Practically every Indian manufacturer who depended on China for inputs has started looking for alternatives. The lockdown of Hubei province in China because of the coronavirus followed by the national lockdown in India had already disrupted their supply chains. Even as the lockdown conditions were being eased in several states, China’s unprovoked aggression at the Line of Actual Control (LAC) has again thrown things out of gear.
Goods coming from China are being subjected to extra scrutiny at entry points, adding to delays, while the government is mulling punitive duties on some Chinese imports. Consumer sentiment about China-made goods is also running high with boycott calls becoming more frequent. Every manufacturer is now aware that while all imports from China cannot be stopped overnight, they will need to find alternative sources to de-risk their businesses. The question is: Should they look to nations such as Vietnam, Korea, Taiwan or Indonesia who also have formidable manufacturing prowess even if they cannot always match China’s prices? Or should they try and develop an ecosystem of vendors within India given PM Narendra Modi's Atma Nirbhar call? While the latter option fits with the rising nationalist sentiment in the country currently, it is unlikely to become a reality unless the government puts the right policies in place. That, in turn, means posing the right questions.
Consider why Indian manufacturing has remained uncompetitive by global standards bar in a couple of sectors such as refining and automobiles despite multiple PMs putting manufacturing at the top of their priorities. India’s first PM Jawaharlal Nehru’s vision was of giant public sector units (PSUs) with only a minimal role for the private sector. His daughter continued with that philosophy. While this led to a large number of PSUs in everything from heavy electrical to electronics and from telecom to watch making, most were inefficient monopolies that started making losses at the first whiff of competition. This was because commercial viability in a market economy was never part of their brief.
Rajiv Gandhi opened up the country to internal competition while largely protecting the nation against global manufacturers in many sectors. Again, the philosophy of making for Indian consumers in a closed market meant smaller scales and costlier, shoddy quality products. The opening up of the economy from 1991 saw large foreign investments, but automobile manufacturing is the sole success story. The National Manufacturing Policy of 2011 of the UPA 2 government that was renamed as Make in India by PM Modi in 2014 also failed because neither had been thought through properly. The issue is that there has never been any conceptual clarity about India’s manufacturing goals.
Was Indian manufacturing only meant for the domestic market and to reduce dependence on foreign brands? Or was it to become a global hub for manufacturing with exports being as important as the domestic market? Was India aiming to be a contract manufacturer or a creator of home grown multinational brands? Was the aim to promote domestic entrepreneurs or was it to attract big global manufacturers to set up base in the country? Was a large number of small and medium scale industries the goal because of their labour intensive nature or giant, high tech factories that employed fewer people but captured higher value? The answer to each question changes the kind of policy response needed. For example, if the manufacturing goal is for domestic consumption only, the scale of operations will be different and so will capital requirements and tax treatment.
On the other hand, if the goal is to be a globally competitive manufacturer, policies will need to be reworked keeping in mind that the best in global technology will need to be accessed, along with higher economies of scale and hence higher capital requirements. For creating many low skilled jobs, the sectors that will be incentivised will be very different from what would be required if the goal is to excel in high tech. If the goal is to nurture domestic entrepreneurs, it would also mean discouraging foreign direct investment. And if FDI in manufacturing is welcomed, the government can also not overtly support a boycott against a brand being manufactured within the country no matter what its country of origin is.
Not every question involves an either/or choice. Many countries—including China and Taiwan—started off building a reputation as low-cost contract manufacturers for better known Japanese, European or American brands before they built their own global brands. Policymakers should also realise that developing manufacturing competitiveness requires a lot of time, effort and capital. It will not happen overnight. Most importantly, they will need to realise that no country—not even one with a 130 crore plus population and a lot of natural resources—can excel in manufacturing everything.
The government will need to pick and choose sectors where there are natural advantages, a big enough potential and back these with the right kind of incentives. The most important thing the government needs to remember, though, is to think of the consumer. Manufacturing will never succeed in India if the goal is to only create a lot of employment but not give the consumer a high quality product at globally competitive prices. This is a point that policymakers often forget.
Prosenjit Datta
Senior business journalist
(prosaicview@gmail.com)