Managing Change for Holistic Development
Prof. Bhagwati Prakash Sharma*
Alround development of the economy connotes assured livelihood for all with sustained equilibrium and balance with the nature and environment. Hence, sustainable development with inclusive growth assuring optimum employment devoid of hunger and poverty is the pre-requisite for holistic development. The country has rich endowment a host of variables needed to place Bharat in the front rank of advanced nations with prosperity with proper blend of strategic interventions. This paper aims to highlight some of the interventions which can bring the desired change for alround development of the country.
Rich endowment with Techno-economic constraints
India is home to 17.6% of global population with a highest share 20% of global youth and our 138 crore headcount far exceeds over the combined populations of 76 countries of the twin continents of Europe and Latin America. Yet, the country has mere 3% contribution in world manufacturing. With respect of high technology exports India trails behind even Singapore which is having 7.5 times of our high-tech exports. While Singapore has mere 0.02% of our area. Thus, Singapore ranks 5th, China First and India 22nd in high tech exports. China, with almost the same share of 18.4% in world population has 28.4% share in world manufacturing and 30 times high-tech exports than India. It would not be out of place to mention that per capita income of China in 1986 was 15-20% less than India. Today Chinese per capita income is five times of our per capita income. The country has highest area of arable land along with highest number of 64 million micro, small and medium enterprises (MSME). But, on manufacturing front country is characterised by mere assembly lines.
Ranging from mobile phones to metro-trains and from refrigerators and TV sets to pass-book printers are being merely assembled out of the imported components or completely knocked down kits. We lack the down-stream value chain of original equipment manufacturing in India, for these assembly lines being run by domestic or foreign companies. Inspite of being the largest democratic Republic of the world we are home to mere assembly lines, devoid of requisite domestic manufacturing facilities for the downstream value chain of original equipments, needed for running these assembly lines, whether being run by foreign MNCs or domestic firms, assembling eitherunder their own brands or under license from any foreign MNC.
Strategy for Turnaround
A strategic roadmap to revamp the economy should focus upon adding the downstream value chain of manufacturing the original equipments. Besides, due care has to be given to develop the technologies and products, where India is experiencing fast technological obsolescence or is dependent upon external supply chains for want of appropriate and affordable technologies. Sunrise sectors and sunrise technologies too need to be focused. To sum up, there are four major challenges to enhance manufacturing and generate quality employment with sustained growth.
The first challenge is to find replacement technologies for the technologies phasing out. One such example is that fossil fuel based vehicles (petrol and diesel based vehicles) would be phased out 2030. So, the petrol and diesel engines comprising 2000 plus parts and being manufactured by several thousand component manufacturers would become redundant, as these engines would be replaced by an electric drive comprising mere 20 components. India is yet to develop technology for the same. Such examples are legion where the HEIs have to focus for developing replacement technologies.
Second challenge is of technological obsolescence in industries especially MSME sector. A Large number of MSME Clusters, ranging from glass to ceramics and from textiles and garments to foundry products have been witnessing closure of a number of units due to technological obsolescence.
Third challenge is to place the country ahead in the sunrise sectors, by developing homegrown technologies for all sunrise sectors like nanotechnology, molecular biology, artificial intelligence (including machine learning based predictive analyses), Block chain, IoT, 3D printing, robotics, mechatronics etc. Imported AI products for crop yield prediction, medical diagnostics, therapeutics, self driven cars, tourism, fine arts, performing arts, homeland security, boarder security, defense & armaments and so on are likely to flood the markets where India is yet to endeavour.
The fourth major challenge is to minimize our external dependence upon import of a large number products and the original equipments of the downstream vale chains of the products being assembled in the country. India is fully dependent upon the import of biomedical equipments, majority of electronic items, computer hardware as well as software products ranging from data analytics, meeting platforms, computer operating systems, GPS and so on. China has developed its own operating system to replace windows (UOS) search engine (Baidu) GPS (Beidu) and so on.
Rapid Strides Needed for Self-Reliance
Self-reliance should not be interpreted in a narrower sense of isolationist self-sufficiency of the Indian economy. Foreign trade account for 48.8% of country’s GDP. Export kitty of 7500 commodities destined for 190 countries of the world and an imports list of 6000 commodities, originating from 140 countries. This broad base of our trade relations is going to be more broad-based for self-reliance. But, macroeconomic sustainability with respect to external sector as well as fiscal buoyancy to meet all domestic targets of expenditure outlays. Technological self-sufficiency is also key to be able to run our assembly lines with more than 50% domestic share in the manufacture of original equipments of downstream value chain for our assembly lines. Country should also think of one step ahead of developing the sunrise technologies for the ensuing decade instead of merely focusing upon providing skilled manpower to foreign assembly lines. So, for attaining self-reliance trade and investment balances, fiscal sustainability and technological self-sufficiency needs to be given paramount importance.
- Macroeconomic Sustainability in the External sector: As already stated here above that India must be able to meet its import bill from its export earnings. The trade deficit of $165 billion in the pre-Covid year is the major stumbling block, which has ballooned hundred-fold from $1.62 in 1991-92. This ballooning trade deficit has compelled the governments over the years to meet this deficit from foreign direct investments and portfolio investments, leading to take over of most of manufacturing by foreign MNCs. It has led to foreign control and ownership of industry and commerce. Excess of FDI leads to precarious deficit in the investment income as well. Our outbound direct investments (ODI) are very low when compared to the ballooning FDI. So, more and more profits and royalties are repatriated out of country, vis a vis the profits received from the ODI. So, along with a trade deficit of approx $160 billion, India has an investment income deficit of around $30-40 billion. This has led to the depreciation of Indian rupee value against the American dollar from Rs 18 in 1991 to Rs 76 per dollar today. Most of the inflation in the country has resulted solely from the more than four-fold fall of Indian rupee in the post reforms period. So, Bharat needs to balance its trade and current account deficits along with investment income deficit.
- Fiscal Sustainability: Adequate fiscal resources are key to meet various expenditure targets. India has since last more than five decades been trying hard to raise government expenditures on education to 6%, health to 4%, R&D at 2%, defence at 4%, welfare at 6%, social security at 6% of the GDP. Besides, the government has to spend 8% of GDP on salaries. The composite expenditure stands at 34% of GDP. At present the Tax-GDP ratio for the centre is 9.76% and 16.92% or say 17% for the centre and states together. So, unless the tax-GDP ratio rises, the country cannot conduct itself as a truly sovereign nation. The tax-GDP ratio can grow only if GST revenues rise. But, unless we raise our manufacturing, it won’t to feasible with mere assembly lines, being run by foreign MNCs or few domestic players from the imported original equipments. It would be feasible only with technological self-sufficiency in the manufacture of the original equipments of downstream value chain. Bharat should also plan to raise M2 Money supply. Most of the advance economics have higher M2 Money supply than their GDP in case of Bharat it is only 77% of GDP. Hence resources be built by increasing the money supply for higher investments in infrastructure and manufacturing.
- Technological Self-Sufficiency to overcome Dependence upon China: Our over-dependence upon China for meeting most of the needs of components needed for domestic manufacturing of majority of products has to be remedied. Today, China alone is the key source of inputs for most of our domestic manufacturing, as we are over-dependent to source most of the components needed for manufacturing of the majority of products from mobile phones to the personal computers. We are solely dependent on this single country for several finished products too, portraying enmity towards India. For almost 85% of our crucial mobile phone components, 70% of active pharmaceutical ingredients, 100% of 57 important product categories, 80% supplies of 375 products categories, most crucial for our manufacturing activities we are badly dependent upon China. Almost 30% plus contents for pharma, electronics, automobile and several other industries are coming from China. India has now been offering Production Linked Incentives for a variety of sectors, as on an average we import 90% of solar panels and allied equipments at a cost of approx Rs 25,000 crores per annum, which helps China to generate an employment for 2 lac persons, engaged in manufacturing these solar equipments and components for India. Same is true in case of several other products, including the Li-ion batteries. The import of Li-ion batteries has grown 3-fold from 17 crore in 2016 to 47 crore batteries in 2019, of which mostly from China. The cost of Li-ion battery imports has gone up from Rs 2600 crore to Rs 6500 crore per annum. China dominates over the Li-ion battery market. Around three-fourths (75%) of Li-ion battery cell manufacturing capacity is in China. Chinese companies, under active State support from Chinese government has developed unparalled control on the global supply of raw materials and processing facilities. India has been making rapid strides to resolve even the issue of raw materials for Li-ion batteries, as we do not have Lithium and Cobalt reserves.
- Need to Add Downstream Value Chain in Manufacturing: Country has well laid assembly lines for most of the products ranging from mobile phones to metro-trains and from refrigerators and TV sets to pass-book printers being assembled out of the imported components or completely knocked down kits. Efforts need to made to add the down-stream value chain of original equipment manufacturing through technological self-sufficiency. As on date inspite of having 17.6% share in world population Bharat has mere 3% share in world. Whereas, China has 28.4% share in world manufacturing and 30 times more high-technology exports than India. Japan has just 1.6% share in world population, but 10% share in world manufacturing. The policy of local content requirement for public procurement would soon boost domestic manufacturing. The public procurement order of September 18,000 shall remedy it and boost domestic value addition.
India has allowed higher ‘local content requirement’ (LCR) for public procurement to the tune of 50% or more in the government order of September 18, 2020. This order seeks to promote manufacturing and production of goods and services indigenously by allowing ministries and departments to mandate local content requirements to minimum 50% and 20% or even more for two categories of suppliers viz Class I and Class II local suppliers. The OECD countries, China and the ASEAN countries like Malaysia and several other countries have been pursuing these LCR policies since long back to move in an era of deglobalisation.
- Integrated Rural Development: For generating rural employment and augment rural incomes, value added products should come out from the rural areas, instead of raw crop products.
To sum up, the country has to adopt an integral approach to enhance domestic manufacturing, integrated rural development with huge investment in agriculture, technology renovation, environment preservation and social entrepreneurship for alround development and growth. This would help to alleviate poverty, enhance growth and optimize employment.