Improving Manufacturing

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SummaryThe grim state of Indian manufacturing & a fallible plan may negate the government’s grandiose plans.

Last month, the Cabinet approved a “National Electronics Policy” to propel Indian manufacturing. The policy wanted Indian manufacturing to be able to service the entire $400 billion domestic electronics market by 2020, and create employment for 28 million. Amongst its many proposals, were the creation of 200 clusters of world-class infrastructure, and technological institutions to produce 2,500 Phds in technology.

However, the industry’s current state and some very evident omissions of structural problems belie the government’s vision for the industry. For one, besides a slight mention of labour laws in the introduction, the policy absolutely fails to address one of the biggest errors facing Indian manufacturing—excessive regulations, and the inability of the entrepreneur to hire and fire at will. This has been to the detriment of workers as well, since most businessmen resort to contract labour, who are paid less and find it hard to unionise. Moreover, the current state of electronics manufacturing in India is discouraging. Less than 10% of the value of a personal computer is added in India—that too is restricted to packaging and assemblage. All Indian tablet makers, including Reliance, Micromax and Karbonn, import 90% of the value of their products (mostly from East Asia). What’s more, the HRD ministry’s Aakash tablet is almost wholly made abroad. Plus, there are those who argue that India may never experience the cheap labour boom that has lifted millions out of poverty in East Asia. Professor Nirvikar Singh noted in his latest column (http://goo.gl/iYEvB) that, thanks to a rise in capital-intensive manufacturing, India may simply be too late to take advantage of its cheap labour. Whatever the case, to really rectify manufacturing and, in the process lift millions out of poverty, India needs a more substantive push.

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