Unshackling India by Ajay Chhibber

Author:Ajay Chhibber
Language: eng
Format: epub
Tags: null
Publisher: HarperCollins
Published: 2021-01-15T00:00:00+00:00

Sources: World Development Indicators, World Bank; National Statistical Office, Government of India.

India confronts what Dani Rodrik called ‘premature deindustrialization’ (figure 13.2). The phenomenon of deindustrialization is familiar to more advanced economies, where employment share of manufacturing has been on the decline for decades.13 With the exception of some countries in Asia, low- and middle-income countries around the world have experienced ‘falling manufacturing shares in both employment and real value added, especially since the 1980s’.14 While industrialization peaked in western European countries at income levels of around $14,000 (in 1990 dollars), ‘India and many sub-Saharan African countries appear to have reached their peak manufacturing employment shares at income levels of $700’.15 This is not good news for poor countries, because industrialization is a key path to rapid growth and allows absorption of excess rural workers in urban factories where they may find more productive employment.16

Rodrik’s findings found resonance in a 2017 World Bank report, which suggests that new technologies are reshaping the manufacturing landscape and that the old model that utilized low-wage labour may no longer be available to developing countries such as India.17 This report argues that technologies such as ‘advanced robotics, industrial automation and 3D printing are changing the landscape of global manufacturing’. The report also notes that traditional definitions of what constitutes an attractive manufacturing location are also changing with companies focusing on those areas where modern technologies can be better leveraged.18

But what about Bangladesh?

While Rodrik’s observations apply to many developing economies, there are exceptions like Bangladesh and Vietnam. Manufacturing value added as a share of GDP is at an all-time high of 19 per cent in Bangladesh. In Vietnam, this share has gone from less than 13 per cent in 2010 to almost 16.5 per cent in 2019. Why do these countries not fit Rodrik’s deindustrialization storyline? More importantly, what should India’s strategy for the future be, given the jockeying for leadership of the Fourth Industrial Revolution?

Let’s deal first with India’s failure to boost manufacturing through initiatives such as ‘Make in India’. Raghuram Rajan, the former governor of RBI, was an early critic of the initiative. Rajan argued that an incentive-driven, export-led growth or an import-substitution model was not appropriate for the times. He felt that global economic conditions were not very conducive to accommodating another ‘export-led China’. Rajan also cautioned against ‘picking a particular sector such as manufacturing for encouragement simply because it has worked well for China’. From his perspective, India is developing differently and at a different time than China and that ‘we should be agnostic about what will work’.

Others were sceptical as well. The Economist magazine noted that while the government correctly argued for a skilled workforce, there was no vision for improving the underlying education sector. Similarly, while the need for improving infrastructure was clear and accepted in policy circles, there were no details about where the money would come from. Some argued that ‘Make in India’ was too ambitious. The growth rates needed to achieve the government’s manufacturing targets would be in the 12–14 per cent range.

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