It is likely that an EGoM will be set up to develop a manufacturing policy, a news report tells us. There are the reports of the National Manufacturing Competitiveness Council and the Investment Commission. And now the commerce and industry ministry also suggests that an industry policy may be needed and has reportedly produced another paper. All these reports of recessions and the strategies of the G20 seem to have prompted the ministry to respond.
Incidentally, nobody has said that we are the only BRIC nation in which manufacturing has collapsed as a source of growth?in recent months around 3%?and a research paper shows that our manufacturing growth rate now is much lower than it was between 1975 and 1989, a period for which some of our favoured economists got awards for calling it the period of industrial stagnation. Finally, in some rather cryptic but telling words, the Planning Commission has said that manufacturing is important for the nation?s future.
The Planning Commission has now given us a powerpoint presentation of twenty slides and may go on to the approach paper we have been looking for. This is very business-like and would do credit to a good zonal manager in a sales conference in a good airport hotel, since he has to assume that his audience is thinly literate and has a low attention span. While Yojana Bhavan doesn?t impress much in its new buy-one-get-one-free clothes, it does have two slides on manufacturing and these do show a changed mindset, for it is a long time since it spent 20% of its space on the sector. Actually, in Slide 5 on ?objectives?, they want ?faster creation of jobs especially in manufacturing?. Now this is refreshing, for since 1992 we have been told that don?t ask for jobs in the manufacturing sector, since its real problem is labour relations and jobless growth was a blessing. In these two decades, while the Chinese, Mexicans, Chileans, Brazilians and later the Russians and and South Africans were building technology policies, infrastructure and skills, plus aping the South Koreans and the Japanese who had done this earlier, we lived in our nirvana of deindustrialisation. The share of manufacturing in output and employment was rising in a big way the world over and to get that sentence in Slide 5 in the Twelfth Plan issues for an approach paper is almost a revolution?if it is serious, and there is no reason to believe it is not. There is an allergy to numbers in policymaking in India. Otherwise it can be shown very easily that rising labour productivity is perfectly compatible with a rising share of the manufacturing sector in the economy, provided the manufacturing sector grows at an inflection rate that is high in relation to the Indian experience in the last two decades but not in relation to other countries or in relation to Indian growth earlier.
The National Manufacturing Competiveness Council has some general and more than 30 industry reports. There are three recurring underlying themes. They are a technology policy that is generic and industry specific. There is the need for infrastructure. The points on FDI and on an improved climate for investments are well-taken, but there is also the need for economic incentives in a volatile and imperfect world.
These are starred when there are recessions, as in the meltdowns in 1996 and 2008. They then become global issues, as in the Seoul and later G20 meetings, with even the IMF suggesting newer frameworks for exchange rates. But mature countries always keep them in mind when moving out of bureaucratic controls. India is the only country in the world, for example, where unilateral tariff reduction is justified officially as an objective for policy.
Kirit Parikh, in an excellent historical summary of Indian plan models completed before he left the Planning Commission, has in a muted tone stated that such methods are no longer a part of policymaking in India. But in Slide 9, Yojana Bhavan again says that sectoral industry plans will be constructed. They say they are being constructed, although none seem to have come to public attention apart from the suggestions put together five years ago by the Manufacturing Competitiveness Council. They also use Chinese/ Brazilian/Korean language on ?deepening technology capability?, ?strategic capital equipment? and so on. More importantly, they talk of what I think is central, ?land and infrastructure constraints?. The commerce and industry ministry?s proposal for industrial zones needs discussion because any area that has the enterprise should have a level playing field for industry. But it is true that resource-intensive factories need infrastructure backup and also environmental space.
India lost out because energy prices are five times that in other countries, because energy is another neglected sector and India never built the highways that lead to industrial growth and exports, and because we kept on blaming the Chinese for subsidising industry while their real advantage was in large infrastructure investments. But recognising the problem is half solving it. So never mind the PPT, let us get going.
The author is a former Union Minister