In the last 10 years, the number of global research and development (R&D) captives in India has been progressively increasing. A recent study by Zinnov Consulting found that nearly half of the top 500 global R&D spenders have set up shop in India. These captives and their service providers together have created a globally exposed and competent workforce in India in addition to a new wealthy class of a few white collared professionals. The positive impact that this has made to the country is significant and real, even if it is limited to a small percentage of the population. To replicate this success in manufacturing seems a worthy objective, but with lessons from the past, we can and should aim higher.

However, an export-oriented manufacturing policy sidesteps this issue since the goods produced will mostly go out. Another key issue in India is a broken credit system that makes it difficult for new businesses to raise debt. The ‘Make in India’ initiative will even further tilt the balance in favour of large domestic firms that hog all credit and can also tap international markets or foreign firms that have better access to capital in their home country. These are barely two in a long list of reforms that India awaits.

However, that is an unlikely scenario given the current policies we are pursuing. Right now, we are trying to encourage creation of figurative islands in India with a red carpet for setting up factories and exporting those goods. We have done that successfully in services and seen the limitations. A focus on ‘Make for India’ will spur ‘Make in India’ export-oriented businesses too but the reverse doesn’t happen automatically. We have the opportunity to get it right this time

. A focus on ‘Make for India’ will spur ‘Make in India’ export-oriented businesses too but the reverse doesn’t happen automatically. We have the opportunity to get it right this time wrote:http://www.thehindu.com/opinion/op-ed/make-for-india-not-just-in-india/article6512290.ece#comments

truthbetold wrote:The simple question is where are the buyer to make for india.  When India exports, it creates jobs.

confuzzled dude wrote:

truthbetold wrote:The simple question is where are the buyer to make for india.  When India exports, it creates jobs.

India buys from bikes to heavy machinery from China, is that because of cheaper labor?

For years, the small factory Ballabh worked at flattened steel into sheets that were cut into circles and passed to adjacent factories, which pressed these into household utensils. "A year ago, the market was flooded by Chinese steel, which was pre-cut in standard sizes for katoris (bowls) and thalis (plates)," says Anil Singhal, a steel trader. He added the Chinese products were cheaper and of better quality. "Wazirpur's pressing units now prefer to import from China, rather than buy from an adjacent plant."

"Our plant is closing tomorrow. The owner has told us to collect our dues," said Ballabh, who arrived in Delhi 15 years ago to cold-roll steel in Wazirpur's cluster of metal factories. "A month before Diwali, 70 of us will lose our jobs."

Entrepreneurs, however, say they are unsure when the many obstacles in India will be cleared.

In 2003, Umesh Menon, a 43-year-old professor at the Entrepreneurship Development Institute of India in Ahmedabad and a consultant with the United Nations Industrial Development Organization, decided to try his luck at starting a business of his own. "I had always told my students India was the best place to invest. But when I started, I had a quick reality check," he said. "I wanted to start a scalable business, but in India, scaling up attracted higher taxes, more inspections and more problems."

Instead, Menon and his partners invested $50,000 in a cold-storage business in Uganda. "In 24 hours, they had registered my business and given me a welcome kit, with my clearances, licences, tax number and a driving licence, too," he said. "In India, $50,000 won't even get you through the door."

In two years, Menon had acquired 10,000 acres to start an agriculture business. Along with his partners, he also set up a bakery. In 2010, he moved to Mozambique, where he set up the country's first private hospital, along with an Indian partner.

"In India, the government only helps the big guys," he said. "We court foreign investors, but we forget our own people, who have nowhere to go."

Since our Prime Minister likes alliterations, he may well have to respond to the question; come on now, what will it take to make (in India)? As a fan of the East, he can draw lessons from many of Asia’s successful countries that perfected the model of becoming factories to the world. India has bucked the odds and made a leap to a tertiary (services) economy without transitioning through a secondary (manufacturing) one.

The mandarins in Delhi have hitherto believed that this services revolution will be sufficient to produce the productive jobs required to lift India into middle-income status. The services segment is made up of not only the specialized information technology sector but also a large and low-tech subsistence set of businesses.

A re-routing through the manufacturing sector will be required to formalize employment and benefits for these low-tech workers and to lift productivity. India will, of course, have to follow her own path, not copy others. Some ideas have been discussed piece-meal so far. Here is a more complete list of what it will take.

The manufacturing sector witnessed an absolute increase in employment in the first half of the decade from 44.05 million to nearly 55.77 million in 2004–05. However, the second half of the decade witnessed a decline by about 5 million to reach the employment level of 50.74 million. However, this was still 15 per cent higher than the employment in the beginning of the decade. This change in the trend in employment generation in manufacturing sector may perhaps be due to faster increase in the average annual increase in real wages in India driven by a greater shortage of skilled workers (use of capital intensive technologies) and unskilled casual workers. The employment elasticity for manufacturing sector has shown a downward trend from 0.76 in the first half of the decade to –0.31 in the second half of the decade. This suggests substitution of labour by capital intensive technology resulting in fall in total employment despite an increase in total manufacturing output.

Most of this decline in employment was confined to states like Maharashtra (1.81 million) Tamil Nadu (0.98 million), Uttar Pradesh (0.85 million) and Jharkhand(0.25 million). The most distressing part was the fall in employment in the most industrialised states, namely Maharashtra, Tamil Nadu which accounted for 75 per cent of the decline in the manufacturing employment in the country in the second half of the decade.

In terms of state wise share of employment,it emerged that the national average for the share of manufacturing employment accounted for 11 per cent of total employment in 2009–10. There are 9 major states where this share is greater than the national average: Andhra Pradesh (11.9 per cent) Delhi (24.84 per cent), Gujarat (12.6 per cent), Haryana (12.2 percent), Kerala (13.5 per cent), Punjab (15.9 per cent), Tamil Nadu (19.6 per cent), Uttar Pradesh (11.1per cent) and West Bengal (18.4 per cent). Given the fact that there are advantages of agglomeration in the manufacturing sector it is likely that even in the future these states will continue to account for growth in manufacturing of GVA and employment. The state of Karnataka (9.4 per cent) also has similar proportion in employment as at national.

In terms of the share of manufacturing in state GVA, seven states have higher than the national average of manufacturing share in GDP (15.9 per cent) in 2009–10: Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Maharashtra, and Tamil Nadu. These states could continue to grow fast during the Twelfth Plan period. But this depends to a larger extent on the manufacturing employment elasticity of output. While States of Chhattisgarh, Gujarat, Haryana, Delhi, Uttarakhand and West Bengal have positive employment elasticity, the states of Jharkhand, Maharashtra and Tamil Nadu have negative employment elasticity which implies usage of more capital intensive technology