India's new industrial policy doomed to fail, to cost the country billions

[Ryzen_renoir]

 

One of Narendra Modi’s first promises when elected India’s prime minister in 2014 was to revive the country’s manufacturing sector. India had been de-industrializing since the early part of the century and policy makers correctly argued that only mass manufacturing could create enough jobs for a workforce growing by a million young people a month.

In his first major speech as prime minister, Modi invited the world to help: “I want to appeal all the people world over [sic], ‘Come, make in India,’ ‘Come, manufacture in India.’ Sell in any country of the world but manufacture here.”

The “Make in India” slogan quickly developed into a full-fledged government program, complete with a snazzy symbol — a striding lion made out of meshed gears. Government officials spoke at length about increasing foreign direct investment and improving the business climate to attract multinational companies. Careful targeting of the World Bank’s Ease of Doing Business indicators raised the country 79 positions in the five years after Modi took office.

And, after all that, in 2019 the share of manufacturing in India’s GDP stood at a 20-year low. Most foreign investment has poured into service sectors such as retail, software and telecommunications. “Make in India” has failed, replaced by a government that never admits defeat with a call for “self-reliance.”

Now, exactly 30 years after India turned away from central planning and liberated the private sector, the government is again handing out subsidies and licenses while putting up tariff walls. Modi shut down the 1950s-era Planning Commission when he took office. Yet the bureaucrats in New Delhi are back to picking winners and directing state funding to favored sectors.

They’re doing so through new “production-linked incentive” schemes, in which companies apply for and receive extra funding from the state for five years in return for expanding manufacturing in India. Such incentives were originally meant to support domestic mobile-phone production. Following energetic lobbying, the government began extending them blindly to all sorts of sectors, from batteries to food processing to textiles to specialty steel.

Money is apparently no object: A government that has held off on income support during the pandemic has budgeted Rs. 2 trillion (roughly $27 billion) for these industrial subsidies.

The only thing worse than socialism with central planning is industrial policy with no planning at all. There’s no logical coherence to the sectors chosen, all of which seem to have been included for different reasons.

Is the scheme supposed to supercharge job growth? Then why not focus on labor-intensive sectors such as apparel? Is India aiming for economic independence from China? Then subsidies should be limited to sectors where China dominates supply chains, as part of a broader, China-focused trade policy that partners with the United States, Australia and others. Is the goal to invest in cutting-edge sectors? Then the government should explain why bureaucrats would do a better job than the flood of private equity that’s pouring into India.

Instead, all the problems of India’s socialist-era past are returning, cunningly disguised. Excessive closeness between bureaucrats and the beneficiaries of industrial policy? India’s top civil servant recently called for an “institutional mechanism” that provides “hand-holding” for companies. Endlessly shifting targets? Companies that just began receiving subsidies are already asking the government to relax production quotas.

It took decades for India to put its old, inward-looking and uncompetitive manufacturers out of business. Now the government is giving cash to new, inward-looking and uncompetitive companies to produce for the domestic market. Meanwhile, it’s hard-wiring into the economy the kind of connections between industrial capital and policy makers that are nearly impossible to disentangle.

The government’s defenders point out that its investor-friendly reforms weren’t answered; nobody came to “Make in India.” And, they ask, hasn’t China profited handsomely from subsidizing its own manufacturing sector?

Such arguments miss the point. Modi’s manufacturing push never went much further than gaming the World Bank’s indicators. No investor believes structural reforms, particularly to the legal system, have gone deep enough. India has a large workforce but too few skilled workers.To top it all off, the rupee is overvalued.

Rather than work at solving these interconnected and complex problems, politicians in New Delhi have decided to paper over them with taxpayer money.

Perhaps picking winners has worked for China. What Indians know for certain is that it did not work here after decades of trying. Sure, public investment in sectors of vital strategic importance — electricity storage, perhaps, or cutting-edge pharma — is defensible. But when you start throwing money at every sector that you wish had developed on its own, then all you’re announcing to the world is that you’re out of ideas.

India’s haphazard foray into industrial policy is going to fail, just as “Make in India” did. And it’s likely to cost the country billions along the way.

[jawaani_jaaneman]

We seriously have to think about other ways to make money. Manufacturing is now out of hands.

At the most, manufacturing for domestic consumption. Export oriented manufacturing ni marchi povadame. 
 

Last month, India exported record levels of iron ore. Some people were boasting it as an achievement, it’s a shame indeed. 

[Raven_Rayes]

17 minutes ago, jawaani_jaaneman said:

We seriously have to think about other ways to make money. Manufacturing is now out of hands.

At the most, manufacturing for domestic consumption. Export oriented manufacturing ni marchi povadame. 
 

Last month, India exported record levels of iron ore. Some people were boasting it as an achievement, it’s a shame indeed. 

emanna na..

export ni marchi poyi, malli? domestic manufacturers ni imports nundi kaapaadaala? inni rojulu India chesindhi adhey kadha annayya.

still waiting for India made cellphone (without chinese parts).

Its impossible for India to isolate itself from the global chain. They should identify their strengths and increase investments to become competitive in a few key areas of the supply chain. There's no way India can forget about export oriented manufacturing and remain anywhere near competitive.

[Raven_Rayes]

I haven't looked at the data, but I remember vaguely about India making strides in electronics production, including of components.

then there's drug manufacturing where India is the world leader, thanks mostly to Hyd and Pune, may be.

I think India's manufacturing sector is in transition, and that dumbfcuk Modi would do well not to give it any more shocks, if he doesn't want to actually do anything to help the industries.

[jawaani_jaaneman]

Just now, Raven_Rayes said:

I haven't looked at the data, but I remember vaguely about India making strides in electronics production, including of components.

then there's drug manufacturing where India is the world leader, thanks mostly to Hyd and Pune, may be.

I think India's manufacturing sector is in transition, and that dumbfcuk Modi would do well not to give it any more shocks, if he doesn't want to actually do anything to help the industries.

COVID valla idi kuda poindi. It’s just matter of few years alternative pharma hubs will be created. EU is the biggest pharma trade partner and they will diversify their procurements. Modi’s vaccine ban will have severe ripple effects. 

[Raven_Rayes]

Textiles gone, thanks to demonetization.

small machine parts manufacturing also gone thanks to GST, demo.

may be they should let people to make and sell Modi toys as pinatas for people kick in the head in their backyard for fun.

[Raven_Rayes]

1 minute ago, jawaani_jaaneman said:

COVID valla idi kuda poindi. It’s just matter of few years alternative pharma hubs will be created. EU is the biggest pharma trade partner and they will diversify their procurements. Modi’s vaccine ban will have severe ripple effects. 

See, India is huge. Indians will find some way to thrive.

forgetting manufacturing exports is not the way to go, though. Modi should  ease GST refunds for small export industries outside of SEZ, access to industrial loans for small industries, and it will take care of itself.

 

[Raven_Rayes]

5 minutes ago, jawaani_jaaneman said:

COVID valla idi kuda poindi. It’s just matter of few years alternative pharma hubs will be created. EU is the biggest pharma trade partner and they will diversify their procurements. Modi’s vaccine ban will have severe ripple effects. 

Modi is weak and fcuking dumb. worst ever prime minister of India. too scared of his image, and his prospects in the next election.

[Ryzen_renoir]

No country has progressed by closing off their economy , india for the first 50 years was anehruvian socialist sh*thole which achieved nothig .

Modi is slowly bringing back the licence raj

[Pavanonline]

Ye party unna socialism implement chesinantha varaku nothing will change. Janalu kuda expect so much from govt illogically so politicians also won’t change. Anduke empowering states is much better, konni states ina improve avtai.

[Hydrockers]

And, after all that, in 2019 the share of manufacturing in India’s GDP stood at a 20-year low. 

 

 

Baboru odipovatam valle ila ayyindi

Baboru win ayyi untr okka. AP valle country GDP nadichedi 

@jawaani_jaaneman

@ZoomNaidu

@snoww

[ZoomNaidu]

2 hours ago, Hydrockers said:

And, after all that, in 2019 the share of manufacturing in India’s GDP stood at a 20-year low. 

 

 

Baboru odipovatam valle ila ayyindi

Baboru win ayyi untr okka. AP valle country GDP nadichedi 

@jawaani_jaaneman

@ZoomNaidu

@snoww

Agreed - janam dhi thappu.