- April 29, 2020
- Posted by: EuIndia Chambers
- Category: News
INDIA’S ROLE POST-COVID-19, particularly in the industrial sector, is a subject of great interest, hope and speculation to the rest of the world. Many believe India will emerge as one of the preferred centres for manufactured products vis-a-vis China, if not the foremost choice. This is a reasonable aspiration to have as a nation. But it’s an outcome, not a strategy. An apt strategy for India would be to assume greater self-control over national value chain; embrace and enhance, what is often alluded to as the Nehruvian approach of‘core self-sufficiency’, by augmenting domestic value addition in its manufacturing industry.
This discussion has two elements:
1. Manufacturing versus assembly;
2. Expanding domestic capacity and capability.
In the last two decades, most Indian manufacturing has drifted away from its classical definition. Manufacturing is the process of converting the bounty of Mother Nature into a man-made product. Assembly is putting together various manufactured elements and creating a new product that is more convenient for human use. For a variety of reasons,
many recent success stories of Indian manufacturing have been more in the nature of assembly. A large number of, and usually critical components and inputs of the value chain, are imported. Many experts suggest that, to be truly called a domestic manufacturer, local value-addition must be at least 50%. This definition (right number may be debated)
must be communicated to create a measurable intent if India wants to achieve‘ core self-sufficiency’. If a roadmap is not built around a numerical target, the aspiration to attain destiny control over the manufacturing value chain will remain a vague desire and not a plan.
Today, we need a plan! The second part focuses on execution. The author’s case is the right answer is a ‘string of pearls’ approach as opposed to a ‘mining for gold’ approach. Shorn of the metaphor, it is a ‘many medium and nuanced’ versus ‘few big’ choice. Post Covid-19, getting big-ticket greenfield investments would be challenging. Domestic investors have an issue of affordability. Getting overseas ‘big boys’ is a different game—it involves global politics, competitive bidding, grants of sops and concessions. In a democracy like India, choices exercised in favour of a few, besides being prohibitively expensive, are politically unwise, likely to be construed as subjective and susceptible to protest, making implementation frustrating.
A ‘string of pearls’ approach is more targeted—it involves identifying a few priority industries, mapping their value chains and attracting strategic medium-sized investments in those high-value elements of the value chain. These handpicked items to be focused upon and incentivised to establish manufacturing in India. These investments are likely to
be modest in size and low in resource demands (smaller land parcels, attractive for states to also pitch in, etc), making it faster to operationalise. These will get seamlessly retro fitted into an existing value chain as market is assured. Such value chain-linked projects are attractive for lenders, and eventually can be a source of exports to other nations. This approach has collateral advantages and risk management dimensions..
◗Medium-sized enterprises generate more employment per unit of investment, a crucial factor post-Covid-19;
◗ Land requirements are easier;
◗ Such enterprises can be spread throughout the country, decongesting cities, widening distribution of economic prosperity, thereby enabling a dispersed growth of services;
◗ Multiplier impact of common elements in value chain across industries, if chosen and planned well;
◗ Mitigating the risk (at a country level) that India may face of its IT sector possibly suffering the consequences of a similar global action of reducing dependency concentration.
In summary, India needs to articulate a measurable roadmap to increase its current domestic value addition by at least 500-600bps in the next five years. A large part of this has to come from ‘string of pearls’,i.e. need-driven, technology-based medium enterprises interwoven with existing domestic manufacturing value chains, and not just from a few large greenfield projects. If the ultimate outcome is to become a preferred global source of choice, the plan has to be a part of a well thought out strategy and not influenced solely by political and ideological rhetoric.