1. Powering up Make-in-India

Powering up Make-in-India

Districts along the planned industrial corridors carry immense potential for growth and urbanisation. Unlocking it would need structural reforms and fixing governance

Published: January 5, 2015 12:18 AM

Make-in-India is a laudable aspiration that identifies 25 sectors—a combination of low-skill and high-skill industry and services-oriented areas—as the drivers to sky-rocket India’s growth. A key objective of this programme is harnessing the demographic dividend by paving the way from farms to factories for the 130 million new entrants to the workforce by 2020, and reaping the benefits from urban surge.

How? One of the central approaches to achieve this goal is by following a new model of urbanism. It is characterised by the large-scale build-out of industrial corridors, namely (1) Delhi-Mumbai Industrial Corridor (DMIC); (2) Chennai-Bengaluru Industrial Corridor (CBIC); (3) East Coast Economic Corridor with Chennai-Vizag Industrial Corridor as the first phase of this project (CVIC); and (4) Mumbai-Bengaluru Industrial Corridor (MBIC). Work on five smart cities is a part of the DMIC: Dholera, Shendra-Bidkin, Greater Noida, Ujjain and Gurgaon. The government is looking to establish National Industrial Corridor Authority to coordinate, integrate, monitor and supervise development and channelise institutional funding for smart cities along these corridors.

These five corridors run along 89 districts, and 75% of these districts are a part of the 183 high potential districts that will account for 77% of India’s incremental GDP from 2012 to 2025. These 68 ‘corridor’ districts are estimated to account for 40% of India’s incremental GDP. Further drill down shows that 24 of these districts are envisioned to see growth rates jump by 5% from 2020 due to the build-out of large planned infrastructure projects. In short, these regions will grow and grow faster than India at an average of 10% because of the head-start they enjoy, and could further benefit from this planned development. So, what kind of economies are mushrooming along these corridors?

Economic-activity

This organic economic activity forms the bedrock of the potential growth story of these districts. A series of both upstream and downstream economic activities could propel the development of these areas. For example, since textiles is a key industry along DMIC corridor, incentivising apparel manufacturers and ancillary industries like makers of elastic, buttons and other fittings could be strategically attracted to this region to boost. Equally, the development of vocational training institutes offering programmes in designing, tailoring and embroidery would help improve worker productivity in the textile belt in this area and allow for further cross-pollination between the industry and these institutes. Development of such niche industries could help accelerate the participation of women in the workforce and improve the gender imbalance in these areas. The empowerment of women has its own benefits. For example, use of better family planning techniques, reduced levels of maternal and infant mortality, higher spend on education and the like are strongly correlated to the empowerment of women. Following such an approach could trigger a virtuous cycle of development.

But as India goes down this path, other economic and administrative issues that impede growth need to be addressed with a sense of urgency. First, will this form of urbanisation take off with the current process and issues associated with land acquisition and environmental clearances in India? Particularly as the process of land acquisition for state and non-state actors is the same. Revising the recently passed Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill requires expending much political capital both inside and outside Parliament, making it a fairly time-consuming and complex process. States are better placed to take the political calls associated with land transactions and use to support the build-out of these corridors.

Second, how practical is the ‘partner’ role envisioned for the private sector in building smart cities? The private sector is led by the motive of profit, and rightfully so. Recent experiences of the private sector with the infrastructure sector as a whole including urban areas are discouraging. The experience with toll roads in Gurgaon and Mumbai indicate a lot more needs to be done before PPPs can become viable to help address our infrastructure deficit. Another example is the fare dispute related to Mumbai Metro. The absence of specific laws and entities to guide the structured development of PPPs doesn’t augur well for private participation.

Third, and most talked about, is India’s position in the World Bank’s report on the Ease of Doing Business. Sadly, India’s ranks 186th on the enforcement of contracts, and 137th on resolving insolvency. Just these two metrics are alarming enough to deter investors and have been at the bane of various disputes like Nokia and Vodafone. India’s stringent labour laws are disparaging for businesses that have to deal with volatility and cyclicality in an increasingly interconnected global economy. Can SMEs truly flourish in such a constrained environment?

Fourth is the burning need for ‘administrative reforms’. The World Bank has compiled a ranking of government effectiveness based largely on quality and implementation of the capacity of the civil service. India’s ranking on this deteriorated from 55th percentile in 2004 to 47th percentile in 2013. The World Economic Forum’s 2014-15 Global Competitiveness Report cities inefficient government bureaucracy as one of the top six problems associated with doing business in India. The rise in the civil service is largely based on seniority rather than performance. For example, a civil servant empanelled as a secretary has most often retired before he/she can be held accountable for decisions made or not made. Elected representatives, on the other hand, are accountable to the polity as the 2014 Lok Sabha elections amply demonstrated.
To conclude, building infrastructure is required—and building it quickly and efficiently is important. But do all cities along these corridors need to be smart for Make-in-India to take off? Do government finances permit such investments? What else can be done to move in this direction that is smarter and more impactful?

It is undertaking a series of structural reforms as discussed and fixing urban governance in letter and spirit. What does the latter entail? Building the capacity of locally elected representatives through exposure visits and structured programmes so they understand issues and vote for better policies, incentivising census towns to become statutory ones, empowering city mayors and establishing a functional Mayor-in-Council system, and creating the office of metropolitan mayors through political canvassing for a Constitutional Amendment. Equally, it is about building the human resource and financial capacities to nurture and sustain the development and renewal of cities. In the interim, elevating the role of the metropolitan development authority as the secretariat for the metropolitan planning committee and the apex planning body for metros. This could be a viable interim solution in the metro cities that have to deal with a multiplicity of agencies. Address the root causes, and the polity including India’s entrepreneurs like always will take care of the rest.

By Barnik C Maitra, Sunali Rohra & Shishir Gupta

Barnik C Maitra is partner at McKinsey; Sunali Rohra is an expert co-leading McKinsey’s work on urbanisation in India; Shishir Gupta is a knowledge expert with MGI Economics Research. This article was first published on www.indiaspend.com

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