In the middle of the ongoing economic chaos, many in India find solace in the hope that many manufacturing companies would now leave China and shift their factories to India. They enthusiastically share many stories about companies deciding to move out. While the COVID19 pandemic, still in its early stages in India, is stress-testing the Indian economy, India as the next global manufacturing hub is indeed the dream worth dreaming about.
This is an old dream, however. This - 'Make in India' - was a campaign slogan in 2014 General Election. In fact, this has been the key economic strategy of the government of India, to elevate India into its next stage of economic development and reach the benefits of economic growth more widely than the service-led economy has achieved so far. It was presumed - then - that China had become too expensive for manufacturers and they would now move to cheaper locations, such as India. And, it was not wishful thinking: Manufacturers were indeed gradually moving out of China, though they did not necessarily come to India. The government of Narendra Modi, elected to office in 2014, pinned its hope on improving India's infrastructure and wooing some of these manufacturers to 'make' in India. However, India has very little to show for all the rhetoric and all the efforts, so far. China's battered global image in the aftermath of COVID19, the Indian government hopes, will resurrect this strategy.
However, previous experience shows that companies did not set up shop in India even if they left China, for a number of reasons:
First, many manufacturers moving their factories away from China might have done so for reasons other than cost. In many cases, the primary reason was the automation of shopfloor and the decline of labour costs in absolute terms as well as a proportion of total costs. When labour costs are less significant, cheaper labour makes less of a difference. Rather, being close to the consumers become more profitable. Hence, companies were moving their production back into their key markets, rather than to a cheaper location. The few companies that came to India to make came on account of its vast domestic demand. But the shock of 2016 demonetisation, the haphazard implementation of the General Sales Tax (GST) and now COVID19 induced job losses have done much to batter that demand - and made India less attractive for the manufacturers.
Second, as manufacturing becomes more automated, the skills requirement and productivity expectations rise exponentially. India is at a significant disadvantage here. Its education and healthcare systems are dominated by special interests and the health of its workers are abysmally poor. Hence, a manufacturer facing skilled labour shortage and health crisis in China is very unlikely to look at India. When not trying to be close to the customers, productivity and skills of workers are the key reasons that attract companies to 'make' in a particular location. But Indian policy-makers have so far missed this central feature of modern manufacturing and limited their thinking to industrial era ideas of cheap and expendible labour.
Third, therefore what India really has to offer to the manufacturers is the 'cheapness' of Indian lives. There are some industries which are environmentally troublesome and hazardous to the workers' lives and health. The Indian thinking is that the manufacturers will come to India if they are offered a relaxed environmental and health and safety regime (China did offer a free-for-all regime to attract companies away from more stringently controlled Europe and North America). As increasingly rich Chinese consumers demand cleaner air and safer products, India aims to beat China in its own game. But this slippery-slope strategy, apart from stunting India's own production capacity as it discourages innovation in safety and environmental standards, is less suitable for a democratic country with an activist press. In fact, American companies are less likely to face class action lawsuits at home for industrial accidents in China than for ones in India.
All told, China's loss may not be India's gain. While India's policy-makers would love to think that the negative public sentiment would force companies to shift away from China, the reality is much more complex. There is indeed a backlash against China today: But that backlash may manifest itself against all overseas manufacturing. 'Made in America', 'Made in Britain' are about to enjoy a resurgence - and that does not help 'Make in India'.
Indeed, 'Make in India' has always a lame-duck strategy, a throwback of the 90s wholly unsuited to the realities of the post-recession world. Indian policy-makers were prisoners to the country's 'outsourcing' success and their lack of ambition was always evident. The slogan: 'Make in India' was never equivalent to 'Made in India'. One may argue that the long-term ambition of 'Make in India' could have been one to build expertise and to eventually make 'Made in India' viable; but the lack of seriousness about education and public health betrays the lack of any such strategic thinking. The outdated thinking behind 'Make in India' was already obsolete when the slogan was conceived; as globalisation goes backwards in the post-COVID world, it has no possibility of succeeding.
But, equally, it is no longer the question of false hope that should bother us. If the current trends are any guide, the shutdown is exposing deep-seated problems of the Indian economy. Three crisises, that of banking, labour and supply chain, are in the process of combining into a perfect storm, and poor planning and lack of coordination between various levels of government and the agencies may end up causing irreversible long-term damage to its industrial capacity. This is hardly the moment of unfurling the 'Make in India' banner; rather, this is a sombre opportunity to re-examine some of its key assumptions. Fundamental questions, of domestic demand and capacity building, can now be asked. The limitations of neo-liberal globalisation fully exposed, an escape from the 'back-office' mindset may be finally possible. New sensibilities about public health may present the opportunity to think beyond the strategy of cheapening human life. We now know: 'Making in India' would require 'thinking in India' first.
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