Make in India: First of all, I have been saying for years that India will fail to transform out of its third world condition unless it transforms into a manufacturing economy. There are simply not enough industrial jobs to transition people out of agriculture and out of mom and pop sort of trading. THe notion that India should become a manufacting economy is sound. That said, I question if Modi can deliver. Transforming INdia into a manufacturing economy will require a transformation of the Indian legislative and administrative landscape that does not seem within his grasp. There are two models that can be followed. The China model and the Western model. The China model requires a level of focus and authority in the central government that India does not possess. In this model, the objective is to essentially subsidize manufacturing capacity on a massive scale. This causes the cost of manufacturing to plummet below any sort of realistic level, and creates international competitiveness. However, this would very quickly bankrupt the government unless the government turned the export earnings generated into a credit system for the world. Every economy that overspends buys from China, and gives China dollars. China then turns around and lends the money back to the governments of the countries that buy its goods. They use the money to buy more chinese goods, and pay china with the money that CHina lent them, and then china lends them the same money again. The result is the amount of money people end up owing china goes insanely huge, chinas subsidized manufacturing gets an unending market, subsidized with the money others have paid china to borrow it back from china. India cant do this simply because its system of government does not have the long term stability of policy, because all the political parties want to serve themselves rather than the country. You need a one party government to even begin to dream of being able to pull this off. The other model is the western model: This relies, not on the government distorting the international system of soveriegn debt and balance of payments, but on the efficiency of the private sector. And thats going to be very hard to do as well because an efficient private sector requires freedom from parasitic and authoritarian government control and true domestic competitiveness. That means a company should be able to acquire the talent and resources that it needs without having to deal with obstruction by government rules, regulations and officials. This is a very serious point. If babus and mantri obstruct clearances then those willing to bribe them will get the clearances. Having gotten the clearances through bribery, they lose competitiveness in actual engineering design and manufacturing because they can gain profitability and market share through payment to officials rather than through being good at what they do. A manufacturing economy needs removal of government obstruction that creates opportunity for bribe demands. And it needs huge energy and transport infrastructure. We have neither. From coal allocations scams to bribing engineers and linemen to not pay for the cost of electricity and officials looking to build only projects that they and their friends will make money on, we end up grossly short of energy supplies. Its the same with transport. Contractors and officials collude to enter transfer public funds into their own hands, then dont complete the work and leave projects incomplete with cases dragging on in the courts for years while the project funds are long gone. Then there is the human resource infrastructure. OUr education system is inadequate for a manufacturing economy. 90% of our engineers cannot do the most basic engineering jobs. Our best universities are barely good enough, there is a gross shortage of professors, and the universities that do exist at the top tiers have a culture of inculcating rote learning rather than creating problem solving. There is not even a dream of inculcating the ethics of the profession as a mentality and mind set. As soon as you drop below the top tier, you end up professors who dont even know the meaning of creativity. Teaching, syllabi, teacher/student interactions are all bureaucratic. On top of that, there is a gross shortage of higher education institutions. You cant open a university without paying huge bribes, which you then earn back from fees. Emphasis on innovation, creativity, professional competence and ethics? Non-existent. Its why companies like Tata, Mahindra, TVS, videocon cant design, engineer and manufacture products that are competitive on the international markets. What we need is foreign knowhow. foreign companies have to be allowed to do business in India, so that indian companies can benefit from the latest methods and technologies. Hyundai makes world class cars today because it apprenticed with the likes of Ford and Mazda for decades, for example. The thing is, absolutely India needs to become a manufacturing economy. But it means a transformation of policy, it means a transformation of regulations, it means a destruction of most venues of bribe taking, it means destruction of the nexus between corruption business, corrupt officials and corrupt policitians, it means opening up the economy to foreign intellectual property and methods, it means bringing in foreign educational institutions and teachers in huge numbers to get our education system working like one needed by a manufacturing economy, and it means vast socio-political change. and thats not likely to happen. the BJP is as corrupt as any other party, it is as lacking in a desire for comprehensive change as any other party, its as addicted to corruption as any other party, and its not going to risk votes by pushing through necessary but potentially unpopular measures. on the whole, NDA will do better than UPA, but no transformation is going to happen.
Posted on: Fri, 26 Sep 2014 14:19:29 +0000
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