There is No Substitute for An Industrial Policy

timer
1 min read
There is No Substitute for An Industrial Policy Blog Image

Why in News?

  • India has had successes of liberalisation but the fact remains that India failed to build a manufacturing base, and prematurely de-industrialised and no country in the world has industrialised only by deregulation. 
  • Industrial policy is necessary for the structural transformation of the economy and well-chosen import restrictions can be a part of that policy mechanism.

The Make in India Campaign and Its Objectives

  • Make in India Campaign
    • The campaign was officially launched by Prime Minister in September 2014.
    • Make in India is an initiative with the aim of promoting manufacturing, attracting foreign direct investment (FDI), fostering innovation, and creating jobs within the country.
  • Objectives of Make in India Campaign
    • Promoting Manufacturing
      • The initiative seeks to boost the manufacturing sector in India, making it a global manufacturing hub.
      • This involves encouraging both domestic and international companies to set up manufacturing units in the country.
    • Attracting Foreign Investment: Make in India aims to attract foreign direct investment by simplifying the business environment, easing regulatory norms, and offering incentives to foreign companies to invest in India's manufacturing sector.
    • Improving Infrastructure: The campaign emphasises the development of infrastructure such as roads, ports, and logistics to facilitate the smooth operation of manufacturing units.
    • Skill Development
      • Make in India recognises the importance of a skilled workforce for a thriving manufacturing sector.
    • The initiative includes efforts to enhance the skill sets of the Indian workforce to meet the demands of modern manufacturing.
    • Innovation and Technology: The campaign focuses on promoting innovation and the use of modern technology in the manufacturing processes to increase efficiency and competitiveness.

Contrast Between Make in India (MII) and Past Policies

  • The MII campaign launched in 2014 is a very different policy package from the doctrine of self-sufficiency that India embraced in the 1970s.
  • MII does not, by any stretch, bring back recollections of the license raj, self-sufficiency, import-substituting industrialisation, and the like.
  • It is vastly dissimilar, although fears have been raised about the manner in which MII is being implemented in some sectors, particularly by raising tariff duties to provide protection to encourage the setting up of domestic industry.
  • Fears of this protectionist tendency spreading to other sectors may be exaggerated, but are not unfounded, especially for those who have lived through the 1970s and 1980s. 
  • Those years of reckless protection created shortages, black markets, and rampant rent-seeking, all in the name of the poor and distributive justice.
  • The producers who benefitted from the protection, loved it and actively lobbied for the regime’s longevity.
  • After all, on average, a mobile phone made on our shores has around 80-85 per cent of imported content (India Cellular and Electronics Association, 2022).
  • The point, empirically, is that MII is very different from self-sufficiency, there is a need to move on from this baseless comparison. 

An Assessment of Promises and Performance of Make in India

  • Large Home Market is No Substitute for Competitive Exports
    • MII has at least two other derivatives, Made in India and Make for India. MII is the mother policy and the fundamental one; the other two are, at best, academic distractions.
    • Make for India involves production for consumption in India itself and focuses on manufacturing for the domestic market.
    • However, a large home market is not a substitute for being competitive in exports. Every country that has taken off before us has been export competitive.
    • Japan, Korea, and China come immediately to mind but there are several others.
  • An Effective MII Operation is Needed: Made in India is a branding strategy to promote manufacturers born out of Indian factors of production — land, labour, capital, entrepreneurship, technology, etc., and can only succeed on the back of an effective MII operation.
  • National Manufacturing Policy (NMP 2011) and MII
    • India launched MII as a sequel to earlier initiatives (NMP, 2011) designed to create a robust and competitive manufacturing sector.
    • The NMP 2011 stated that inadequate physical infrastructure, a complex and (corrupt) regulatory environment, and inadequate availability of skilled manpower had constrained its growth.
    • It sought to raise the contribution of manufacturing in GDP from the stagnant 15 per cent since the beginning of the 1980s to at least 25 per cent and to create 100 million additional jobs.
    • MII, has, in addition to the dynamic objectives of NMP 2011, aimed to transform India into a global design and manufacturing export hub, in other words, MII for the world.

Need for Additional Industrial Policy Measures with ongoing PLI Implementation

  • Articulation in Diverse Sectors is Needed Beyond Production Linked Incentive (PLI)
    • An additional industrial policy is required for sectors like toys, readymade garments, and footwear, beyond the scope of the PLI scheme.
    • There is a requirement for a more detailed articulation of industrial policies tailored to the specific needs of diverse sectors.
  • Focus on Job Creation
    • Industrial policy should prioritise job creation, particularly in a country with abundant labour but mediocre educational attainments and skills.
    • There is a need for policies that shape productive job opportunities, especially for women, and labour-intensive manufacturing.
  • Address Jobless Growth Narrative
    • Addresses the criticism of jobless growth by asserting that the absence of reasonable quality jobs with social protection has contributed to this narrative.
    • Industrial policies should be focused on mass job creation, considering job quality and social protection.
  • Address the Challenges of Devising Inclusive Policies
    • The government should address the complexity of devising industrial policies for mass job creation, especially when compared to policies exclusively aimed at exports.
    • Therefore, there is a need for inclusive policies that align with the overarching goal of creating quality jobs and social protection.
  • Treat Job Creation as the Touchstone
    • The success of industrial policies should be measured against the touchstone of mass job creation in India.
    • It reinforces the importance of addressing the jobless growth narrative and prioritising policies that generate inclusive and quality employment opportunities.
  • Address the Labour Market Challenges
    • India’s labour market research points towards the presence of low-paying, subdued productivity, and mostly informal jobs in the unorganised sector.
    • Over 99 per cent of India’s 63 million micro, small and medium enterprises (MSMEs) are in the unorganised sector with very little flexibility for productive job creation.
    • It is important to assess how MII, that embraces several other complementary policies, along the way has fared in this respect.
    • This is an important question for India and not easy to scrutinise primarily because of a absence of official data at frequent and short intervals.
    • In the absence of such data, policy making is like shooting darts blindfolded and it should be addressed.

Conclusion

  • The government will require careful analysis of the country’s circumstances and capabilities. India needs an industrial policy where the benefits of laptops are for more than the laptop class.
  • However, it is crucial to remember that the discussion of industrial policy shouldn't be held captive by showmanship, theoretical simplicity, or misleading historical analogies.
  • The global context requires India to establish a serious industrial policy and takes manufacturing seriously because there is no substitute for an industrial policy.

Q1) What is License Raj?

License Raj or Permit Raj was a system of regulations and licences that were required to set up and run a business along with the accompanying red tapes, delays and corruption between 1947 and 1990 in India. Under this, it was mandatory to obtain a licence from the government to start a business.

Q2) What is DGFT?

The DGFT is the chief body that administers laws related to foreign trade and foreign investment in India. It implements the foreign trade policy or the EXIM (export-import) policy of the government. Its main mandate is to promote exports from India. It is an attached body of the Ministry of Commerce & Industry, GOI. It is headed by the Director-General of Foreign Trade.


Source: The Indian Express