Made in India err… China

In terms of the slice of GDP (between Agriculture, Manufacturing and Service sectors), normally a country first has a skew towards Agriculture and then over the years as its GDP grows in size, there is a skew towards manufacturing. The developed countries have a skew towards the servicing sector. As you might be aware, India’s GDP share evolution missed giving importance to the manufacturing sector and straight away jumped from being a Agro based economy to being a Service based economy. As of 2009, India’s GDP stood at $1.25 trillion with the pie sliced as follows – Agriculture 18%, Manufacturing 22% and Services 60%.

One interesting fact is that Agriculture earns less than the other two sectors while it employs more than 52% of the Indian population!!! Hence, the lure of increased earning potential in the cities is driving the masses to migrate from the villages to the cities. But what happens to the labourers who are migrating to the cities? They are mostly unskilled and the easiest way to find a meaningful skill-based job for them would be the manufacturing sector. IMHO this is what is happening in China. And IMHO, this is NOT happening in India.

Most of these migrant workers end up getting menial jobs with very less vertical growth opportunities (as in construction activities and as guards outside buildings…). If a 25 year old guy is working as a security guard, what type of promotion and what salary growth can he expect when he is in his 40’s and 50’s – when he has a bigger family to support?

My concern is that we are NOT investing enough in the manufacturing sector. On one side we end up amassing unskilled labourers in our cities, while at the same time getting more and more dependent on our (not so friendly and not so transparent) neighbour – China – to import products. Starting from very small things like keychains to huge items like buses (Kinglong bus which is part of the A/C bus fleet in Mumbai is made by a Chinese company) we are importing from China. My PGPX batchmate Esmail mentioned that his erstwhile Pharma employer decided to close a manufacturing unit (specializing in a particular pharma-component) in Mumbai because China built an unit which could meet the whole global demand and of-course undercut the price.

I feel India should focus on the following:

1. Forget the WTO norms (or demand a relaxation) and levy a big tariff on at least strategically important goods.

2. Rupa Subramanya Dehejia has an interesting article here (This article is one of the inspirations for this post). She argues that we should relax the labour rules which are proving to be a deterrent to set up big manufacturing units. The only beneficiary of these policies are the currently employed labourers while in the long term it really hurts the future generation’s working class. I agree with Rupa that relaxing the labour policies will enable big labour-intensive manufacturing units to come up in India.

The election oriented decision making process is the sole culprit that I can think for this sorry state of affairs. Our politicians lack the need (they do not lack the capability, they lack the need) to think of long term strategies for our country. Their only concern is that relaxation of the labour related policies could lead to a back-lash from the unions and lose the votes. Even our masses will not understand that such policy relaxation can help our future generations and hence they do not support such moves!!

3. One other issue that needs focus is the infrastructure – especially Power and Transport. Just a case to prove my point – as one travels from Mumbai to Ahmedabad by train, you can see freight trains waiting for an opportunity to move ahead at every station along the way!! We need a dedicated freight corridor in railways immediately. I remember hearing in my PGPX classroom that India loses 32 Billion USD every year in freight transportation!!! (Just to compare – Indian Software and S/W services export is worth USD 47 billion).

4. On top of all these issues, our huge subsidies (I still cannot fathom the need for free Televisions to be doled out to our masses!!) lessen the motivation for people to work!! These days (at least in subsidy rich states like Tamil Nadu and Pondicherry) it is very difficult to get labourers for even farm activities and construction activities!! Ideally, the common man is elegible for subsidized food (Rice @ Rs. 2/kg in TN), subsidy to build a house, cash via NREGA, TV, Gas stove, minimum price for farm output, free cloth … There are worthy subsidies like free education, free lunch in schools and PDS… But most of the new subsidies lack innovation and take away the motivation for a person to work and earn!!

In future, the skills required by the booming Services sector can employ those coming out of the lower middle income and middle income (those with at least a college degree) and hence these groups will get promoted to the next level while the poor families will continue being under the poverty line – with no one ready to provide them skill based long term employment – further widening the gap between the ‘haves’ and the ‘have-nots’. If more youth remain unemployed, it will result in an increased crime rate too!! As long as the manufacturing base does not increase, poverty eradication will continue to remain a dream.

India’s population is set to grow in the coming decades (while Chinese population is going to get older and remain stagnant due to their one-child policy of the 70’s and 80’s). I hope we do not procrastinate this issue to such an extent whereby we forget how to manufacture even if we have to!!

Thoughts folks?

Just an unrelated tidbit – China is exporting its workers to Italy so that the products can still be termed ‘Made in Italy’!!!