This is a testing post.
Make in India
Sunday, October 20, 2024
Monday, August 31, 2020
Has the Make in India program been successful in altering the constituents of the Indian economy?
Every economy comprises 3 constituents namely the agriculture, industry, and services sector. Make in India campaign was launched in 2014 with the target of boosting India's manufacturing sector that in turn would have altered the constituents of the Indian economy. However, as things stand today, there has not been a visible shift in trends for the constituents of the Indian economy. The trends for 3 constituents namely agriculture, industry & manufacturing, and services have remained the same even after the launch of the Make in India project.
In 2017, the Agriculture sector contributed 15.4% to India's GDP, the industry & manufacturing contributed 23% (approximately 16% comes from manufacturing and the remaining 7% from other industries), whereas the services contributed 61.5% to India's GDP.
While the percentage of the agriculture & allied sector has fallen gradually, and the percentage of the services sector has gone up gradually, however, the percentage of the industry & manufacturing sector has remained the same for the past many years in India.
In fact, from the period 2000-01 to 2013-14, the trend has been like this.
The contribution of the services sector to India's GDP has been gradually going up since 2000-01. The services sector contributed 50.49% to India's GDP in 2000-01. And by 2013-14, the contribution of the services sector had gone up to 59.93% of India's GDP.
The contribution of the industry including the manufacturing sector to India's GDP has been almost constant since 2000-01. The industry including the manufacturing sector contributed 27.25% to India's GDP in 2000-01. And by 2013-14, the contribution of the industry including the manufacturing sector was 26.13% of India's GDP.
The contribution of the manufacturing sector alone to India's GDP has also been almost constant since 2000-01 despite the launch of Make in India policy. The manufacturing sector alone contributed 15.46% to India's GDP in 2000-01. And by 2013-14, the contribution of the manufacturing sector alone was 14.94% of India's GDP.
These trends continue until now in the fiscal year 2019-20.
In comparison, in the case of China, In 2017, the Agriculture sector contributed 8.3% to China's GDP, the industry & manufacturing contributed 39.5% to China's GDP, whereas the services contributed 52.2% to China's GDP.
In the case of the advanced economies, the services sector contributes upward of 75% to the GDP. However, it should be noted here that all these advanced economies are high-income countries and therefore Indian economy can't be compared with these economies at this stage of India's development.
Even in the case of South Korea, in 2017, the Agriculture sector contributed 2.2% to South Korea's GDP, the industry & manufacturing contributed 39.3% to South Korea's GDP, whereas the services contributed 58.3% to South Korea's GDP.
Therefore, it is clear that for India to grow economically and generate millions of jobs, the contribution of the industry & manufacturing sector has to grow from the current 23% of the GDP to about 35% of the GDP. The contribution of the Manufacturing sector alone would have to grow from the current 16% of the GDP to 25% of the GDP.
However, it's been 6 years since the launch of the Make in India project and yet things have not improved. The industry & manufacturing sector continues to move linearly with the overall economic expansion.
The time has come to involve manufacturing entrepreneurs in the formal policy-making roles in order to draft comprehensive manufacturing policies for the country. Without a robust manufacturing policy and the supporting technical infrastructure, the industry & manufacturing sector can not grow fast. Bureaucrats and economists don't possess the subject knowledge and therefore asking them to draft manufacturing policies for the country is actually asking them a lot. Let's hope, manufacturing entrepreneurs are brought in policymaking roles to revive India's industry & manufacturing sector.
Tuesday, August 18, 2020
The Information Technology sector has been a success story in India, why can't the manufacturing sector be?
The services sector contributes nearly 61.5% to India’s GDP. The services sector has become the mainstay of the Indian economy. Despite the launch of the Make in India initiative in 2014, the manufacturing & industry sector contributes only 23% to India’s GDP. Whereas the agriculture sector contributes 15.4% to India’s GDP. As can be seen from the graph below, the share of the services sector is higher for the high-income countries barring China. In the case of China, the manufacturing & industry sector contributes nearly 40% to the Chinese GDP. However, India’s services sector has grown despite the lack of growth in the manufacturing & industry and agriculture sectors.
The IT/ITeS segments generate a bulk of the revenues for the overall services sector in India. As per the NASSCOM report, India’s information and technology sector recorded a growth of 7.7% with revenues of 191 billion US$ in the Fiscal year 2020. The sector also added 205000 new jobs in the fiscal year 2020. The sector has the potential to reach 350 billion US$ in revenues by 2025. By the year 2016, the sector had generated 3.7 million direct jobs and 10 million indirect jobs. The sector is poised to generate a total of 7 million direct jobs and 20 million indirect jobs by the year 2025. These are all impressive numbers.
Besides the IT/ITeS segment, healthcare and tourism add substantially to the overall services sector in India. And then, space, transportation, logistics, and other services form the core of the overall services sector in India.
- Why has the services sector grown and the manufacturing sector has lagged behind in India?
One reason could be entrepreneurship in India. The Indian entrepreneurs have built the entire services sector on their own with very minimal support from the state. In other words, the services sector required very minimal state support and therefore the sector has grown in India. However, wherever state support is necessary, those sectors have not done well in India. For example, manufacturing & industry definitely require state support and as can be seen from the above graph, the manufacturing & industry sector has not done well for a low-income country like India. Manufacturing contributes 16% to India's GDP out of the total of 23% contribution of the combined manufacturing & industry sector. The Indian policymakers have been looking to increase the share of the manufacturing sector from the current 16% to 25% to India’s GDP. And yet, the manufacturing sector has not grown. Make in India program was launched in 2014 with this sole objective, and yet, results are nowhere to be seen.
A low-income country like India can not move to the middle-income level unless and until the manufacturing & industry sector grows. India may not be able to replicate China’s numbers, however, it goes without saying that the manufacturing & industry sector needs to grow in India not only to boost India's economic growth but also to generate millions of jobs that India needs badly.
The Indian entrepreneurs have developed the services sector on their own. It’s time Indian entrepreneurs are encouraged to grow the manufacturing & industry sector as well. Since the manufacturing & industry sector requires state support in terms of developing the technical infrastructure in the country, therefore, Indian entrepreneurs shall not only be encouraged to grow the manufacturing & industry sector but also be encouraged to frame policies for the Make in India project.
It is now certain that bureaucrats and economists can’t understand the technicalities of a hard subject such as manufacturing & industry. Therefore, it is beyond the scope of the bureaucrats and economists to frame policies for the manufacturing & industry sector. The need of the hour is to involve entrepreneurs in the policymaking roles when it comes to the Make in India initiative. Without involving entrepreneurs in the formal policymaking roles, it would be difficult to frame good policies and develop the necessary technical infrastructure for the manufacturing & industry sector.
The data pertaining to the services sector highlight that whenever the sector was left to its entrepreneurs, that sector grew tremendously. The IT/ITeS sector further strengthens this argument. The manufacturing & industry sector can become a growth sector for the Indian economy in the coming years provided entrepreneurs are making the policies for this sector. Will this happen?
Wednesday, August 5, 2020
Manufacturing a car is easy while manufacturing a toy is difficult in India? Why?
Wednesday, July 29, 2020
Is Foreign Direct Investment coming to India going into the Make in India program?
Year | India's exports to China in Billion US$ | India's Imports from China in Billion US$ | Trade Imbalance in Billion US$ |
2014 | 16.41 | 54.24 | -37.83 |
2015 | 13.39 | 58.26 | -44.87 |
2016 | 11.75 | 59.43 | -47.68 |
2017 | 16.34 | 68.1 | -51.76 |
2018 | 18.83 | 76.87 | -58.04 |
(Source: General Administration of Customs, China) |
Thursday, July 16, 2020
What are some items that are mostly imported from China but can be profitably manufactured in India itself?
Now, let’s again come back to India. Out of this 403 billion US$ of manufacturing output, nearly 50% is generated by the auto sector. Therefore, if we take out the auto sector, then, despite the initiation of the Make in India policy in 2014, India’s manufacturing output in other areas is minuscule for a country with a population size of 1.35 billion.
Now, let’s get going. To make the shape or form of the toy, an Indian manufacturer, or any manufacturer across the world would have to first develop the mold of that shape or form. This is the first step. Well, the first step is the 3D design in the computer, but the first real manufacturing step is the development of the mold to get the shape or form of the toy that we want to manufacture. This mold development step in India takes at least 5-6 times more time than what it takes in China. The Make in India program too failed to focus on these simple basic technical aspects of manufacturing in India. So, when mold development takes a huge amount of time, then, it is clearly understandable that the cost of the final product will rise. Besides the cost, the quality of the mold produced is inferior to what is produced in China. Now, when the shape or form of the toy is not only expensive to make in India but also inferior in quality, then, who will buy the final toy? Therefore, instead of making a simple plastic toy in India itself, our entrepreneurs have no choice but to bring the same toy from China and then sell that toy in India.
Sunday, June 21, 2020
India can beat China by beating them in Manufacturing
- Impact of India’s ban or boycott of the Chinese goods on the Chinese economy:
China is a large economy. As per world bank data, the Chinese economy is the second-largest economy in the world with a nominal GDP of 13.608 trillion US$ in 2018 (measured in Current US$). China is also a manufacturing superpower with a manufacturing output of 4.003 trillion US$ in 2018 (Current US$). What does it mean? It means manufacturing contributes approximately 29.42% (4.003/13.608) to the Chinese economy.Let’s also consider the global manufacturing output in the same period. In 2018, the global manufacturing output was 14.17 trillion US$ (Current US$). Chinese manufacturing output was 28.25% (4.003/14.17) of the total global manufacturing output. That’s humongous. The USA is second in this list, but far behind China.
Now, let’s dig deeper. China mainly exports a variety of manufactured goods to countries across the world. As per the world bank data again, the Chinese exports contributed 19.51% to the Chinese economy in 2018. What does it mean? It means China exported approximately 19.51% x 13.608 = 2.655 trillion US$ worth of manufactured goods. Now, 2.655 trillion US$ worth of manufactured goods is a huge number. No country in the world exports such a large volume of goods.
Now, let’s come back to India. India China bilateral trade in 2018 was 95.7 billion US$. China exported approximately 76.87 billion US$ worth of goods to India in 2018. India exported approximately 18.83 billion US$ worth of goods to China in 2018. Therefore, in 2018, India’s trade deficit with China was 58.04 billion US$.
Now, let us suppose, Indians completely boycott the Chinese goods. Therefore, China will take a hit of 76.87 billion US$. China’s total exports will fall from 2.655 trillion US$ to 2.578 trillion US$. This will surely have an impact on the Chinese exports and Chinese manufacturing sector along with some allied industries such as logistics. But think hard, will this fall from 2.655 trillion US$ to 2.578 trillion US$ really derail the Chinese economy? The answer is No.
- Now, let’s assess the Impact of India’s ban or boycott of the Chinese goods on the Indian economy:
Again, going back to the world bank data, we find that India’s nominal GDP in 2018 was 2.719 trillion US$ (Current US$). And India’s manufacturing output in 2018 was 403.05 billion US$. What does it mean? India’s nominal GDP was 1/5 (2.719/13.608) of China’s GDP in 2018. And despite the launch of the Make in India campaign in 2014, India’s manufacturing output was still 1/10 (403.05/4003) of China’s manufacturing output in 2018.Indian exports were 19.74% of India’s GDP in 2018. In other words, 19.74% x 2.719 trillion US$ = 536.73 billion US$. Out of these 536.73 billion US$, India exported 18.83 billion US$ of goods (mainly raw material) to China. Therefore, if the bilateral trade stops completely between the two nations, then, Indian exports would be 536.73 - 18.83 = 517.17 billion US$. This fall in exports won’t derail the Indian economy either.
However, the Indian companies that sell products domestically, as well as export goods worldwide, may take a hit. How? These companies depend on Chinese suppliers for various parts. India imports a variety of manufactured goods from China. Some of them are components for automobiles and smartphones, telecom machinery and equipment, APIs for the Pharma sector, other Chemicals, plastic & other metallic goods, machinery & tools for the construction sector.
All these sectors are India’s sunshine sectors. These sectors have not only created millions of jobs in India but also have contributed to the Make in India initiative. Take the case of an Auto company from Pune. The company exported nearly Rs 15000 Crores worth of products across the world. The company and its component suppliers sourced some parts from China worth Rs 1000 Crores. If we boycott or ban the Chinese products, won’t it have a negative impact on this large Indian Automaker? Take the case of the Pharma sector. India’s pharma industry is the third-largest pharma industry in the world. India pharma industry imports approximately 65% of APIs (Active Pharmaceutical Ingredient) from China. There are cases after cases of many Indian sectors being dependent on China. Any disruption will result in shortages and there will be a negative impact on various Indian sectors. Do we want that? Do we want to hurt our businesses? I guess, No.
- Therefore, what’s the way out? How can India teach a lesson to China?
It is possible by becoming a manufacturing hub."However, manufacturing is a hard and long game and India can’t become a manufacturing hub in a year or two".
It takes 8-10 years of constant policy support as well as capital along with infrastructure development. India needs to prepare for it now. Therefore, Instead of calling for a ban or boycott of the Chinese products, what we as people of India need to do is urge or put pressure on the government of the day to formulate manufacturing friendly policies in the country. Let the Chinese products come into India. However, side by side, we continue to develop our manufacturing sector and give a much-needed boost to the Make in India program.
For decades, we have been hearing about the need to grow the manufacturing sector. However, as things stand today, our manufacturing sector has not taken off. There is no point blaming this government or that government for the lackluster performance of the manufacturing sector in India. Make in India program was also launched to address the lackluster performance of the manufacturing sector. But things have not taken off. Involving talented manufacturing entrepreneurs in the policymaking roles will certainly help India in becoming a manufacturing powerhouse. Bureaucrats and economists can’t understand the technicalities and nuances of the manufacturing sector. Therefore, the government of the day must involve manufacturing entrepreneurs in the formal policymaking role.
We can’t beat China in the short term. If we try to ban or boycott the Chinese products, then, we will actually end up harming ourselves. However, we can beat China in the long-term by beating them in the manufacturing space. It’s a long game. But it must begin now.