Selling India’s Poverty in the Name of ‘Make in India’
A misplaced focus characterizes the National Manufacturing Policy and its new incarnation 'Make in India' whose supposed objective is to revamp the dwindling manufacturing sector. Ambitious targets like raising manufacturing growth to 12-14 per cent per annum in the medium term, increasing share of manufacturing in GDP to 25 per cent, and creation of 100 million additional jobs in manufacturing by 2022are being bandied about without any clarity about why the current trends are so unpromising. The Twelfth Plan Approach paper acknowledged the fact that manufacturing sector grew much below the targeted 10-11 per cent during the Eleventh Plan. More recently, there has been a sharp decline in manufacturing growth since 2009-10 finally taking a dip into negative growth in 2013-14. The share of manufacturing in GDP was 17.3 per cent in 1995-96, 16 per cent in 2007-08 and fell to below 13 per cent in 2013-14.
For the last three decades the solution to India’s manufacturing problems was sought in the promotion of free market policies. This has failed miserably so now it is the turn of ‘strategies’ and ‘policies’ that would increase India's competitiveness in specific sectors for an export-led take-off. However, for all the talk of a new mindset the emphasis remains essentially the same – on making things easier for business at the expense of workers and other segments of society.
Interestingly the RBI Governor, who accepts the neo-liberal framework, advised caution about harbouring unreasonable ambitions about India becoming a second China. His concern was that prevailing conditions in the global market – with a slow recovery in the US, the Euro zone close to recession and Japan with two successive quarters of negative growth - raises doubts on the feasibility of a big push in manufacturing based on exports. The implication is that it would be better to focus on the domestic market. The official discourse, however, does not go beyond this to answer the question - who in India is going to buy the goods and how, and if these buyers exist why has the domestic market in a large country like India not been able to sustain industrial growth?
There is a very good reason for this silence. During the course of liberalisation there has been a drastic shift in the pattern of distribution in favour of profit earners and against those who earn their living by various modes of waged or salaried work. Workers, peasants, lower stretches of the middle class, all have actually lost their share in the total pie The neo-liberal growth strategy has helped the rich corner all the benefits of the growth made possible by the labour of the working population – they do not want that to change. Indeed India is being sold to global investors as a land of opportunity primarily on the grounds that labour is cheap here! Hence they are reluctant to acknowledge that keeping the working people in desperate poverty is the source of the problem.
A robust growth in manufacturing depends largely on growth of demand for durable consumption goods as well as that of machinery that produces such goods. In India, the share of such goods in the overall consumption basket it is only 3 per cent and increases very sharply only in the top 5 per cent of the private consumption expenditure distribution. This means that only the minority rich are the source of growth of demand for consumer durables and this cannot create a market for enhanced output. Moreover while increases in income of wage earners lead to significant increase in spending on consumption, the rich tend to save rather than consume a larger proportion of their increased income. With increasing concern for future living in a situation where pensions with adequate price indexation are denied peoples' tendency to save for the future has also increased causing shrinkage in current consumption demand. Thus the expansion of demand for manufactured consumer goods has been far less than what it could be in a more equitable scenario.
The market for machinery to produce goods is created by investment expenditure. In the liberalized regime the corporate sector replaced the public sector in terms of investment and capital formation. However, capitalists invest with expectation of making profits - for which they try to keep their wage costs low. But they also have to find buyers for the goods produced. It is this inability to find buyers - given a persistent depression in the global scenario along with a limited domestic demand – that is thwarting their ambitions of high profits. Consequently they have become shy of investing reflected by the declining share of the corporate sector in gross fixed capital formation in the recent past. This ends up aggravating the domestic market constraint for manufacturing.
The growth of manufacturing in China besides all other important factors cannot be explained independent of the fact that there had been enormous increase in the purchasing power of the people. This had been built up on structures very different from India.The Asian Development Bank defines middle class by a broad measure of 2$-20$/day. Within this bracket the share of people having more than 4$/day increased from 12 per cent in 93/94 to 18 per cent in 04/05 in case of India while that share increased from 18 per cent to 70 per cent in China during the same period. The lesson is that instead of just looking into supply side factors including infrastructure a comprehensive policy to strengthen domestic demand should be put in place. And such a policy should aim to socialize a part of consumption by way of radical re-distribution that makes enough buyers of India who would be able to purchase what is being manufactured. You can get cheap labour and produce with it when poverty is pervasive but you cannot then sell what is produced.
Selling India’s Poverty
Selling India’s Poverty in the Name of ‘Make in India’