Draft Feb 25, 2022
Self-reliant Development
Challenge after 75 years of Indian Independence: What is the way forward?
Dinesh Abrol
Introduction
India
is back to a “country of mass poverty” after 45 years. Two hundred thirty (230) million people in India are
below poverty line due to the cumulative shocks of demonetization, GST and
lockdown. The
unemployment crisis is intensifying– the recent job riots in the states of
Bihar and Uttar Pradesh[1]
offer a small indication of the seriousness of the unemployment issue. Unemployment
rates calculated for rural and urban areas have more than doubled and are
even officially 14.34% and 14.71% respectively. Inflation in essential
commodities continues to accelerate. In the midst of a massive unemployment
crisis, in the informal economy where 90 per cent of people work about 400
million workers are at risk of falling deeper into poverty. 50 to 80% slum
dwellers lost their primary source of income while their expenditures have
increased. The reports of how there has been a reduction in fruit and vegetable
consumption (rural 68.8%, urban 28.7%) and of cooking oil and pulses should be
raising alarm bells in the offices of the governments, but that is yet to
materialize.
The
economy is experiencing the
“longest economic slowdown since 1991”. Weak employment generation, uneven
development, large informal economy today characterise the features. Around 80
per cent of small and medium enterprises across India are "insecure"
about their future. A survey of 81,000 self-employed and micro or small businesses (SMBs)
found 78 per cent of them incurred losses. Loss of household income was 67.3%
for rural areas and for urban areas 56.9%. The Oxfam Report
suggests that the pandemic has led to an 84 % decrease in household income.
Poor take more loans from private lenders at high interest. Year 2020 saw more
suicides among business people, than even farmers as per National Crimes
Records Bureau (NCRB). Suicide deaths of businesspersons jumped to 11,716 in
2020 from in 2009 9052 an increase of 29 per cent. Farmer suicides stood at
10,677 for 2020, which is around 1,039 cases fewer than that of business people.
Children
are under higher risk of death from common childhood illnesses such as
diarrhea, pneumonia, and malaria. 189.2 million, 14% of population, are
undernourished. 51.4% of women between 15 to 49 years are anemic. 34.7% of the
children under five are stunted. 20% suffer from wasting. COVID 19 experience exposed
to us how vulnerable the people felt on account of poor health infrastructure
and limited access to health facilities and medicines. Education of a total of almost
320 million learners from 1.5 million schools remained adversely affected during
the period of last two years. Not all could transition to e-learning. Only 15%
of rural households have internet access and 42% urban. Only 13% in rural
areas—8.5% females—could use the internet. Disaster facing children and youth
of the future India would not get averted easily, it is clear.
Where does Vishwa Guru Stand?
World Leader Report Card
|
Global
Index
|
2014
|
2021
|
Standing
|
|
Global
Hunger Index
|
63
|
101
|
Declining
|
|
Global
Gender Gap Index
|
114
|
140
|
Declining
|
|
World
Happiness Index
|
111
|
139
|
Declining
|
|
Democracy
Index
|
33
|
53
|
Declining
|
|
Press
Freedom Index
|
140
|
142
|
Declining
|
|
Henley
Passport Restrictions Index
|
74
|
90
|
Declining
|
Source: Trends map, October 2021
Economic reforms, inequality and
poverty
The pandemic has not been an
equalizer. Wealth and income inequality of India are among the worst in the
world. As per the 'World Inequality Report
2022', India is among the most unequal countries in the world, with rising
poverty and an 'affluent elite. The top 10% and top 1% in India now hold 57%
and 22% of the total national income respectively. The bottom 50% share has
gone down to 13%. The
average annual national income of the Indian adult population is Rs 2, 04,200.
Here, the bottom 50% of earns Rs 53,610 while the top 10% earns Rs 11, 66,520,
over 20 times more. Public assets typically
include public buildings housing administrations, schools, universities,
hospitals and other public services.
The World Inequality Report 2022 was authored by Lucas
Chancel and co-ordinated by renowned economists Thomas Piketty, Emmanuel Saez
and Gabriel Zucman. The report goes on to say
that over the past three years, the quality of inequality data released by the
government has seriously deteriorated which has made it particularly difficult
to assess recent inequality changes. The report notes that the share of public
wealth across countries has been on a decline for decades now. The 'secular decline' in public wealth and rise
in private wealth was only exacerbated by the outbreak of the corona virus
pandemic.
The report says that emerging economies like India and
China experienced faster increases in private wealth than wealthy countries
after they transitioned away from regulated economies. In India, particularly,
private wealth went up from 290% in 1980 to 560% in 2020. The super-rich have cornered
most of the share of wealth created under the Modi regime by the Indian nation.
According to the Economist, Mukesh Ambani and Gautam Adani’s net worth
increased by 350 per cent and 750 per cent between 2016 and 2020. India is
characterized by extreme inequality after the implementation of three decades
of economic reforms. (Source: The Economic
Times Feb 25, 2022)
Inequality: Let us look at the latest numbers
|
Share
of Wealth of Top ten (10) percent
|
The
top 10% of the Indian population holds 77 % of the total national wealth.
|
|
Share
of Wealth of Top one (1) percent
|
73 %
of the wealth generated in 2017 went to the richest 1%, while 67 million
Indians who comprise the poorest half of the population saw only a 1%
increase in their wealth.
|
|
Rising
Number of Billionaires & Millionaires
|
There
are 119 billionaires in India. Their number has increased from only 9 in 2000
to 101 in 2017. Between 2018 and 2022, India produced 70 new millionaires
every day.
|
|
Rising
Fortunes of Rich
|
Billionaires’
fortunes increased by ten times over a decade and their total wealth is
higher than the entire Union budget of India for the fiscal year 2018-19,
which was at INR 24422 billions.
|
|
Rising
indebtedness due to poor access for citizens to healthcare
|
Many
ordinary Indians are not able to access the healthcare they need. 63 million
of them are pushed into poverty because of healthcare costs every year-almost
two people every second.
|
|
Growing
wage inequality
|
It
would take 941 years for a minimum wage worker in rural India to earn what
the top paid executive at a leading garment company earns in a year.
|
Source:
India Oxfam Inequality Report, 2022
Going back in time, the
report notes that income inequality in India under the British colonial rule
(1858-1947) was very high, with a top 10% income share around 50%. After
independence, due to socialism-inspired five year plans this share was reduced
to 35-40 per cent. The report argues that the post economic reform policies
have led to one of the most extreme increases in income and wealth inequality
observed in the world. It states that while the top 1 % has largely benefited
from these economic reforms, the growth among low and middle-income groups has
been relatively slow and poverty persists. The average household wealth in
India is around Rs 983010. The bottom 50 % of the nation can be seen to own
almost nothing, with an average wealth of Rs 66280 or 6 per cent of the total
pie. The middle class is relatively poor with an average wealth of Rs 723930 or
29.5% of the total. In 2021, the wealthiest 10 % of the population own 65 % of
the total wealth, averaging Rs 63, 54070 and the top 1 % owns 33 %, averaging
Rs 32449360. Gender inequality in India is also considerably on the higher end
of the spectrum. The share of female labour income share in India is equal to
18 per cent which is significantly lower than the average in Asia (21 %
excluding China) & is among the lowest in the world. (Source: The Economic
Times: December 07, 2021).
Union Budget 2022-23 extends
failed reforms
The Union Budget of 2022-23
has done nothing to stimulate demand for effecting an economic revival; the
total budgeted government expenditure for 2022-23 is Rs 39.45 lakh crores,
which is just 4.6 % higher than the revised estimate for 2021-22. This means
that the increase is below the rate of inflation, entailing a drop in real
terms, and hence also below the growth rate of real GDP projected by the
Economic Survey, which is 8-8.5 per cent. Although in her budget speech, the
Finance Minister claimed that there will be a sharp increase in capital
expenditure driven by enhanced public investment, but this is not true. Rs.
62,114 crore (or more than 10 % of capex that year) for the Ministry of Civil
Aviation to be transferred to Air India Asset Holding Limited “for servicing of
loan transferred to SPV as a result of financial restructuring of Air India”
cannot be counted as an increase in capital expenditure. In the projections for
2022-23, the capital expenditure figure quoted by the Finance Minister also includes
Rs. 1.12 lakh crore of loans to state governments. This is definitely not
capital spending by the Centre and is unlikely to be used fully even by the
states to finance capital spending. One other provision in the budget for
2022-23 that is intriguing is a capital allocation of Rs. 53,033 crore to
“other communications”.
The
outlays for a whole range of schemes that provide relief to the poor have been
slashed compared to the revised estimates for 2021-22. Thus the provision for
the MGNREGS is just Rs 73,000 crores compared to Rs 98,000 crores in 2021-22
(RE) and Rs 1, 11,000 crores for 2020-21. The budget affects drastic cuts in
social sector spending. There is a reduction in the devolution of resources to
states. An increase in the devolution to states by 9.6 % in nominal terms in
effect means a fall in its share in GDP, to an estimated 6.25 % compared to
6.91 % in 2021-22 (RE). There is no real increase in the budget for health and
family welfare. Far from increasing the allocation for health to 3 % of GDP
over time as the government had promised, there is a reduction in allocation
for health relative to the estimated GDP. In the allocation for education, there
is an increase by 18.5 %, but much of it is for digital education; and even
this increase would leave the share of education expenditure in GDP unchanged
at about 3.1 %, a far cry from the objective of raising it to 6 %.
There is an urgent need for
a strategy that promotes economic revival while providing relief to the poor,
and contributing to an abatement of inflation. The strategy, of giving tax
concessions to the rich in the expectation of stimulating private investment,
and raising indirect taxes, notably on oil, to raise revenue to compensate for
what is foregone, is an important cause of the emerging inflationary recession
scenario. Although it is amply clear by now that private investment, far from
getting stimulated by such tax concessions, shrinks because of the ensuing
recession, even in the current budget this strategy is at work: fuel prices
have been raised by Rs 2 per litre (for unblended fuel which is the bulk of
India’s fuel consumption) through an additional excise duty, while subsidies have
been cut (which is analogous to arise in indirect taxes).
In order to correct the rising inequality with measures aimed at
progressive direct taxation and reducing the share of indirect taxes that
burden the people the Union Government must be forced to explore wealth,
inheritance and higher corporate tax. In fact the best way of mobilizing financial resources is
through Wealth Tax and Inheritance Tax. At a conservative estimate, the top 1
percent of the population owns 40 percent of total private wealth, about Rs 300
lakh crores. Even a 2 percent wealth tax on this would therefore yield Rs 6
lakh crores. Wealth tax must be complemented with an inheritance tax. Otherwise
the rich will only divide up their wealth among progeny in order to escape
wealth taxation. If only 5 percent of wealth by the richest 1 percent of the
population is passed down every year to progeny, then an inheritance tax of
one-third (33 1/3 percent), will fetch Rs. 5 lakh crores. These two taxes alone
will thus fetch Rs 11 lakh crores per annum.
The central government has 8.9 lakh vacancies in its departments
and ministry since March 2020. There are more vacancies in central PSUs,
schools and colleges. The government could have prepared a consolidated list of
vacancies and ordered filling of these vacancies on a priority basis to address
the chronic job crisis. It could have appealed to state governments to do the
same. It could have addressed growing poverty by giving direct income support
to the poor - the bottom 40-60% of the population severely impacted by the
pandemic. It is easy to identify them. The Ayushman Bharat uses the Socio
Economic and Caste Census (SECC) of 2011 to identify the bottom 40% of its
beneficiaries. The remaining 20% could also be picked from the same SECC. To
raise income, the government could have also increased the minimum wages, stuck
at Rs 176 for years. The Union Government should have raised the MGNREGA wages,
which remains below the minimum wages at Rs 209.3 in FY22 and Rs 200.7 in FY21.
These measures could have immediately raised the income levels of a large
workforce to boost consumption demand in the economy.
Doubtful
claims of Make in India programme
Post-reform
dismal performance of the organised as well as unorganized sector led processes
of manufacturing and services tell us that jobless growth, economic slowdown,
lack of knowledge and skill intensive manufacturing, premature
de-industrialisation and manufacturing are interconnected. The Make in India programme
needs to create decent jobs and develop forward and backward linkages and
reduce import dependence. The main policy components of the “Make in India”
campaign are: 1) ease of doing business, land acquisition, 2) creation of
physical infrastructure, 3) establishment of Delhi-Mumbai Industrial Corridor
(DMIC), 4) Special Economic Zones (SEZs), 5) luring foreign companies with
incentives for the expansion of manufacturing, 6) union government using public
procurement of defence equipment, 6) reform of labour law and practices, 7) dilution
of environmental regulations, 8) encouraging foreign direct investment (FDI)
without technology transfer, 9) sale of central public sector enterprises, 10)
monetisation of public assets for transfer of control of infrastructure to private
parties, 11) tax concessions to big business, 12) custom duty changes, 13) further
liberalization of intellectual property rights (IPR) protection provisions, 14)
transfer of control of education and training facilities to corporate sector,
etc.
The Modi Government launched the Make in India policy in 2014.
This policy is the latest attempt since 1991 to make India the centre of the
global manufacturing supply chain. The government has now put all of its eggs
in the basket of the Production Linked Incentive scheme of July 2020 (PLI). Thirteen
sectors are covered by PLI schemes. The sectors
include mobile phones, pharmaceutical products, automobiles, specialty steels,
textiles, photovoltaic panels and advanced chemistry cell batteries. The PLI is
valid for five years, ending in 2026-27. The minimum capital outlay is US$14
million with an exception for Indian micro, small and medium enterprises, for
which US$1.4 million is the entry level investment. The PLI schemes aim to
place India more firmly within the global supply chain. The attempt is to direct
foreign direct investment and private domestic investment to manufacturing.
Although there are claims from the side of the Union Government, but it is not
clear how much the framework will actually encourage the investors to practice localization
of production and help build India new manufacturing clusters and get supporting
companies to follow manufacturers into India, or help to generate employment in
India. While during the COVID period the importance of local manufacturing,
domestic market and shorter and local supply chains undoubtedly grew for the
Modi government, but the domestic value addition and technological autonomy
could not improve through the framework of PLI schemes is quite clear.
Electronic manufacturing
Why do we say
this? Take for example how “Invest India” has chosen to market PLI scheme in
the case of electronics manufacturing to be a success story of the Modi
government. The claim is that a significant increase in global demand for
consumer electronics has given India an opportunity to attract foreign
investments as well as encourage domestic manufacturers to focus on
manufacturing consumer electronics in India under the flagship ‘Make in India’
initiative of the government. It is true that India’s electronics exports have
increased from US $ 9 billion to US 4 15 billion between 2014 and 2019. But it
is also true that imports have also grown. India’s electronic imports stood at
US 4 51 billion in 2019. There was an overall trade deficit of US 4 36 billion,
out of which China accounted for US 4 19 billion. Top imported items (during
2019-20) were parts of smart phones, personal computers, data transmission
machines,, parts of LED/LCD TVs, Integrated Circuits, cameras and servers.
Assembly has been growing. There has been a shift from “semi knocked down”
(SKD) to “completely knocked down” (CKD) level.
The ICRIER report
(August 2021) characterised the performance of PLI scheme in electronics as
well begun but barely done. The report suggests that there exists a multitude
of existing and emerging constraints. Current tariff and tax policies neither
meet the industry needs nor maximize fiscal revenue. The industry is caught in
the vicious cycle of small scale and high costs. There is absence of
complementary supporting policies. The FDI inflows to Indian electronics
industry have been low, even from free trade agreements (FTAs) countries. There
is a lack of skilled workforce needed to produce complex parts and components
and specialised technical personnel. The global electronics value chains have
been seeking further opening of trade and investment regime. The conditions are
at odd with the policy of phased manufacturing programmes (PMP) considered to
be necessary for the reduction of import dependence. It is difficult to believe
that this situation can be considered as significant progress is far from
clear.
Under the National Policy on Electronics
2019, which was introduced to position India as a global hub for electronics
system design and manufacturing, the Ministry of Electronics and Information
Technology (MeitY) introduced a Production Linked Incentive Scheme for
large-scale Electronics Manufacturing with effect from April 1, 2020. PLI scheme
extends an incentive of 4 per cent to 6 per cent on incremental sales (over
base year) of goods under target segments that are manufactured in India to
eligible companies, for a period of five years subsequent the base year
(FY2019-20). The scheme was open for filing applications till 31.07.2020. Over
the next five years, the approved companies under the PLI scheme are expected
to lead to total production of more than INR 10,50,000 crore (USD 140.6 Bn).
Out of the total production in the next five years, around 60 per cent will be
contributed by exports of the order of INR 6,50,000 crore (USD 87 Bn). While
the PLI schemes have been recently launched by the government in several
crucial sectors of the economy, it is important to note the impact they are
creating on the ground.
Automobile
and Auto components
The Government of India (GOI) announced Production
Linked Incentive (PLI) scheme for Automobile and Auto components sector to
boost domestic manufacturing of Advanced Automotive Technology products and
attract investment in the automotive manufacturing value chain with the highest
total budgetary allocation of INR 25,938 crore. The industry contributes 35% of
India’s Manufacturing GDP. A study has estimated that top 12 import categories
such as drive transmission, steering units, engines etc. account for 62% of
total imports. While India remains competitive in some areas, there remain
technologies and parts that are either not made in India or for which we
haven’t matched the global scale, prices, or quality. This PLI scheme will have
to address the competitive gaps amidst the rapid technological shifts. Open for
existing automotive companies as well as new investors, the scheme is a ‘sales
value linked’ scheme and has two components of Advance Automotive Technology
products: Champion OEM Incentive Scheme on battery electric vehicles (EV) and
hydrogen fuel cell vehicles (HFCV) of all segments and Component Champion
Incentive Scheme. Eligibility criteria to apply under the schemes are as
follows (INR in Crores) for existing automotive investor is 1)Minimum Global
Group Revenue of INR 10,000 crores and INR 500 crores for OEM and Component
manufacturer respectively and 2) Minimum Global Investment in fixed assets of
INR 3,000 and INR 150 for OEM and Component manufacturer respectively. In
addition to this, the Company will also have to meet the criterion of
incremental cumulative domestic investment and determined sales target.
The Ministry of Heavy Industries (MHI) has prescribed
the Advance Automotive Technology Vehicles eligible for Champion OEM Incentive
scheme. Hydrogen
fuel cell vehicle of all segments, Battery electric vehicles of all segments,
which will have to meet the performance criteria of FAME-II scheme or as
notified from time to time by MHI, are currently the targeted items. List of Advance Automotive Technology Components was
notified on 9 November 2021. Fast-evolving automotive regulations on emissions,
safety and energy efficiency, coupled with swift changes in consumer trends are
the driving factors for technological shifts globally including shift towards
electric vehicles and rising level of vehicle automation and connectivity. It
is pertinent to note that since the guidelines mention that the list of
eligible products can be amended from time to time depending upon
technological developments there is much reluctance being shown from the side
of the private sector investors. Further
the scheme
guidelines require a minimum of 50% domestic value addition. With this
ambivalence in the list of eligible products, it might not be possible for
applicants to reap benefit for the entire tenure of the PLI scheme. Further,
for continuation of the PLI scheme benefit, an applicant may require additional
investment for ever-changing uncertain eligible product criteria. Further, in
case applicant is not able to achieve the turnover and investment criteria due
to alteration of the list of eligible products, MHI may invoke the bank
guarantee furnished by the applicant.
India relies heavily on import of Lithium
batteries. About 58% of the world’s lithium reserves are in Chile and about 43%
of rare earth mineral reserves are in China. Owing to this skewed concentration
globally, India had to import lithium batteries in huge quantities. In 2019-20,
India imported 450 million units of lithium batteries valued at INR 6,600
Crores. Lithium battery pack is the most expensive component in an electric
car, costing between 30 to 40 percent of the vehicle’s total cost. In the case
of Semiconductor chips, prices of semiconductors have been climbing since 2020
amid global supply crunch Chip lead time increased to 17 weeks from 12 weeks in
2020. This will result in rise in import input cost as India relies heavily on
import of semiconductor chips. Such heavy reliance on imports of inputs such as
lithium batteries, semiconductor chips, e-drive, circuits, transistor etc.
which accounts about half of the vehicle’s cost, may pose a significant
challenge for applicants to comply with 50% of minimum domestic value addition
criteria. Successful execution of the PLI scheme would require considerable
investment in the charging and other infrastructure to support the operation of
EV and HFCV amongst consumers. Infrastructure challenge may also deter the
desired sales of EV and HFCV and as a result complying with Y-o-Y growth in
determined sales value will be dubitable. These
are certain speed limiters for auto PLI scheme, undermining the scheme at the
current stage rather than by the results in the coming time would be imprudent.
Chinese ICT
pathways for catch-up
Like the nation states of Japan and South
Korea combined systematically the pathways of catch up and leapfrogging to
pursue transformative changes the nation state of China has again tried
following a similar path though faced with less favorable conditions of the
post-WTO trading system in place now globally for investment in technology and
foreign trade. For example, China does not grant automatically market access to
foreign investors. Thus, China was able to negotiate favourable conditions for
the absorption and assimilation of foreign technology in a number of new and
emerging technologies. China is undertaking public investment to obtain the
strategic leadership in digitalisation and industrialization. India is trying
to rely on Google Amazon and Microsoft. China has been consolidating its
presence in technology business, using Internet of Things, Internet of
Services, Internet of Media, and rapidly promoting diversity in the use of AI
and broadening the range of various industries, mastering big data and data
analytics, and building now its own digital silk road to strengthen the place
of domestic firms in the home market as well as the regions coming under the
OBOR.
In China, Baidu,
Alibaba, and Tencent (BAT) are contributing to self-reliant development. China
has been able to exploit in a significant way multi-faceted datasets on
individual consumers and users of data for systematic use in the development of
artificial intelligence (AI) algorithms. The Chinese model allows a market of
size that rivals Google, Apple, Facebook and Amazon (GAFA). AliGenie and Alexa,
AI startups like Toutiau, which use AI algorithms to recommend news and
websites to its users, have been able to get much space to grow in the domestic
market. Baidu- analog to Google, began investing in AI in 2013, has established
the Institute of Deep Learning, four internal labs, Baidu Cloud Baidu Brain
supporting 370000 developers invoking its functions 2000 billion times a day;
creating platforms in new fields-self driving platform Apollo and the
customized AI operation system DuerOS, investing in self-driving mobility and
speech interaction companies such as NIO and KITT. Alibaba, a Chinese Amazon
analogue, built its strategy on the foundation of iDST, a pre-existing data
centre established in Silicon Valley in 2014, and developed its cloud computing
service which later evolved into ET brain artificial brain platform promoting
AI use in all fields.
In 2014, UNESCO
established in China its International Knowledge Centre for Engineering Science
and Technology at the Chinese Academy in Engineering in Beijing specializes in
big data and knowledge services. From 2016 onwards AI labs and products such as
AliGenie and CityBrain Alibaba have been shaped up through the vertical
integration in AI hardware products such as DeePhi Tech, Cambricon. Tencent has
no clear analog in the US or EU setting up several teams to proceed and compete
with each other not only promoting games but medical imaging recognition and
analysis; Tencent is making investment in NIO and Tesla requiring data and
AI-based algorithms. JD.com B2C platform owns warehouses and logistics uses, DiDi ride-hailing
platform like UBER/OLA and Meituan Dianping (MD) provides on-demand services
accumulating data for design and production.
Six areas in which China has shown amazing
outcomes: New energy-RET, aerospace equipment, e-business, mega length bridges,
transportation network (high speed rail, tunnels) and supercomputers; China
accounts for % of world total-personal computers (90), solar cells, air
conditioners, energy saving lamps (80), mobile phones (70), ships (45). In all
these examples, it is the Chinese Government leading the transformative
process. Four national AI platforms have been identified for support, and BAT
is exploring already these fields in a systematic manner. This strategy is allowing the transfer of
capabilities developed in one sector to other-Baidu in speech and image
recognition, Alibaba in data analytics, Tencent in interactive services.
At home state owned enterprises, quasi
private sector firms and research institutions are developing AI 2.0-big data
based intelligence, internet crowd intelligence, cross-media intelligence,
human machine hybrid augmented intelligence autonomous intelligence systems.
Benefits from AI 2.0 are being obtained from these developments in China in a
systematic way for E-government, E-Commerce, Express Logistics, Intelligent
communities, smart phones, televisions, household appliances, manufacturing and
urban development. Institutional changes are pushing collaborative industry
programmes and research plans, implementation of multi-regions, multi-sector
plans of collaborative R&D to exploit diverse and complementary
competences.
China started with the SEZ model
complemented by State Planning policy complemented by incentives to foreign
firms, and is continuing with state coordinated initiatives and cluster
development through Made in China 2025 plan. Ningbo a port city chosen as a
first pilot city for the implementation of Made-in-China 2025 plan; 20-30
cities cohort planned to join Ningbo and to achieve diversity in development;
it signals shift from the strategy of perusal of grand production workshop and
the intention to become a world manufacturing power. China has a coherent
strategy for the future in place: 2015-25, 2026-35, 2036-49: focus on improving
the quality of products, creating their own brands, building a solid
manufacturing base by developing cutting edge advanced technologies, researching
new materials, and producing key parts and components of major products;
priority development of ten industries-IT, high end numerical machinery and
automation, aerospace and aviation equipment, maritime engineering equipment
and high level vessel manufacturing, rail equipment, energy saving vehicles,
electrical equipment, new materials, biomedicine and high performance medical
devices and agricultural equipment.
Lessons for
industrial policy making
Scholarly
analyses of the successful examples of late industrialization as undertaken in
Japan and South Korea have some clear lessons. Comparatively speaking, India’s experience shows that
the perusal of pro-service vision has also run India into premature
de-industrialization. India is therefore having difficulty even in sustaining
its competitiveness in the IT enabled service sector-ITES (ICT, finance and
consulting). It has seemingly failed in increasing its public and private
investment in services sector related R&D. The Indian experience is defined
far more by the features of lack of successful efforts for the development of
manufacturing, absence of symbiotic development of agriculture, industry and
services, inconsistent with technological self-reliance and lack of commitment
to the perusal of pathways of catch-up and leapfrogging on part of the
political leadership.
Weaknesses of hardware sector
and engineering education are impacting adversely on the creation of STI
leadership for the development of manufacturing capabilities. These weaknesses
are evident in the failures being experienced in respect of development of high
value added IT products in the case of domestic companies. The share of foreign
controlled companies has been growing in the higher value added segments of the
ITES. India’s ability to offer low-cost, high-quality IT-BPO services has made
it a world leader in this industry. However, employment in services has not
grown as quickly as output. The majority of India’s jobseekers are low-skilled,
but demand for workers is growing fastest in higher-skill industries. The
supply of highly-skilled workers has not kept pace with demand, causing wages
to increase faster for these workers than for lower-skilled ones.
Scholarly
analyses indicate that the pursuit of catch-up and leapfrogging pathways have
involved in these cases the nation states to undertake the following important
changes: 1) a deliberate (planned) transformation of cognitive and productive
structures that required the nation state to keep up with public investment in
scientific, technological and educational institutions, 2) a balanced change in
the share of agriculture, manufacturing and services (capacities), 3)
pro-domestic manufacturing vision, 4) development of innovative enterprise,
discouraged low road to export competitiveness, 5) augmentation of social
capabilities, 6) development of user capabilities on the demand side to promote
systemic and structural competitiveness and 7) building of developmental /
entrepreneurial state apparatus.
The nation states
chose to nurture as well as discipline to some extent the emergent social
carriers in quite a few sectors in these countries. The state apparatus was far
better placed in imposing on the business groups the obligation of systematic
contribution to the processes of absorption and assimilation of new and
emerging technologies. Thus, these nations have succeeded only because the
states were able to undertake rent management quite successfully. The
governments were able to create opportunities as well as withdraw incentives in
a timely manner. Profitable investments were systematically encouraged. In the
industrial and technological policies, the governments could incorporate the
pro manufacturing vision, symbiotic development of agriculture, manufacturing
and services, technological transformation and overall social progress in the
sphere of education and health. These steps allowed the nation states of these
countries to steer and coordinate the emerging socio-technical
transitions.
There was a major
contribution from the deliberate, planned evolution of capabilities required
for the development of the knowledge and technology intensive frontline
sectors. The state of evolution of capabilities (new and emerging sectors) can
be treated as a benchmark / criterion of success. Capabilities include not only
education / human capital but also the capabilities associated with problem
solving knowledge embodied in organizations and systems. The mere absence or
presence of the market as an institution for resource allocation and mobilisation
cannot explain success and failure to undertake sustainable industrialisation
and digitalization in different types of socio-economic systems. It is clear
that the late industrializing countries did not follow the policy of free
market that the Washington Consensus prescribed and has been followed by the
post mid-1980s political regimes and leaders to varied degree in one or other
form in India.
Technological
autonomy involves the accumulation of capabilities for technological learning.
The processes of acquisition of the abilities of how to implement and
eventually also how to generate new ways of producing and new products under
conditions of dynamic increasing returns are critical to the achievement of
success in technological learning. It is also well apparent that the benefit of production expansion
accrued to the people of India only when there was focus on the implementation
of indigenous innovation and the development of home grown innovative
enterprises. Specific experience of implementation of the policies connected in the
case of pharmaceuticals seems to suggest that achievements in respect of
technological self-reliance were made possible with the help of the non-big
business groups. As a social carrier of innovation young start-ups led by
professionals with the help of public sector were willing to be subjected to
some discipline.
The state could
guide to some extent the growth process of pharmaceuticals in favour of the
distribution of rents favourable to learning and indigenization. Of course, this
happened also only up to a point; commitment of the policies after 1999-2002 was
inconsistently followed and regressive in many ways. Even the phased
manufacturing programmes / domestic content regulations could not be
consistently implemented after a point in the sectors of automobile and
renewable energy. Not only that phased manufacturing performance was not
monitored rigorously by the state but also after growing in size the very same
non-big business groups have also begun now to emulate the behavior of big
business. Further the policymakers seem to be lacking in political will; they
are not willing to discipline the firms in respect of their possible specific
contribution to indigenous technology development. Analyses made have shown
that in order to harness the gains of export promotion for technological
learning in the post-World Trade Organization (WTO) conditions it was necessary
for the Indian state to delay the process of external liberalisation and use
the flexibilities available in the WTO Agreements for the development of
pharmaceutical and auto sectors. It appears that this kind of selective
protection would be essential whenever the target is to undertake the perusal
of import substitution and export promotion in a consistent way.
The
conditions of global competition and catching up requirements have changed
quite rapidly on account of the institutionalization of WTO Agreements and the
changing strategies of transnational corporations that are originating out of
the influence of transnational corporations on the governments of advanced
countries. Both import substitution and export promotion strategies are now
experiencing hurdles as the barriers are raised by the transnational corporates
having an advantage of the protection of WTO Agreements. The activities of
global businesses can no longer be the same as in the decades of seventies and
eighties that allowed South Korea and Taiwan to catch up. While the area of
manufacturing activities is still a critical activity for remaining competitive,
global competitors have been able to move rapidly the grounds of competition to
the innovation activities such as R&D, engineering design, standards,
marketing, supply chain management while transferring the standard
manufacturing activities to lower cost locations itself in many cases including
China and India.
Internal
liberalisation failure occurred on account of the problem of exhaustion of home
market. Lack of sustained investment demand can be a recurring problem in the
paradigm of import replacement and exports of mature goods. The challenge of
introduction of major innovations like the absorption of electronics,
biotechnology, renewable energy technologies and new materials can be addressed
only through the active coordination of development of technology and market
demand and not through laissez faire policies. As a result those industrial
policies that could incorporate successfully the capacity for learning to
innovate while expanding production capacity are likely to have a better success
in late industrialization. The US had to resort to the perusal of the idea of
entrepreneurial state in order to catch-up with Japan.
Policy
alternatives for self-reliant development
In the post-WTO
world, it is clear that the instruments of state intervention would need a
re-invention. Conditions need to be prepared for the state governments being
able to transfer resources to young start-ups, cooperatives, small and medium
enterprises and such new business entities which are ready to contribute to structural
learning and innovation making for the development of local, regional and
national socio-economic requirements. Big business needs to be disciplined by
getting its distinguished members to fall in line with the requirements of
society and economy. In the post-WTO world, it is today still possible to
transfer resources to domestic firms in the name of technology, R&D,
environment and backward area development. In the post-WTO world, resource poor
actors can be supported because the governments of advanced countries needed
this policy space.
As listed in the
literature coming out on the question of industrial policies, we would like to
identify the following principles as essential ingredients for success: (i) an
‘emulation philosophy’ vis-à-vis the most promising technological paradigms;
(ii) various measures safeguarding the possibility of ‘infant industry
learning’, involving also the purposeful ‘distortion’ of market signals as they
come from the international arena; (iii) explicit policies of capability-building
directed both at education and training but also at nurturing and shaping
specific corporate actors; (iv) a ‘political economy of rent-management’
favorable to learning and industrialization, while curbing the exploitation of
monopolist positions; (v) measures aimed to foster and exploit a weak
Intellectual Property Rights regime, especially with respect to the companies
of the developed world; (vi) strategies aimed at avoiding the ‘natural resource
course’; (vii) ‘virtuous’ complementarities between industrial policies and
macroeconomic management.
Production
structures set the stage of learning dynamics- because they help prepare human
minds for the discovery of production possibilities. In India the narrative of
promotion of manufacturing also revolves at present around the theme of how the
sector of manufacturing needs to become an engine of job augmenting growth.
There is a talk of how the manufacturing sector needs to grow by 12-14 per cent
and create in the coming 15 years 100 million decent jobs. Our own
understanding that the sectors of manufacturing catering to rising demand need
to be promoted in order to realise the job augmenting potential of
manufacturing in the Indian economy. The new pathways of self-reliance should
prioritize the stimulation of internal demand arising out of the crisis of
agriculture, natural resources, energy, urban living and health need to become
the priorities of employment guarantee, poverty reduction, infrastructure
development and implementation of climate change related obligations. This
would involve necessarily a shift away from the policy regime (s) focusing
solely on the pathways of development offered by the strategies of import
substitution and export promotion to the creation of a new policy regime which
would diversify and focus also on the implementation of a new strategy of
autonomous development bringing about the development of systems of local
production and innovation by upgrading the local capabilities of peasants and
artisans and their access to local resources and local markets to achieve
self-reliance.
In order to
upgrade the system of innovation the state will have to actively focus on the
use of instruments that foster the development of horizontal networks,
indigenous clusters and technological effort intensive like environments with a
view to harness the opportunities arising out of the spill-overs connected with
the route of outward orientation in the cities attracting outsourcing
investments. The strategy of leapfrogging would need developmental efforts not
only to become inclusive and be geared explicitly to the reduction of poverty
through welfare to safeguard their health, nutrition and education but also
linked to the development of the capabilities of the poor and marginalized
people as a part of the programmes for upgrading of their livelihoods in both
rural and urban areas in a symbiotic way.
Basic needs of
the urban and rural poor and productive apparatus upgrading requirements would
now have to be met by the construction of “wider pathways of self-reliance”
catering to the establishment of innovation development trajectories linked to
the upgrading of local economies as systems in themselves which are competitive
and effective in respect of improving the quality of life of the poor. Local
economy systems would have to be built on the basis of technology
configurations that value local resources, capabilities and markets rather than
import replacement paradigm to meet the demand arising out of elite consumption
and import dependent producers catering to imitative lifestyles. It is important to recognize that how for the
big business their interest in the idea of self-reliance was earlier completely
contingent on the state’s ability to transfer resources to them for keeping their
interest profitably intact in the project of industrial capital accumulation.
Today their strategy is also directly focused upon encroachment of public
sector resources through the processes of privatization, commodification and
tax holidays. These groups have their
eye on the land, water, forests, minerals and knowledge resources and their
strategies are already in direct conflict with the interests of the poor and
marginalized in the sense that all these resources are going to be needed by
the rural and urban poor if they want to emerge as the social carriers of
innovations in the construction of new pathways of pro-people development in
India and these late developing nations.
Concluding remarks
Failure to
articulate the growing importance of construction of new pathways for
sustainable and just development is very much the main issue facing the
advocates of adoption of self-reliance based strategy of development. We need
to argue that there exist alternatives and these alternatives must be pursued
at the local and state level in collaboration with the forces opposed to
neo-liberal policies. Experience of the countries of Latin America shows to
some extent a way ahead to the leadership of rural and urban poor in Asia. Most
recent experience of the left in India also suggests that the new pathways need
to be articulated for a reinvention of the instruments of state intervention
under the new conditions of post-WTO world.
Possibilities
exist for the creation of new pathways of self-reliance if the political
economy can be made favourable to the idea of self-reliance for ecologically
and socially just development. It is noted that how the quality of strategizing
is also going to matter in respect of creation of new routes to catch-up and
leapfrogging. Whether the pathways pursued would be wider or narrower in terms
of social conditions, innovative enterprise development and commitment to
education and skill base formation is likely to be determined by political
economy. Since the quality of strategizing efforts that the leadership of rural
and urban poor need to show is crucial to the perusal of new pathways the
challenge of policy alternatives is not an ordinary challenge.
Recent experience
tells us that the failure to conceptualise alternatives is in fact becoming a
question of survival of the progressive politics in India. The challenge is very much with regard to the
design of appropriate pathways of symbiotic development of agriculture,
manufacturing and services. Agro-ecological approaches provide an opportunity
for not only agrarian transformation but also for rural industrialisation.
Industrial development, renewable energy, sustainable urbanisation, water and
waste management, provision of social determinants and resources for
sustainable healthcare need to be promoted in an integrated way to create new
niches in order to meet the aspirations for self-reliant, employment intensive,
energy conserving, environment friendly and socially just development. We need
to recognise that the constraints exist at not only the level of labour surplus
but also at the level of socio-ecological problems. Alternate pathways of
industrialization and capability building should be thus constituted using
alternate socio-technical frames for indigenous innovation. Institutions
required for the steering and coordination of the efforts required for the
development of socio-technical systems and policy regimes would have to be
developed to suit our own challenges, and we cannot rely on the imitation of
others to achieve success.
