeat that the thought of Indian manufacturing evokes in Indians. We are collectively aware that this is one area where the country needs improvement. Our international rival China’s sheer competitiveness almost makes us helpless at times, and there is a sense of prestige associated with imports, thanks to the high quality.
In this context, the World Economic Forum’s Readiness for the Future of Production Report 2018 gives us some food for thought. India is ranked 30 on the index which is topped by Japan. China is listed as a ‘leading country’, and so are the United States and South Korea. What does this tell us about India’s manufacturing sector?
The missed train
In answer to a question that the author had asked Mr Arvind Subramanian, the current Chief Economic Advisor of India, he stated that manufacturing was like “a train that India had missed at the right time”. The WEF’s assessment of India reflects this. India is described as a legacy country, with a ‘strong current base, but at risk for the future’. This is because India has been relatively slow at adopting new technologies that mark the ‘Fourth Industrial Revolution’, like artificial intelligence and automation, among others. India’s massive population has created a favourable demand environment, which has given it a stable baseline. But on the side of human capital development, institutional framework, sustainability and innovation, India has a lot of catching up to do.
Human Capital Development is the foundation that makes every individual more productive. India’s social spending is merely seven percent of GDP, while in some developing countries like Brazil, it goes up to one-quarter of GDP. Innovation is a product of this system since a better education system can facilitate research and innovation.
India has a vast institutional network. However, the very individualistic politics of this country places breakers on institutions becoming stronger, and the humongous population makes centre-driven policymaking difficult. Robust systems are necessary for a solid manufacturing base since businesses need enabling environments both regarding facilities and grievance redressal at multiple levels.
Challenges for the future
The WEF report details several vital issues, which countries face as they enter the next phase of industrial development. For legacy countries, one of these is that they must avoid ‘getting squeezed’ between advanced manufacturing provided by developed countries and low-cost labour provided by countries that are still developing. This challenge is pertinent for India and can be essentially overcome by increasing the technological capacities of the economy. This needs to work on two fronts: First, on improving the productivity of each worker, and second, diversifying the range of functions that the economy can perform.
Secondly, it is very probable that mass re-shoring of various production activities will take place with new technologies. This may not be positive for India since it is a major receiver of outsourced jobs. Thus to maintain status quo, it has to develop competencies which can make it an attractive production destination. The Make in India initiative has been described by the WEF as a significant push towards the same.
A shift in paradigm
The IT revolution came to India with the reforms of 1991. It gave the Indian economy a new lease of life, brought jobs and raked up prosperity. It is important to remember that all of this came about from a significant shift in the political economy of this country.
The report prescribes that private-public partnerships are needed to tackle macroeconomic challenges better. This may seem like an accepted model in India, but we must note that it operates on smaller levels. Perhaps a shift in this approach is needed, but that also challenges the forces of political centralisation. Whether industries will manage to swim against the political tide, is what remains to be seen.
Featured Image Source: Visual Hunt
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