Is Modi's "Make in India" All Hype?
By RiazHaq
CA
Some of Prime Minister Narendra Modi's supporters claim that his "Make in India" campaign has brought the country to the verge of becoming a manufacturing behemoth 69 years after the nation's independence. Others claim India is already a manufacturing powerhouse. Let's examine these claims based on data.
Manufacturing Ranking
While India now ranks 6th in the world in terms of total manufacturing output, it still sits at a very low 142nd position in terms of manufacturing value added per capita, according to the United Nations Industrial Development Organization's Industrial Development Report 2016 . Pakistan's manufacturing value added is ranked 146th by the same report.
Manufacturing Output
India's 3% share of the world's total manufacturing output puts it at a distant sixth position behind China's 24%, United States' 17%, Japan's 16%, Germany's 7% and South Korea's 4%.
The UNIDO data shows that India's manufacturing value-added (MVA) per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014. However, as percentage of GDP at constant 2005 prices in US$, India's MVA decreased from 15.10% in 2005 to 13.85% in 2014
UNIDO reports that Pakistan manufacturing value-added (MVA) per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014. Its MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014.
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India's manufacturing output declined 0.7% in April-June 2016-17 |
Make in India
Prime Minister Narendra Modi has recognized how far behind India is in the manufacturing sector. His government's highly publicized "Make in India" is designed to change that.
What does India, or for that matter any other developing country, need to boost its manufacturing output? Most experts agree on two essential pre-requisites for industrial development:
1. Energy and Infrastructure
2. Skilled Manpower
China's rapid industrialization over the last few decades has shown that the focus must be on the above two to achieve desired results. Has India learned from the Chinese experience? Let's examine this question.
Energy and Infrastructure Development
"Infrastructure is the biggest hurdle to the ambitious Make in India program of the government," Standard and Poor Global Ratings Credit Analyst Abhishek Dangra told reporters on a conference call, according to India's Economic Times publication.
"The government is scaling up spending, but its heavy debt burden could derail its ambitions to improve public infrastructure," the Standard and Poor report said.
India suffers from a huge energy deficit. Over 300 million of India’s 1.25 billion people live without electricity. Another 250 million get only spotty power from India’s aging grid, with availability limited to three or four hours a day, according to an MIT Energy Report . The lack of electricity affects rural and urban areas alike, limiting efforts to advance both living standards and the country’s manufacturing sector.
Skilled Manpower
“India doesn’t have a labor shortage—it has a skilled labor shortage,” said Tom Captain, global aerospace and defense industry leader at Deloitte Touche Tohmatsu, according to a Wall Street Journal report.
The WSJ report said that over 80% of engineers in India are “unemployable,” according to Aspiring Minds, an Indian employability assessment firm that did a study of 150,000 engineering students at 650 engineering colleges in the country.
NPR's Julie McCarthy reported recently that ten million Indians enter the workforce every year. But according to the Labor Bureau, eight labor-intensive sectors, including automobiles, created only 135,000 jobs last year, the lowest in seven years.
Impact on Agriculture
Prime Minister Modi's focus on manufacturing is taking away resources and attention from India's farmers who are killing themselves at a rate of one every 30 minutes .
Majority of Indian farmers depend on rain to grow crops, making them highly vulnerable to changes in weather patterns. As a comparison, the percentage of irrigated agricultural land in Pakistan is twice that of India.
More than half of India's labor force is engaged in agriculture. Value added per capita is among the lowest in the world. Pakistan's agriculture value-added per capita is about twice India's . This is the main cause of high levels of poverty across India .
Chinese Experience
China has shown that it is possible to make huge strides in manufacturing while at the same time achieve high productivity levels in agriculture .
On the manufacturing front, China has taken care of the basics like energy, infrastructure and skilled manpower development to achieve phenomenal growth.
As part of the China-Pakistan Economic Corridor (CPEC) development, Pakistanis are learning from the Chinese to replicate success in manufacturing.
The first phases of CPEC are focused on building power plants, gas pipelines, rail lines, roads and ports at a cost of $46 billion. At the same time, China and Pakistan are also focusing on skills training via vocational schools and Pakistan-China Education Corridor. These projects will lay the foundation necessary to ramp up manufacturing in Pakistan.
Summary
Both India and Pakistan want to emulate the success of China in the manufacturing sector. The Chinese experience has shown that development of energy, infrastructure and skilled labor are essential to achieve their manufacturing ambitions. The South Asians must move beyond hype to do the hard work necessary for it. Pakistan is working with China via CPEC to make progress toward becoming a manufacturing powerhouse.
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