Aug 16 2014 : The Economic Times (Delhi)

How to Manufacture Things Here in India





In his first Independence Day address, Prime Minister Narendra Modi said that he wanted companies to make things in India, rather than have us import manufactured goods from overseas. This can be interpreted as a return to good old “import substitution“. But that didn't work. India's share of manufacturing in gross domestic product is around 16%, compared to China's 34% and South Korea's 31%. What will it take to get investors to make things in India? It is easy to blame land acquisition rules, environmental clearances, labour laws and corrupt administrative clearanceinspection for the relative decline of manufacturing. The reality is more complex. Most regulations are administered by state governments and New Delhi has little say over that.We have had success stories. By the mid-1990s, our policies encouraged global carmakers to invest locally . The old, sclerotic industry was soon replaced by local versions of cars sold all over the world. This was supported by a strong ecosystem of component makers. Yet, over time, the carmaking hubs around Delhi and Tamil Nadu have been marked by periodic labour unrest, as aspirations of workers collide with what industry is willing to offer. Most of the workforce is contractual, earning a fraction of what a proper blue-collar worker would earn, with few, if any , privileges of leave, insurance and medical assistance.
These things have to change if manufacturing has to generate consumer demand as well. Henry Ford used to say that his workers should be paid enough to afford a house with a garage -where a Ford car would fit nicely . That should be the ideal for all manufacturing investors in India: to create a satisfied, well-paid workforce that can afford to buy the things that are made in India. Cutting corners on this is no longer an option.