Indian makers are still the stuff of Modi’s dreams
naky
www.diecastingpartsupplier.com
2015-08-25 11:27:32
Make in India. Even the term sounds slightly defective. For better or worse, that is the slogan with which Narendra Modi, India’s made-in-Gujarat prime minister, has branded his effort to transform the country into a manufacturing powerhouse. The goal is overdue.
It may also be unrealistic. The country does not have a good reputation for making things. Even Indians shun their own products. Jugaad, the so-called Indian way of innovation, was born of scarcity. Mihir Sharma, a commentator, says his countrymen make things “held together with cello-tape [EDS: SIC]and paan stains and prayer” — although high-tech goods, for example in aerospace, are actually of high quality.
If the Indians make some things shoddily, they also do not make enough. Manufacturing accounts for only 15 per cent of national output, against 32 per cent in China and 34 per cent in Thailand. (The figures were revised up slightly for last year because of new calculation methods.)
Optimists say India’s time has come. Wages have quintupled in China in the past decade. The renminbi has sharply appreciated, notwithstanding this week’s surprise reversal. That has helped nations such as Mexico, and even the US, to claw back manufacturing competitiveness. If they can do it, why not India? It has savvy entrepreneurs, abundant raw materials from cotton to steel, growing domestic demand and 1m new workers crowding into the jobs market each month. In Mr Modi it has a leader bent on development. Surely those are all the ingredients required for a manufacturing boom?
That is the optimists’ case. So far it is unproven. This week, though, the manufacturing story received a fillip with an announcement by Foxconn, Taiwan’s contract manufacturer, that it would invest $5bn in a plant in Maharashtra state, creating 50,000 jobs. That might only be the start, said Terry Gou, the chairman, who said that in 10 years Foxconn could have a factory in every Indian state. As if that were not enough, Xiaomi, a Chinese smartphone manufacturer, added to the cheer by saying it planned a separate tie-up with Foxconn to produce handsets in Andhra Pradesh.
“To some extent one did feel that India had missed the boat,” says Arvind Subramanian, Mr Modi’s chief economic adviser, adding that the country had squandered an obvious comparative advantage, namely cheap labour. Given rapid mechanisation and a world awash with inexpensive gadgets, some say the golden age of manufacturing as a development tool is, in any case, over. Mr Subramanian says making things can be an important driver of growth but it will take time. The Foxconn investment could be a game-changer. If successful, it could alter the perception of India. In a country where it is hard to get national legislation to stick, crucially it might also spur competition among states seeking to woo manufacturers.
Still, the obstacles are formidable. First is the question of physical infrastructure. India lacks the ports, roads and railways to transport goods, and the dependable energy supplies to keep factories humming. Taking into account overall costs, the country is only 5 per cent cheaper for manufacturing than Mexico, according to Boston Consulting Group. Outside certain industries, such as cars, it also lacks the ecosystem of suppliers that make clusters such as the Pearl River Delta so competitive.
Perhaps worse is the state of India’s soft infrastructure. Would-be factory owners cannot get hold of land or get rid of workers. Plants operate on suboptimal scale or use ruses to get around labour laws: only 16 per cent of workers are formally employed. Unreasonable laws are a breeding ground for corruption. So is an unreasonable tax environment, which can be as changeable — and devastating — as the monsoon season. Investors who wade through all this are not always thanked for their efforts. Delhi is seeking $100m in damages from Nestlé, accusing the Swiss company of poisoning Indians by allowing high levels of lead in its noodles. That claim seems unlikely. Regulators in the US, Canada and New Zealand have pronounced the same food safe to eat.
Mr Modi has promised to bulldoze such obstacles. All he needs is a bulldozer. There have been efforts to rein in retroactive taxes. The upper limit for foreign ownership in certain industries, including defence, has been raised. Not much else has happened. Neither land nor labour reform is getting far. Infrastructure is a work in progress. “Modi needs to get into the nitty-gritty,” says Gurcharan Das, an author and former head of Procter & Gamble India. If Mr Modi is to make Make in India a reality, he will need more than a slogan.