How to make in India

Economic Survey focuses on skills as the crucial factor, but that is precipitate and premature

ashok-desai

Ashok V Desai | April 3, 2015


#make in india   #make in india narendra modi   #narendra modi   #economic survey  


The prime minister’s pre-election exhortation or invitation, as the case may be, “Make in India”, made headlines then, and has remained in the news. The Economic Survey, tabled in parliament by the finance minister the day before the budget, devotes a chapter to it, which can be viewed as an official elaboration of the idea. The chapter owes much to the pen of the chief economic advisor, a distinguished economist who was brought in from Washington and who has dived into his job with competence and enthusiasm.

The chapter begins by asking for the missing object in the prime minister’s question: What should India make? It traces the question to Lewis who, surprisingly, is missing in the references at the end of the chapter. His is a confusing name, especially since the Survey omits his Christian name. There is John Lewis, a famous department store on Oxford Street in London, owned by a trust run for the benefit of its employees; if the whole world were converted to the John Lewis model, the problem highlighted by Thomas Piketty in his recent book, Capital in the Twenty-first Century, of the rich getting richer at the expense of workers, would disappear. David Ricardo preceded Piketty by 150 years. A rich businessman and speculator, he pointed out that limited supply of land was making landlords rich in England, while their workers remained poor. David had a nephew named John Lewis Ricardo, who pioneered the electric telegraph in Britain. There was also John Lewis, a Princeton development economist who was a great friend of India, ever since he spent some years in Delhi as chief of USAID in the 1960s. When he died in 2010, he asked his friends not to send flowers, but instead to send money to Pratham, the Indian non-government organisation that is trying to improve schooling.

But the Economic Survey does not mean any of these Lewes; it is referring to W Arthur Lewis, a West Indian economist, who wrote a paper in Manchester School of May 1954 entitled economic development with unlimited supplies of labour. It was a modernized version of David Ricardo’s model. It took a underdeveloped economy like India with “unlimited” supplies of poorly paid labour in agriculture, and a manufacturing sector with much higher productivity and wages; as manufacturing expanded, it would absorb the workers until the labour surplus disappeared and agricultural wages rose to the level of industrial wages.

The Economic Survey shows that this has not happened in India: the share of manufacturing, whether in output or employment, has not gone up in the past 30 years. Instead, it is the share of services in output that has gone up. Their share in employment has also inched up, though not much. The Survey takes the view that although population growth led to a rapid increase in labour supply, poor education left most of the workers unskilled, and neither industry nor services had any use for them. So while the prime minister’s obsession with Make in India is appropriate, it cannot be made to happen unless skills are implanted into workers. Occupational training is the way to develop India.

If the Survey is right in inferring that it was insufficient skills in the labour force that held back India’s industrialization, skill premia should have gone up. It offers no such evidence. Without it, the argument is not very persuasive. In particular, it is necessary to consider the alternative hypothesis, that it was lack of demand that was behind the low level of industrialization. High levels of industrial protection, which were maintained in the belief that they would lead to industrialization, persisted till the 1980s. After the 1991 crisis, protection was slowly dismantled; that should have led to deindustrialization. Bishwanath Goldar and V Renganathan of the Institute of Economic Growth showed that the average import penetration ratio in the 66 industries covered by input-output tables had gone up after the import liberalization of the early 1990s, from 8.6 per cent in 1989-90 to 14.1 per cent in 2003-04. But so had export-output ratio, from 9.8 to 13.1 per cent. The industrial balance of trade worsened from a surplus of 1.4 per cent to a deficit of 1 per cent. So there was modest deindustrialization – some net substitution of imports for domestic output – after trade liberalization.

There are other possibilities. For instance, industry, especially public sector industry, had privileged access to capital market and bank finance during the licence-permit raj, and lost it gradually after liberalization. Tax evasion has always been easier in real estate than in industry, and easier in unregistered small industry than in large industry. An explanation of India’s poor industrial growth has to be constructed from these and other building blocks; the Survey’s plumping for skills as the crucial factor is precipitate and premature.

(The article appears in the April 1-15, 2015, issue)

Comments

 

Other News

Maharashtra floods: On-ground R&R hampered by VIP visits, say Pawar

Nationalist Congress Party president and senior leader Sharad Pawar has appealed to political leaders in the state not to visit the flood ravaged areas of Maharashtra as it diverts attention of those engaged in relief and rehabilitation to VIP arrangements and hampers work. The deat

Sri Lankan media baron Rajandram Rajamahendran passes away

Sri Lankan media baron, business tycoon and Chairman of The Capital Maharaja Group conglomerate, Rajandram Rajamahendran, passed away at Colombo early Sunday morning. He was 79. Rajamahendran was suffering from health problems and was receiving treatment at a private hospital in Colombo. &nb

Ganga heavily polluted with microplastics, finds study

A new study titled, ‘Quantitative analysis of Microplastics along River Ganga’ by Toxics Link has found heavy concentration of microplastics in the Ganga. All samples collected for study from the river at Haridwar, Kanpur and Varanasi were found to be polluted with microplastics.

Maharashtra flood situation grim, rescue works on

At least 79 people were killed and 56 were missing as the flood situation in Maharashtra remained grim on Saturday. Torrential rainfall in various parts of the state, coinciding with high tides and also discharge from dams, led to inundation of many regions and floods caused landslides in some places too.

Maharashtra partners with Climate Group to promote electric vehicles

Within days of announcing its new Electric Vehicle Policy 2021, Maharashtra Friday announced its partnership with Climate Group’s EV100 network to push and promote electric vehicles and reduce CO2 emissions. The policy, meanwhile, was also notified on Friday. Climate Gro

As rains batter Maharashtra, state on red and orange alert

Severe rains battered Raigad, Thane, Ratnagiri, Kolhapur and Satara regions of Maharashtra with rains in Ratnagiri district breaking the 40-year record. As rivers in these districts crossed warning levels, the National Disaster Response Force (NDRF), the State Disaster Response Force (SDRF), Coast Guard, N

Visionary Talk with Sanjay Jha, Political Analyst On The Current Political Scenario



Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter