Vijay Kumar Gaba: Make in India

Showing posts with label Make in India. Show all posts

Wednesday, July 19, 2023

Struggle to find a balance - 2

Continuing from yesterday (Struggle to find a balance).

From the developments, events, and engagements in the past two decades, it is evident that India has been making credible efforts to sustain an affirmative engagement with the global community. These efforts include opening the Indian economy to the global business community; actively participating in global alliances and forums; developing social and physical infrastructure; committing to global agreements in the areas like economic cooperation, climate change, transparency in fund flows & investments, crime prevention, terrorism, etc.

These efforts have been made at three broad levels –

(i) At the state level through suitable changes in policy framework. This includes, inter alia, deeper strategic alliances with Western countries (civil nuclear deal, QUAD, etc.); bilateral (free) trade agreements, liberalized FDI regime; BRICS and G-20 cooperation; etc. The vaccine diplomacy during Covid was a significant effort in wider global outreach by the Indian state. The Indian state’s resolute refusal to align with any side in the ongoing Russia-Ukraine conflict is widely cited as a good example of its strategic efforts to stay non-aligned while protecting its interests.

(ii) At the private enterprise level through deeper and wider engagement with global businesses. This includes deeper and wider engagement with global technology leaders and innovators; making large-scale investments in foreign countries (Corus, JLR, Novelis, to name a few); providing competitive manufacturing platforms (mobile and white goods manufacturing) to global brands; partnering with global leaders to produce/Service in India for India and world; etc.

(iii) At the individual level through the deeper and wider engagement of Indian citizens (or persons of Indian origin) with the global community – business, governments, civil society, academia, scientific research, art, and culture. The number of students admitted to various courses in foreign universities has risen exponentially; so has the role of Indian professionals in the senior-level management of top global enterprises.

These efforts have indubitably earned wider acceptability for India’s official narrative across the global socio-political spectrum.

However, it cannot be denied that India’s internal struggle to redefine its socio-economic identity as an “ultra-nationalist free market economy with a socialist overtone” has allowed various interest groups and lobbies to challenge the credibility of India as a democratic secular system with equal opportunity and progressive outlook. These interest groups have been building a strong narrative to dissuade the global communities from further deepening their engagement with the Indian state. This narrative could have influenced global opinion to some extent, as reflected in a much slower pace of progress in trade, FDI, VISA regulations, technology transfer, nuclear cooperation, etc. I also see the recent spurt in separatist movements, like the Khalistan movement, adverse press coverage during the prime minister’s foreign visits, etc. as an extension of this trend only.

These interest groups appear to have the tacit support of the local politicians, intelligentsia, civil society members, etc. who are either opposed to the policies, methods, and style of functioning of the incumbent government; or are struggling to find a space for themselves in the scheme of things.

In this context; I find the India narrative in the recent issue of The Economist (July 15the-21st, 2023). The 78-page issue has the following 7 mentions of India. The economic mentions are all bracketed with China which has over 100 mentions in the magazine.

1. At least ten people were killed in election day violence in West Bengal. The Indian state went to the polls to choose rural councils. Dozens of people have died in violence in the state since the election date was called a month ago.

2. In a setback to India’s ambition to become a global hub of chipmaking, Foxconn, best known for assembling the iPhone, pulled out of a $19.5bn joint venture to develop semiconductors at a factory in Gujarat. The deal had been announced with much fanfare last year. Press reports suggested the project had been held up by the government’s dithering on state support.

3. India’s central government is subsidizing a Micron factory in Gujarat to “assemble and test” chips, spending an amount equal to a quarter of its annual budget for higher education.

4. India’s attempt to boost its mobile phone industry appears to have brought mainly low-value assembly work. The lesson from South Korea is that national champions must be exposed to global competition and allowed to fail. The temptation today will be to protect them, come what may.

5. While he is gradually being welcomed back into the Arab world, Mr. Assad hopes his multifaith policy will help him end his isolation elsewhere. Yoga has helped him strengthen ties with India.

6. Vietnam, which is hardly friendly towards China, has adopted some of its methods for controlling data. Authoritarian regimes are not the only ones to slide toward digital protectionism. India insists data must be stored locally: to give its law enforcement agencies easy access, to protect against foreign snooping, and as a way to boost investment in the tech sector.

7. India’s “Make in India” strategy hopes to boost the industrial share of the economy to 25% of value added by 2025. In China and India industry’s share of economic output appears to be roughly where it was three decades ago, but even in these countries, it has slipped in recent years.

Despite the efforts of local officials and strong geopolitical incentives for Apple to move away from China, India has struggled to become anything other than a destination for the device’s final assembly

The oft-lauded superior productivity growth of manufacturing—versus services as well as agriculture—comes with caveats. Economists have found that financial, it, and legal services can boost productivity elsewhere, including in industry. According to the IMF, the gap between manufacturing and services productivity growth has shrunk in many countries since the turn of the millennium. In China and India, its direction has flipped, with service productivity rising faster.

The following podcast of The Strait Times, featuring Mr. Sanjay Baru, a geo-economist and commentator who was Media Adviser to Prime Minister Manmohan Singh also makes an interesting listening in this context.

‘Closet Nehru’ Modi has played Indian foreign policy well

Friday, January 29, 2021

Headlines need to be managed well

Besides other things one thing that the year 2020 has established is the need for global manufacturing to rebalance its over reliance on China. This need was being felt for past many years, but the following factored appeared to have reinforced this need in 2020:

(a) Major global economies like US, Japan and India took some aggressive tariffs and non-tariff measures to correct the imbalances in their trade with China.

(b) Pandemic induced mobility restrictions exposed the vulnerabilities in the global supply chain and prompted businesses to diversify their manufacturing more widely.

(c) Geopolitical aggression shown by Chinese establishment is now increasingly perceived as potent risk for global supply chain. Political unrest in Hong Kong has may have also embellished this perception.

A recent survey conducted by UBS highlighted that “70% in the China CFO survey and 86% in the US CFO survey said they had moved or plan to move a part of their production out.”

Amongst Asian countries, besides Vietnam, Taiwan, Japan, Korea and Thailand, India is seen one of the preferred country for relocation of manufacturing facilities. India is seen o have lowest manufacturing costs amongst peer, but some skepticism remains about the ecosystem and administrative hurdles. Despite a strong commitment of the top leadership to encourage manufacturing base in India, the progress on the administrative level is perceived rather slow. It is important to note that low labor cost does not necessarily lad to overall lower cost structure, if the overall ecosystem (regulation, taxes, logistics, infrastructure etc.) is not favorable for manufacturing.

The events of Winstron, Narsupura (Bengaluru, December 2020) and Delhi (Violent protests by farmers, January 2021) are not good omen for this though. Rejecting these events as mere local politically motivated events might be mistake best avoided; because we are already in the midst of transition. The decisions are being already taken in board meetings. No one can deny that sometimes a newspaper headlines on decision day might impact a 30-40yr plan.

Thursday, August 20, 2020

Preparing for chaos - 3

Continuing from yesterday (see Preparing for chaos -2)

As I said earlier, the world will be a materially different place in five year from now. However, notwithstanding the technological advances and development of advanced forecasting techniques, it may not be accurately predict the contours of the global order in 2025. The learnings from great depression may only inform us that changes will be dramatic. However, these may not guide us about the nature and direction of the changes, because the present circumstances are very different from 1930s.

Given that I am a tiny investor, and my concerns are mostly limited to the local Indian assets, I would like to only assess

(a) Where India stands in this melee?

(b) What changes are required in my investment strategy to mitigate the impact of transformative changes that may take place in next 5 years?

I hear lot about a Industrial revolution in India. The government has spoken about many ideas like "Make in India", "Make for India", "Make for World", "Self Reliant India" to emphasize on the need to focus on growth of manufacturing sector in India. In past few months some incentives have been announced to promote manufacturing of mobile handsets. There are proposal to implement similar production linked incentives for chemicals also. Besides, many tariff and non tariff measures have been announced to protect and promote Indian manufacturers of tyres; power tillers; chemicals; arms, ammunition & equipments used by defense forces; etc.

Somehow, I am not able to see how these measures will make Indian economy more competitive globally. The policy on defense production for example is incongruent with the objective. Import restrictions on TV and Mobile sets would be inefficient for consumers and revenue both. The better course would have been to subsidize domestic production for three years to afford domestic producers an opportunity to become globally competitive without impacting the consumers.

I therefore feel that we may not see a significant shift in the growth trajectory for manufacturing and IPR based industries in next few years at least. The growth pattern seen in past one decade will continue, with industries like pharmaceutical, Chemical and Automobile etc further improving their scale and competitiveness quotient.

I am also not feeling any excitement about India becoming a spare tyre to the global industries seeking some safety for the eventuality of China getting punctured. The assumption that the world will be able to ignore China for long and learn to live without it forever seems preposterous to me. I shall therefore be extremely cautious on businesses that are building capacities just on this basis.

Also, given the poor employment elasticity of modern manufacturing, I do not approve of investment in manufacturing just to improve create more jobs.

I am therefore of the view that India is struggling to find a way out this chaos and there is no indication that we are moving in right direction as yet. I shall therefore maintain a cautious stance on my investment strategy for next 3-5 years.

...to continue tomorrow

Tuesday, June 30, 2020

Self Reliance is not about ultra Nationalism

In an interview with the Manchester Guardian in 1965, the then foreign minister of Pakistan Zulfikar Ali Bhutto famously said, “If India builds the bomb, we will eat grass or leaves, even go hungry, but we will get one of our own. We have no alternative.”

The world has seen how Pakistan has built the nuclear bomb and what cost its citizens have paid for the toy that will perhaps never be unboxed. It may be argued that the nuclear arsenal build by Pakistan and India has created a strong enough deterrence for any war between the two countries. Regardless, we had a war in Kargil (1999) and significant rise in the violence in the Kashmir Valley and along the line of control (LoC) since both countries declared themselves to be the nuclear powers in 1998. India has struck twice deep into PoK and changed the status quo materially in J&K in past 5 years. Many soldiers and civilian die every year on the both sides of LoC; and Pakistan economy is surviving on the IMF support. Bhutto did not realize that hungry people would need food to survive, which nuclear weapon cannot provide.

Similar is the sentiment in India these days. The politicians are exhorting people to shun Chinese goods; and people appear ready to forgo consumption of goods with Chinese connection. "Self Reliance" is the war cry against China.

Being self reliant in my view is the best economic policy. But, "self reliance" could have entirely different connotations. Even within the government there appears no consensus over the form and degree of "self reliance" we are talking about in present day context. Listening to and reading about the views of various functionaries of the government, politicians in power, and people supporting "boycott China" movement on social media and streets, I find the following popular perceptions of "self reliance" -

(i) Use only Made in India products.

(ii) Become a manufacturing powerhouse like the South East Asian economies did in 1990s; and produce for the global economies. In the process we should encourage the global corporations to either relocate their manufacturing facilities from China to India; or source their global requirements from the manufacturers in India.

(iii) Become trade surplus economy; especially in manufactured and agriculture products, reversing the colonial model of development, i.e., supplier of raw material and importer of manufactured items.

(iv) Ban "unnecessary" imports from China, e.g., toys, decorative items, furniture etc.

(v) Become "self reliant" in defence production.

(vi) Ban all investments by Chinese investors in Indian businesses.

However, a deeper probe reveals that most people have no objection to the investments from and trade with Japan, Korea, UK, European Union, Canada, Russia, Australia, Gulf Countries, Latin American and African countries. Insofar as the USA is concerned, the feelings are mixed and ambivalent. Most of the people however do not mind deeper economic relations with the USA, provided the USA offers little more favorable terms in terms of VISA and taxation.

So basically, when we say "self reliance" and "trade barriers" we are primarily talking about limiting trade with the "enemies" China and Pakistan" and restricting the movement of labor from Bangladesh.

The worst part is that very few people leading the "boycott China" movement from the front, do not have even basic knowledge of the contours of India's trade with China. They hardly realize that the so called "non essential" items imported from China are a miniscule part of the total trade, but may be accountable for the employment and affordable consumption of millions of lower middle class and poor people in India. ....to continue

Friday, June 5, 2020

Focus on strengths

Unpredictability has been one of the key characteristics of the incumbent Indian government ever since it assumed office in May 2014. The government, especially the political leadership, has taken numerous decisions that have surprised most of the citizens and global observers.

Overnight decision to replace all large currency notes in circulation (demonetization); surgical strikes in PoK; air strikes in Pakistan territories; abrogation of article 370 of the constitution and bifurcation of the state of Jammu & Kashmir to carve out Ladakh as a separate union territory; criminalization of the practice of triple talaq; amendment in the citizenship law; abolition of planning commission; restructuring of corporate tax rates; and most recently the decision to impose a total lockdown in the country to control the spread of COVID-19 virus etc are some of the examples of unpredictable decision making.

The tendency to surprise the stakeholders has not remained limited to the powerful political establishment alone. Bureaucracy has also borrowed abundantly from their political master. It has been issuing administrative orders, which have been often described by the stakeholders as "draconian" and "incongruent" the stated policy objectives of the government.

Under these circumstances, attracting major new foreign investment could be a challenging task. Many global businesses are certainly lured by the size and potential of Indian markets, availability of skilled worker at comparatively lower cost; improving physical infrastructure and abundance of natural resources. However, unpredictability of policy; corruption, law & order issues; judicial overreach (in recent years); and dogmatic bureaucracy have so far kept them from making larger commitments.

In past few years, thus, the FDI in India is mostly focused on stressed infra assets (roads, airports, renewable energy, etc); digital platforms; services like telecom and retail, and assembly plants for electronics and furniture etc. Investment in IT, automobile & pharma sector that started in 1990s has mostly saturated and new investment now is just a trickle.

Over the years, India has been turned into back office and assembly line of the global corporations. Many of these businesses shall lose their relevance in the emerging world driven by artificial intelligence, dematerialized transactions, and xenophobic nationalism.

The rising unpredictability of policy is making even the current flow of investment, which is much below the potential of Indian economy, uncertain. Many global banks having their mission critical back offices in India are wondering whether they should work on alternate plans, given the onerous lockdown conditions. God forbid, if the second wave of COVID-19 hits, as many experts are emphasizing, and another round lockdown becomes necessary, these contemplations may certainly be brought to drawing boards.

Unfortunately, we have so far failed in attracting any meaningful foreign investment in social infrastructure like education, healthcare, skill development, water, sanitation, traditional food, promotion and development of local culture & languages, etc. - the things that will make India a self reliant and developed economy. Investments in these areas will be India specific, profitable, and sustainable for long duration. The employment opportunities in these areas will be far greater, rewarding and sustainable as the local people will be engaging in these activities from the position of their strengths. A cursory stroll through YouTube will show you thousands of young and middle aged housewives, from small towns and metropolis alike, sharing their culinary skills with the people. Many of these women are celebrities in their own right followed by thousands of enthusiastic cooks. There are thousands of household women entrepreneurs who supply homemade lunch Tiffin to office goers and hostel residents.

Investing in these experts of local cuisines could be far more rewarding & sustainable than investing in a food delivery platforms and junk food outlets.

Thursday, June 4, 2020

Bits and pieces policy changes may not yield desired results

The government has announced a spate of policy measures to put the economy back on the growth path. The measures and intent to encourage manufacturing in the country is however the most publicized and discussed about policy initiative. It is a clear departure from the extant policy of global cooperation and using bilateral and multilateral trade agreements to benefit from the resources and manufacturing prowess of partner countries ,

So far, we have not seen a comprehensive policy framework for the policy initiative. The basic principle of management would guide that to execute such a major policy intuitive, which may have significant impact on the lives of 140cr people, the planners must first lay down a detailed conceptual framework, which defines in very unambiguous terms, at least the following:

(a) The need for such policy initiative; especially the circumstances that have necessaitated the significant change in the policy direction and intent;

(b) The objectives of the proposed policy initiative, especially specifying how the various stakeholders would specifically benefit fro the change;

(c) The deliverable goals of the policy initiatives, clearly defining the quantitative and qualitative target and timeframe for achieving the specified targets;

(d) Strategy to meet the objectives and goals, clearly defining the legal, regulatory, administrative, procedural, social and behavioral changes that would be prerequisite and/or desirable for achieving the objectives and goals of the policy initiatives; how the government proposes to implement these changes and what could be the hindrances in implementing these changes, etc.

(e) The programs that would be implemented for achieving the objectives & goals; the budget for these programs, executing and controlling authorities and review mechanism;

(f) The cost and benefit analysis of the proposed policy shift; specifically outlining the exit conditions and costs should the changes are found to be not working as planned.

The incumbent government had initially proposed the policy change to promote local manufacturing under its "Make in India" initiative in 2014. In six years, the government has not presented any comprehensive conceptual framework for it; though the NITI Aayog has issued some broad vision documents. There have been many scattered efforts to encourage investment in manufacturing sector, ) most prominent being the restructuring of corporate tax rates), and cluster development; we have not seen any a coordinated effort that would be usually needed for such a massive policy paradigm shift. To the contrary there have been many disparate actions by different organs of the government, defeating the very purpose of the policy itself.

The recently issued draft directive to ban production, transport sale and import of 27 popular agro chemicals is just one point in case. Significant capacities for these chemicals have been built in past few years only. The totally arbitrary decision to suddenly put a blanket ban on these products does not augur well for the policy intent of the government. Similarly, recently a circular was issued to ban sale of 1026 products which are imported in Semi Knocked Unit (SKU) condition in the police and para military canteens. The circular was withdrawn in couple of days. Apparently, two departments of the same ministry were not talking to each other on important policy issue.

Various organs of the government are giving different explanation of the policy intent itself. "make in India"; "Make for India", Make in India for the World", Self Reliance"; "India as a hub of Global Supply Chain" are some of the popular connotations. This does not show that we are going to have a paradigm shift in policy; may be just few bits and pieces here and there.