What is the current state of the manufacturing sector in India and how does the Indian manufacturing sector compare with the rest of the world?

As per the world bank data, the world manufacturing output, value-added (in current US$) stood at 14.17 trillion US$ in 2018. And India's manufacturing output, value-added (in current US$) stood at 403.05 billion US$. In other words, India's manufacturing output, value-added (in current US$) was 2.84% of the world's manufacturing output, value-added (in current US$).

China, which has come to be known as the world's factory contributed nearly 28.25% to the world's manufacturing output, value-added (in current US$). Overall, Chinese manufacturing output, value-added (in current US$) stood at nearly 4.003 trillion US$ in the year 2018. The Chinese nominal GDP in 2018 was 13.608 Trillion US$ (Current US$). Therefore, manufacturing contributed nearly 29.42% to the Chinese economy. Chinese exports were 19.51% of the Chinese GDP. Or in other words, China exported approximately 2.655 trillion US$ worth of Goods.

Here is a chart showing the top 10 countries by share of world manufacturing output in 2018:

As can be seen from the above chart, the Chinese manufacturing output was nearly 10 times the Indian manufacturing output in 2018.

With nearly the identical population size, China has clearly taken a massive lead over India when it comes to the manufacturing sector.

And since 2014, India's manufacturing output has slowed down considerably. While from 2004 to 2014, India's manufacturing output grew at a CAGR of 10.59%. And since 2014 when the Make in India program was launched, the manufacturing output grew at a CAGR of 7.02%.

During the same period, the Chinese manufacturing output grew at a CAGR of 17.68% from 2004 to 2014. And since 2014, the Chinese manufacturing output grew at a CAGR of 5.89%.

The Chinese manufacturing output has slowed down from the period of 2004 - 2014 to 2014 - 2018 because of rising wages in China. It is clearly understandable.

However, what explains the slowing down of India's manufacturing output from the period of 2004-2014 to 2014-2018? While Chinese manufacturing is slowing down due to rising wages in China, other emerging countries like Bangladesh, Vietnam, etc. have grabbed the opportunity to boost their manufacturing output. And India has lagged behind because of a lack of preparedness.

The government of India launched the Make in India program in 2014. However, the program just focused on top-down manufacturing approach. The automotive industry nearly contributes about 50% to India's domestic manufacturing output. However, automotive manufacturing is a top-down manufacturing approach. A large automotive company sets up a plant in India after assessing the demand and the size of the Indian market. Thereafter ancillary component manufacturing companies come up to supply different components to the automotive company. This approach is known as top-down manufacturing approach. Robots and high-tech machinery are used in this kind of manufacturing to produce final products. Therefore, employment generation is not high in this kind of manufacturing approach.

The Make in India program failed to focus on the bottom-up manufacturing approach. And no wonder, India's manufacturing output growth has slowed down since 2014. Simple common household goods are not manufactured in India. Instead, these goods are sourced from China. Indian entrepreneurs are becoming traders and not manufacturers. Simple common household goods such as Diwali Lights, Toys, Electrical items, electronic items, etc. that are consumed on a daily basis are not manufactured in India. No big company will make these products. Only a startup entrepreneur can manufacture these goods. However, there is no policy framework or manufacturing infrastructure to support this kind of bottom-up manufacturing in India. And no wonder, Indian entrepreneurs do not manufacture these simple common household goods in India.

It is high time the Make in India Program focuses on bottom-up manufacturing to boost manufacturing output in India. Given the population size in India, the Indian manufacturing output shall be close to 2 trillion US$ and not 400 billion US$. The focus on bottom-up manufacturing will not only generate employment on a large scale but also boost India's consumption and exports thereby giving a fillip to India's sagging economy.

Macro and Micro level solutions for India to achieve double-digit economic growth for the next 2 decades

Macro

The Indian economy has slowed down. And it has been slowing down for the last several quarters now.

India GDP Growth rate last 10 years:

Data Source: Ministry of Statistics & Programme Implementation

As can be seen from the above chart that the quarterly GDP growth rate is consistently falling since Jan - Mar 2018 quarter. In other words, the quarterly GDP growth rate numbers are falling for the last 7 quarters. This consistent fall in GDP growth rate for the last 7 quarters has raised the concern that problems in the Indian economy are structural and not cyclical.

• Therefore, what are these structural problems in the Indian Economy?

As we all know, the GDP comprises of 4 major components:
Economy E = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)
Here is the data for each of the 4 components of the Indian economy:

Exports as a percentage of GDP of India:

Imports as a percentage of GDP of India:

As can be seen from the above charts that the Consumption and Investment comprise roughly 90% of India's GDP. And Consumption is plateauing. Whereas Investment rates are falling consistently.

Therefore, at a macro level, the problems are identified. The problems are plateauing consumption and falling investment rates.

• Now, the question is, how can this trend of plateauing consumption, as well as falling investment rates, be reversed? 

One suggested solution is to give money in the hands of the people, especially rural people, in the form of PM Kisan, MNREGA, etc. The rural people with money in hand spend spontaneously thereby raising the consumption. However, is this solution really sustainable?

The other suggested solution is employment generation. This is a good idea as this will not only give a boost to consumption but also raise investment rates. Construction, infrastructure, manufacturing are 3 sectors that can certainly generate employment at a large scale.

• The construction sector though is going through a bad phase with many stuck and delayed projects. The union government has recently announced a stress fund to revive the construction sector. This is a step in the right direction. 
• The infrastructure sector is plagued with land acquisition issues. Within the infrastructure sector, roads, highways, railways have been given a special focus. The union government recently announced that 100 Lacs Crores worth of Infrastructure projects will be started in the next 5 years. However, both these sectors namely construction and infrastructure will take time to fructify. 
• The third sector that can generate employment at a large scale in India is the manufacturing sector. However, years after years, the manufacturing sector has not boomed in India.

Micro

The manufacturing sector has the potential to transform the Indian economy. Focus on the manufacturing sector and in particular on the Make in India initiative can set India on a path to achieve double-digit growth for the next 2 decades.

However, to boost the manufacturing sector in India, we need to differentiate between top-down manufacturing and bottom-up manufacturing.

Since 2014, the FDI inflows in India in absolute number terms have increased. However, FDI inflows as a percentage of GDP are below 2%. 

Moreover, FDI inflows go into various sectors of the economy. And even within the manufacturing sector, the FDI inflows go into the top-down manufacturing. 

In a top-down manufacturing approach, automation has resulted in a lack of employment generation. Robots and high-tech machinery are deployed to produce goods. 

Therefore, the bulk of the employment generation is only possible in bottom-up manufacturing. However, even the Make in  India program failed to focus on bottom-up manufacturing. And this is where our policymakers lack attention to details. Focus on bottom-up manufacturing will not only generate millions of jobs but also reduce India's trade deficit with China. Focus on bottom-up manufacturing will facilitate Indian entrepreneurs to manufacture simple common household goods in India rather than trading these goods from China. Simple common household goods such as toys, electrical items, electronic items, Diwali Lights, Plastic products can be easily manufactured in India. However, Indian entrepreneurs trade these goods from China. To support bottom-up manufacturing, the policymakers need to focus on developing manufacturing infrastructure in India. And this manufacturing infrastructure can be easily developed in a span of 2-3 years. All it needs is attention to detail. Now, the question that arises is 'How can this manufacturing infrastructure be developed'? Part of Government Spending (G) must be geared towards developing the manufacturing infrastructure. Once bottom-up manufacturing kicks-up in India, the private investment in the bottom-up manufacturing will rise regularly. However, the government needs to provide a trigger point.

Once this manufacturing infrastructure is in place, the Indian entrepreneurs will manufacture globally competitive common household goods in India. New manufacturing jobs will be created. This will not only boost India's own consumption but also give a boost to exports while reducing the imports from China.

Net-net, the Indian economy can boom by focusing on bottom-up manufacturing.

India China Economic Comparison

India and China were at the same per capita income in 1980. However, as things stand today in 2020, the Chinese economy has taken off whereas the Indian economy has lots of catching up to do.

As per the world bank data, In terms of nominal GDP in 2018, the Chinese economy in current US$ (13.608 Trillion US$) was 5 times the size of the Indian economy (2.719 Trillion US$).

As per the world bank data, In terms of PPP GDP in 2018, the Chinese economy (25.399 Trillion US$) was 2.42 times the size of the Indian economy (10.5 Trillion US$).

The gap between the Chinese economy and the Indian economy is massive. And it will take India several years to catch up with China.

However, how did this huge gap develop between the Chinese economy and the Indian economy? To understand this, we will rely on the numbers rather than rhetoric.

And here are the numbers:

Firstly, Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Therefore, let's get the data for each and every component of the economy for both India and China.

• Consumption (C):

As can be seen from the above charts, the Consumption as a percentage of GDP in 2018 for China was 38.68%. Whereas, the Consumption as a percentage of GDP in 2018 for India was 59.39%.

Another point to be noted is that in the case of the Indian economy, the Consumption as a percentage of GDP has always been higher than the consumption as a percentage of GDP for the Chinese economy.

• Investment (I):

As can be seen from the above charts, the Investment as a percentage of GDP in 2018 for India was 31.31%. Whereas, the Investment as a percentage of GDP in 2018 for China was 44.06%.

One can also observe that for the Chinese economy, the Investment as a percentage of GDP has always been higher than the investment as a percentage of GDP for India. There is almost a difference of 12-15% as a percentage of GDP between the Chinese economy and the Indian economy.

• Government Spending (G):

As can be seen from the above charts, government spending as a percentage of GDP for China in 2018 was 14.68%. Whereas, the government spending as a percentage of GDP for India in 2018 was 11.23%.

One can also observe from the above charts that government spending as a percentage of GDP for the Chinese economy has always been higher than that of the Indian economy.

• Net Exports (X):

We will analyze exports and imports for both the Chinese and Indian economies.

Exports:

As can be seen from the above charts, exports as a percentage of GDP for India in 2018 were 19.74%. Whereas, the exports as a percentage of GDP for China in 2018 were 19.51%.

However, it is also evident that with rising wages in China, Chinese exports are falling consistently since the peak of 2006.

Therein lies the opportunity for India to focus on its manufacturing sector especially on bottom-up manufacturing to expand its exports worldwide.

Imports:

As can be seen from the above charts, imports as a percentage of GDP for China in 2018 were 18.73%. Whereas, imports as a percentage of GDP for India in 2018 were 23.64%.

• Calculations:

Having gathered all the data, we can do simple calculations for both the Chinese and Indian economies.

E = C + I + G + X

For China in 2018:
E = 38.68 + 44.06 + 14.68 + (19.51 - 18.73)

For India in 2018:
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)

• Conclusion:

As can be seen from the above charts and calculations, the Chinese economy grew on account of higher Investment (I) and Government spending (G). The consumption as a percentage of GDP has always been lower for the Chinese economy than that of the Indian economy.

Therefore, it is no rocket science to understand from the above charts that for India to grow at 8 - 10% for the next 2 decades, the Indian policymakers need to make sure that both Investment (I) and Government spending (G) rise. The investment (I), as well as Government spending (G), must be geared towards supporting the manufacturing sector or Make in India program.

Focus on the manufacturing sector, especially on bottom-up manufacturing, is the need of the hour to achieve double-digit economic growth as well as to generate millions of jobs. When Investment (I) and Government spending (G) go into the manufacturing sector in India, then, it is highly likely that India's exports will also boom, thereby, giving a further boost to India's GDP.

How will electric vehicles affect the Indian economy and environment in general?

• Environmental impact of Electric Vehicles in India:

As the name suggests, Electric Vehicles consume electricity. The battery is charged for a period of 6-8 hours. So, electricity is the fuel in electric vehicles. However, let's look at the sources of electricity generation in India.

As of 31st March 2020, As per the Ministry of Power, Govt. of India, data, India's total electricity installed capacity is 370106 MW. Out of which 62.8% is generated by thermal fuels such as coal (54.2%), Lignite (1.7%), Gas (6.9%), Diesel (0.1%). Hydro contributes 12.4% to India's total electricity installed capacity. Nuclear contributes 1.9%. And Renewable energy sources contribute 23.5%.

Therefore, when 62.8% of electricity in India is coming from fossil fuels, then, won't that negatively impact the environment? Electric vehicles are brought to the market with the idea that they will reduce emissions. But, facts tell us that since 62.8% of all electricity generation in India is coming from fossil fuels, then, what will be the savings on the emissions front? And it is certain that no major country on earth would give up on its fossil fuels.

Secondly, it is clearly established that the process of manufacturing an electric car generates more CO2 than the process of manufacturing an IC engine car.

Thirdly, today's IC engines are highly efficient and there is continuous research & development going on to make them even more efficient.

Besides, the electric battery when discarded after years of use will result in a further environmental hazard. The discarded battery will end up in our lakes, rivers, and oceans, thereby poisoning the water bodies across India and negatively impacting marine life. When we can't recycle plastic and electronic waste, then, what is the guarantee that we will be able to recycle discarded batteries? Human beings must accept the fact that they are bad at recycling stuff unless there is an economic gain in the waste.

Therefore, given all the above factors, what's the fuss about electric vehicles? In fact, if we as a human race focus on improving the soil and reducing meat consumption, then, we might, in fact, take a concrete step towards tackling the issues of global warming. 

"Now, let's assess how electric vehicles will affect the Indian economy"?

Now, it's all right to talk about electric vehicles or EVs, however, talking about these things without proper research can be detrimental to India's manufacturing sector as well as to India's economy. Let's assess it here:

• First thing first, let's get some numbers for India's automobile sector:

India's automobile sector (including component manufacturing) is expected to touch 251.4 - 282.8 billion US$ by 2026.

Two-wheeler sales dominate the auto industry with approximately 81% of vehicles sold in FY 2019 belonging to the two-wheelers category.

The automotive industry also employs approximately 37 million people directly and indirectly. Direct employment is roughly 10 million whereas indirect employment is 27 million.

The automotive industry also contributes about 50% to India's domestic manufacturing output.

These are massive numbers and any disruption in the automotive industry is bound to impact the growth of India's GDP as well as employment generation.

• Having assessed the current automotive numbers, let's now focus on the working of Electric Vehicles.

An Electric Vehicle runs on an electric battery. This electric battery is made from 4 major materials namely Lithium, Cobalt, Manganese, and Graphite. And India does not possess these materials in abundance. Therefore, India will need to import these raw materials from abroad to make electric batteries in India. Where are these 4 major materials found in abundance? Primarily in Africa and South America. And China has already secured deals with these countries to buy these 4 major materials. China has already developed the supply chain and has become the leader in the manufacturing of electric batteries. India has lagged behind in this aspect. Neither do we have secured substantial deals to procure raw materials from Africa and South America nor do we have developed manufacturing capabilities to develop electric batteries in India.

Electric Vehicles are constant torque vehicles. What does a constant torque vehicle mean? It means, in layman's terms, Electric Vehicles won't be requiring a gearbox system. You just install the electric battery and accelerate. That's it. No gearbox system, no clutch system, just accelerate and use the brake system as and when required. At the same time, since Electric Vehicles would be running on a battery, therefore, there won't be any need for a combustion engine (diesel or petrol). Therefore, there won't be any need for carburetors, injectors, pistons, combustion chambers, flywheels, etc.

• Therefore, with the adoption of Electric Vehicles, 3 things would happen in India.

Firstly, since China has taken a lead in the manufacturing of electric batteries, and India has lagged behind, therefore, for the foreseeable future, we would have to source batteries from China. It is already happening. Many companies, large or small, have already started sourcing batteries from China. In fact, many startups have mushroomed in India that make electric bikes. All these startups source batteries, controllers, and other body parts from China and then assemble in India. These companies call themselves manufacturing companies, however, these companies are nothing but assemblers. Since, electric batteries, controllers, and other body parts are manufactured in China, therefore, the bulk of the jobs are generated in China and not in India. At the same time, these electric batteries are highly expensive. India's trade deficit with China is already in excess of 60+ billion US$ (approximately 4.2 Lacs Crore Rupees). Do we want to increase it further? Do we want to create manufacturing jobs in China? The answer is NO.

The second point is that since electric vehicles will do away with components such as a gearbox, clutch, combustion engine, piston, carburetor, injector, flywheel, then, what will happen to the component manufacturing companies who are currently manufacturing these components? Won't it result in the loss of manufacturing jobs on a large scale? All these component manufacturing companies employ millions of people. All these component manufacturing companies have invested heavily in setting up manufacturing plants. What will happen to these jobs? What will happen to these manufacturing plants?  Won't it derail the Make in India initiative? Won't it slow down India's GDP growth? Won't it make millions of people jobless?

And thirdly, what will happen to a roadside mechanic whom people approach on a typical Sunday to get their car repaired or serviced? Since electric vehicles will operate on a battery and do away with components such as clutch, gearbox, piston, combustion chamber, etc., therefore, the need for car maintenance will reduce. An electric battery will need less maintenance. Therefore, what will happen to millions of unorganized car mechanics in India? Won't it result in a loss of jobs in the informal sector? Won't it slow down India's consumption and in turn slow down GDP growth further?

• Conclusion

Therefore, unless and until India secures substantial deals with African and South American countries to source Lithium, Manganese, Cobalt, Graphite, and at the same time India develops its own capabilities in the manufacturing of electric batteries, we must not rush towards electric vehicles. Once we have developed internal capabilities to manufacture electric batteries, we can shift current component manufacturing jobs to electric battery manufacturing. That is doable. But without developing our own capabilities in the manufacturing of electric batteries and simply sourcing these batteries, controllers from China, we will be doing a great disservice to India's economy.

Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat

These days in business circles or on online forums as well as on social media platforms, the talk is 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Global factors are weak and therefore these factors are pulling Indian economy down' or 'World is entering into a recessionary phase'.

Some people term the above-mentioned reasons as valid reasons while others merely scoff at these reasons claiming that India's economic problems are more internal in nature than external.

Instead, Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat.

Let's assess it analytically.

Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Let's now get the data for each and every component.

• Consumption (C):

As can be seen from the above chart, India's household consumption as a percentage of GDP in 2018 is approximately 60%. From the highs of 87% in 1960, it has come down to 60%.

• Investment (I):

As can be seen from the above chart, India's Investment as a percentage of GDP is approximately 27.8% in Quarter 3, 2019 (July - September 2019). Investment as a percentage of GDP is hovering below 30% since 2014. Investment as a percentage of GDP was highest in 2008.

• Government Spending (G):

As can be seen from the above chart, government spending as a percentage of GDP fluctuates between 11 - 12%. In 2018, government spending as a percentage of GDP was 11.23%. The highest number recorded in recent history was in 2000 when government spending as a percentage of GDP was 12.18%.

• Net Exports (X):

Net Exports X = Exports - Imports. Therefore, let's assess exports as well as imports individually.

Exports as a percentage of GDP

As can be seen from the above chart, the exports as a percentage of GDP were 19.74% in 2018. Exports as a percentage of GDP are falling since 2013.

Imports as a percentage of GDP

As can be seen from the above chart, the imports as a percentage of GDP were 23.64% in 2018. Imports as a percentage of GDP have fallen since 2012.


Therefore, having gathered all the data, now, let us do the simple calculations for the year 2018.

E = C + I + G + X
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)


We can do this simple calculation for any particular year. The results for 2019 are more or less along the same line.

Therefore, let us now come back to the question 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Are global factors negatively impacting the Indian economy'? or 'Is a recession coming'? All these questions are loosely talked about on various forums without looking at the facts.

And the fact of the matter is India's net exports (X=Exports-Imports) are negative or at most they can be neutral. In other words, India is a net importer country.

Therefore, the question that shall be assessed is how will global factors impact India's economy when we are a net importer country?

The impact of Coronavirus on India's exports will be negligible as India's 3 biggest exports destination are the USA, European Union, and UAE. China comes in 4th position.

The impact of Coronavirus on India's imports will be felt for some time as India's largest importing partner is China. And India imports a variety of manufactured goods from China.

But if analyzed with a deep concentration, wouldn't this have been an opportunity for India to build its manufacturing capabilities? Rising wages in China for many years and now the outbreak of Coronavirus in China should have been an opportunity for India instead of the threat. Since India's trade deficit with China is in excess of 60 billion US$. Wouldn't this have been an ideal opportunity for India to get its act together and focus on the manufacturing sector? Shouldn't the Make in India program have resulted in India becoming a net exporter country instead of the net importer country?

Therefore, as per the numbers, it is clearly evident that since India is a net importer country, the impact of Coronavirus or any other global factors shouldn't have ideally slowed down the Indian economy.

The slowdown in the Indian economy is more internal. The charts clearly show that. India's Consumption (C), as well as Investment (I), are falling consistently. And India's Consumption, as well as Investment, roughly constitute 90% of India's GDP. And when these 2 parameters are falling, surely, the economic growth will come down as well. And that is where the problem lies.

Therefore, instead of blaming the Coronavirus or other global factors, we should internalize the reasons for the slowdown. We should internalize and assess why Consumption, as well as Investment rates, are falling in India.

Coronavirus and other global factors should have become our opportunity instead of the threat. However, since we haven't focused on building our manufacturing capabilities especially bottom-up manufacturing capabilities, we are feeling threatened by Coronavirus and other global factors. It's still not late, we can turn this into an opportunity provided we build our manufacturing sector. It is the ideal time for India to become a net exporter country instead of the net importer country. Problems in China should not become a problem for us, instead, they should become an opportunity for us.

What is easy? Bring goods and machinery from China and sell them in India? or Manufacture the same goods and machinery in India?

Many entrepreneurs evaluate this question on a daily basis. Whether to brings goods & machinery from China and sell them in India or manufacture the goods & machinery in India itself? However, as things stand today, the answer to this question tilts in favor of procuring goods & machinery from China and then sell them in India. This has become standard practice. A practice that continues to grow with every passing year. These goods & machinery are simple goods & machinery. Not something very sophisticated that can't be manufactured in India.

So, what explains this trend of procuring goods & machinery from China and then selling them in India? There are 2 principal reasons for it.

1. A lack of understanding among our policymakers to differentiate between top-down manufacturing and bottom-up manufacturing.
2. Because of this lack of understanding to differentiate between top-down manufacturing and bottom-up manufacturing, bottom-up manufacturing continues to suffer in India. And therefore, there is no policy framework to support bottom-up manufacturing in India.

Therefore, let us understand what is bottom-up manufacturing first?

Bottom-up manufacturing is an approach wherein a product or machinery idea originates in an entrepreneur's mind and he/she decides to manufacture it. A large company (top-down manufacturing) won't be manufacturing these simple goods & machinery because of the volume constraints. Goods such as toys, souvenirs, electrical items such as Diwali Lights, exhaust fan, ceiling fan, switches, MCBs, and electronic items won't be manufactured by large companies. Machinery such as the one shown below that's used in construction activities won't be produced by large companies because of the volume constraints. Therefore, SMEs or small entrepreneurs alone can produce these goods and machinery in India. However, they don't manufacture these goods and machinery in India. Why? Because our manufacturing policies, as well as Make in India program, have failed to focus on bottom-up manufacturing resulting in a massive trade deficit with China.

Let us take the case of this simple machinery. This machinery is used in Flooring works. This machine is known as 'Ride-on Trowel' machine or simply ROT. The machine is used to trowel the floor. The machine is mostly used to trowel industrial floors.

Now, this machine is mostly imported from European countries such as Italy or from China. Now, the question that needs to be asked is 'why can't this machine be manufactured in India'? Why are our machinery manufacturers not manufacturing this machine in India? Again, a large manufacturer won't be manufacturing this machine in India because of volume constraints. Unless and until a product or machinery generates large volumes, a large manufacturer (top-down manufacturing) won't manufacture that product or machinery in India. Therefore, only a small-scale entrepreneur (bottom-up manufacturing) can manufacture these goods & machinery.

However, a small-scale entrepreneur does not manufacture these kinds of goods & machinery in India because of the following reasons:

1. a lack of access to modern manufacturing technologies
2. a lack of access to low-cost financing
3. a lack of access to the single-window system to obtain approvals
4. a lack of access to a trained workforce

However, all these above-mentioned reasons are consequences of the lack of understanding among our policymakers to differentiate between top-down manufacturing and bottom-up manufacturing. If policymakers, as well as Make in India program, focuses on bottom-up manufacturing, then, it is inevitable that the above-mentioned reasons will be sorted out resulting in the promotion of bottom-up manufacturing in India. That would definitely be a big boost to the Indian economy. Not only will this focus on bottom-up manufacturing result in reducing the trade deficit with China but it also will result in generating millions of manufacturing jobs in India.

Are our policymakers listening?

What will happen if Indians do not buy Chinese products in India?

People keep discussing, debating questions such as 'What will happen if Indians do not buy Chinese products in India'? or 'If China did not let India be part of the NSG, then why can’t India ban Chinese products in India'? These are all valid questions, however, all these questions are driven by emotions rather than intellect. Therefore, we as a society need to put emotions aside and assess these kinds of questions purely from an economic point of view.

Firstly, we need to understand, what kinds of products we buy from China and what kinds of products we export to China. India and China have trade relations, however, these trade relations are heavily skewed in favor of China resulting in 60+ billion US $ of trade deficit with China.

What do we import from China? mainly manufactured goods.

What do we export to China? mainly raw materials.

Now, we also know that India's sunshine sectors such as IT and pharma are not allowed to participate independently in the Chinese marketplace. However, as things stand today, Indian IT and pharma companies are increasing their presence in China through joint ventures. That's a welcome step. If Indian IT and pharma companies compete in the Chinese market, then, surely, the trade deficit could reduce partially.

However, Chinese manufactured goods will still continue to dominate the Indian market. 

What is the solution to this issue? 

The government of India has tried to raise the duty on some of these goods, however, this kind of action encourages black market. In other words, Chinese manufactured goods still continue to enter the Indian market through dubious routes. In other words, Indians pay extra for the same Chinese Goods. 

So, what are the other solutions? 

Ban Chinese goods in India as the question itself suggests. However, then, who will manufacture these goods? Indian consumers will still demand these goods, and if Chinese goods are banned, then, who will manufacture these goods? If Indian manufacturers were producing these goods already, then, we wouldn't have this situation in the first place itself. Since Indian manufacturers are not manufacturing these goods, therefore, traders across India procure these goods from China and sell them in India.

Instead of banning these Chinese goods, we need to become competitive. Therefore, the real solution lies in building our own manufacturing capabilities, especially in bottom-up manufacturing. Make in India program shall focus on bottom-up manufacturing. By focusing on bottom-up manufacturing, we will be able to manufacture simple daily household goods in India itself. Indian policymakers need to make a list of manufactured goods that are imported from China. From simple items to high-tech items. After preparing this list, we as a nation shall ask ourselves 'why can't we make these goods in India'? Wages are still lower in India compared to China. Therefore, what stops India from manufacturing these goods in India itself. The answer to these questions is simple, however, willingness is needed on the part of our policymakers.

The government of India did announce Make in India program in 2014. However, the program was focused on inviting foreign manufacturers in India and then make manufacturing goods in India. The Make in India program did not pay attention to the needs of our local manufacturers or entrepreneurs. There was no mention of developing manufacturing technologies in India. Make in India program simply focused on ease of setting up a business in India. However, the program failed to pay attention to details, especially manufacturing technical details.

If attention is paid to the manufacturing details, then, India can surely make daily household goods in India itself instead of buying these goods from China. That will not only reduce our trade deficit with China but also generate millions of manufacturing jobs in India. So, what are the manufacturing details that our policymakers need to focus on? It's not rocket science. Just involve entrepreneurs in manufacturing policymaking and things will improve. Within a matter of 2-3 years, the manufacturing industry can be turned around. Within a span of 2-3 years, our manufacturers can start manufacturing globally competitive daily household goods in India itself. Not just for the Indian market but also for the world market. Our manufacturing industry can truly become globally competitive.

Therefore, instead of asking the question 'why can't we ban Chinese goods in India', we shall be asking 'why can't we make these goods in India'? When this question becomes the mainstream question, then, surely, we will be able to find solutions and develop our own manufacturing capabilities. 

'Compete' and 'not ban' is the real solution.