Will india make it – 2016? Servicing India’s growth

By: | Updated: December 31, 2015 9:59 AM

if over time, industrial economies any way end up as service economies, should we be risking setting up too many factories that can soon turn into ghost buildings?

India missed the Industrial Revolution of the 18th and 19th centuries. We did not do that badly in the first half of the 20th century. Textile mills in Bombay, Ahmedabad and Coimbatore, besides many other places, jute and engineering factories in Howrah, even an advanced steel plant in Jamshedpur (about a half a century before Korea set up a steel plant) were all world-class or near that, and capable of holding their own in global markets. Free India went into an autarkic nightmare. We did industrialise, but with the intent of serving only the tiny market of a very poor country, our own. Products and processes were anything but world-class. We set extremely modest goals and our actual achievements were considerably more modest than even these goals. By 1990, the country was studded with inefficient, sub-scale, technologically-backward factories that employed a very small portion of our work force. Liberalisation came to India too late—some 30 years after Korea and some 15 years after China. We have become a nation that habitually and perhaps wilfully keeps missing bus after bus. Tragically, our poor infrastructure (e.g. endless electric power cuts) and our self-imposed restrictions on allowing business flexibility, has meant that instead of industrialising, we have actually de-industrialised quite a bit. One just needs to visit parts of Howrah to understand the meaning of the expression “de-industrialisation”.

Our insipid industrial growth combined with over-investment in higher technical education, not only led to a transfer of technical talent to other countries, but to spectacular growth in areas like IT services—businesses which were not strangled by intrusive micro-management by the state and its industrial policies. The usual pattern has been for economies to move from agriculture to industry and then on to services. We seem to have unconsciously leap-frogged one stage. Today, we merrily import manufactured goods on a large scale and export white-collar services. The obvious problem with this model is that organised service businesses are not proving to be employment-intensive enough. This is particularly true for large numbers of our potential workers who are low in skills. It is in this context that our present Government is trying to push the idea of “Make in India”. This is a welcome move. In order to rejuvenate India’s stunted industrial progress, we need better transportation, more reliable and good quality power, fewer taxes/inspections/controls/registrations and other bureaucratic nightmares, faster clearances and turnarounds at ports—the list is long. Any government which is serious abut supporting Indian manufacturing will have to attend to all these issues before entrepreneurial animal spirits take over. At a minimum, businesses should not be discouraged from “Making in India”.

The point however needs to be made that Make-in-India is not going to be a medicine that can cure all our ills. Firstly, creating the enabling environment of better infrastructure and less bureaucracy is simply not going to happen overnight. Given the stubborn resistance of our bureaucracy to the government’s plans at each stage, the latter may not ever fully materialise. Secondly, if manufacturing is meant to absorb large numbers of workers, that too may be difficult. Modern manufacturing is increasingly becoming less labour-intensive—and the few workers required in fact, need to be pretty highly-skilled. One more irony, so typical of all Indian tales is that India’s competitive advantage seems to be in high-end, design-intensive products or in high value niches, not in the areas where millions can get jobs.

Is there any silver lining? Without compromising on any of the measures desperately needed to stop discouraging Indian industry, we should actually consider whether our “inadvertent” leapfrog into services, and even the export of talented people, might not be such a bad thing. Services, even advanced ones, tend to be far more labour-intensive than manufacturing. They tend to be less dependent on infrastructure like roads or power. They are more susceptible to our national trait of jugaad. Lastly, if over time, industrial economies any way end up as service economies, should we be risking setting up too many factories that can soon turn into ghost buildings?

Our ideal approach should not be one of top-down planning. We have had enough of that. Let us just create an environment where manufacturing and service businesses do not face active discouragement or hostility. We can then leave it up to the animal spirits and the jugaad of our entrepreneurs. In this context, the harassment that has already started by greedy Service Tax officials does not bode well for the country. (They take special delight in collecting rents from small businesses and start-ups!).The vulture-like approach of some of our state governments towards the nascent e-commerce sector is also worrisome. The monarchs of the Income Tax Department have already ensured that several hundred thousand ITeS jobs have been lost to the Philippines. My big worry, which is shared by literally hundreds of service sector entrepreneurs, big and small, is that our babus will wilfully misinterpret the government’s Make-in-India effort as a signal to stifle the service sector.

Let us just make India a country where it is easy to do business, not the nightmare which it still remains. Manufacturing and services will both grow organically, and then and only then, can India have any hope of “shining”.

Jerry Rao is Mumbai-based Entrepreneur

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition