Can “Make in India” a New India Make?

July 2, 2015

By Sirisha Naidu

Modi’s signature economic policy Make in India has been marketed as an initiative to catapult the Indian economy to its rightful place among international heavyweights. The program was launched in September 2014. Since then the PM has been country hopping to woo international investors and has been keeping the media busy with photo ops. This article describes the policy and its goals, and offers a preliminary analysis of the political economy of Make in India and associated policies.

The “New” Policy

The Make in India program falls under the aegis of the Department of Industrial Policy and Development (DIPP), Ministry of Commerce and Industry. In order to promote and facilitate investments to India, DIPP has launched a joint venture between DIPP, Federation of Indian Chambers of Commerce and Industry (FICCI), one of the two large national business associations in the country. While the current shareholding is 49% and 51% respectively, DIPP intends to dilute its equity by selling them to state governments thus forcing individual states to compete to procure FDI. DIPP’s Annual Report states that only seven states have acquired shares so far though there is no information on which states these might be.

Make in India’s snazzy website, a far cry from other government websites, proudly announces that that it is

A major new national program. Designed to facilitate investment. Foster innovation. Enhance skill development. Protect intellectual property. And build best-in-class manufacturing infrastructure. There’s never been a better time to make in India.

MII has identified 25 sectors for special focus. These include automobile and automobile components, aviation, biotechnology, chemicals, construction, defence manufacturing, electrical machinery, electronic systems, food processing, IT and BPM, leather, media and entertainment, mining, oil and gas, pharmaceuticals, ports, railways, renewable energy, roads and highways, space, textiles and garments, thermal power, tourism and hospitality, and wellness. The website, however, is sparse on policy details. Media reports are also vague on what this policy entails.

A month after the launch of Make in India, a report titled Make in India: Turning Vison into Reality published in November 2014 was commissioned by the Confederation of Indian Industries (CII), another national business association. It reported that Make in India proposes to boost annual growth of manufacturing to 10% and bring its share in manufacturing to 25% of GDP. In addition, its aim is to create 100 million jobs over the next decade. Proposals include an investment of USD 1.2 billion to develop smart cities and creating a USD 16 million development fund, increasing FDI cap to 100% in railways and 49% in defence and insurance, reforming the approval process including the obtaining of environmental clearances, facilitate the expansion of MSME (micro, small and medium enterprises) and enhancing skills and job creation in leading manufacturing sectors.

The details of Make in India are very similar to the National Manufacturing Policy announced in 2011 under UPA-II, which also espoused a 10% growth in manufacturing and a 25% share in GDP, an emphasis on manufacturing, FDI and allowing foreign investment in defence and railways. The DIPP’s annual report of 2014-15 confirms this. MII, however, without a doubt is better advertised, marketed and has received better media coverage.

DIPP’s Annual Report 2014-15 lists important instruments and features of which one is of particular interest – the National Investment and Manufacturing Zones (NIMZs). Despite its many similarities to Special Economic Zones (SEZs), the report emphasizes that NIMZ is different from SEZs in size, level of infrastructure, planning, governance etc. Small and medium enterprises (SMEs) have been promised tax rollbacks and venture funds if they set up in NIMZs. As the DIPP Annual Report 2014-15 notes, other sops for SMEs in NIMZs include “access to the patent pool and/or part reimbursement of technology acquisition costs up to a maximum of 20 lakh rupees for acquiring appropriate technologies patented up to a maximum of 5 years generally, prior to the date submission of the project” and “25% grant to SMEs for expenditure incurred on environmental and water audits subject to a maximum of one lakh rupees”. So far 12 NIMZs outside the DMIC region have received in-principle approval, 4 in AP, 4 in Karnataka, 1 in Orissa, 1 in TN and 2 in UP.

Manufacturing and Employment

Structural transformation has historically involved a move away from agriculture into manufacturing for many countries, including China. But India’s structural transformation has gravitated toward services rather than manufacturing. So while many other countries are suffering from de-industrialisation, India has to contend with what the Economic Survey 2014-15 refers to as ‘premature non-industrialisation’. Make in India’s emphasis on manufacturing, particularly organised or registered manufacturing may thus be cause for optimism as economists across the political spectrum agree that it has the highest potential for generating high quality desirable jobs as well as facilitating structural transformation owing to its high productivity. Nevertheless, problems remain in the specificities associated with the Make in India policy.

The Economic Survey, offers Gujarat as a manufacturing success. As Table 1 indicates, the share of registered manufacturing in value added (VA) peaked in 2011 at 22.7% which is close to East Asia’s share of manufacturing in GDP. This aspect was played to Modi’s advantage in the last national elections and earned him the perception of a “man of action” who will herald India’s development and status.

Notwithstanding growth of manufacturing, the table shows another reality, a more disappointing reality – despite the growth in manufacturing in Gujarat until 2011, the share of registered manufacturing in total employment peaked in 1984. In Gujarat the annual growth in registered manufacturing employment was a mere 1.8% between 1984 and 2010 which is less than the growth in total employment which was 2.4% in the same period. It begs the question whether Make in India under Modi’s direction will mirror the employment situation in Gujarat or whether it will actually fulfil its promises on employment generation.

Table 1: Share of registered manufacturing in value added (VA) and employment at peak  

Year in which registered manufacturing in value added  peakedShare of registered manufacturing in VA at peak (%)year in which registered manufacturing in employment peakedShare of registered manufacturing in employment at peak (%)
Gujarat201122.719845.4
Maharashtra198618.919844.8
Tamil Nadu199018.120106.2
Haryana200317.320106.1
HP201116.420103.8
Karnataka200814.720103.3
Bihar199913.619881.5
MP200812.519941.4
WB198212.319844.7
Orissa20091220101.4
All India200810.719842.7
Punjab199510.520105.4
Kerala198910.319943.3
AP19961020102.8
UP19961019881.6
Assam19871019842.5
Delhi19948.519886.1
Rajasthan20018.320101.4

Source: (GoI 2015)

 

A second question pertains to the quality of jobs. A look at national data (Table 2) reveals that 10.3 million informal jobs were created out of a total 15.3 million in the organized sector in 2004-05, thus accounting for 67.3% of jobs in the organized sector. The proportion of informal jobs in the organised sector increased marginally to 67.7% in 2009-10 and 70.5% in 2011-12. Correspondingly only 9.3% of all jobs (5 million out of 53.33 million) in organised and unorganised enterprises were created in the formal sector in organised enterprises in 2004-05. This proportion increased to 10.5 % (5.3 million out of 50.7 million) in 2009-10 owing to a decline in total number of informal jobs and marginally declined to 10.1% in 2011-12. Thus, the growth of jobs in the last decade has been in informal employment in both organised and unorganised enterprises and it is undeniable that informal employment is fraught with precarity, low wages and poor working conditions (NCEUS 2007).

 

Table 2: Sector-wise distribution of workers by organised-unorganised enterprises and formal-informal employment (millions)

OrganisedUnorganisedOrganised + Unorganised
FormalInformalTotalFormalInformalFormalInformalTotal
2004-05510.315.30.6385.648.353.3
2009-105.311.115.40.433.95.74550.7
2011-126.114.620.70.438.76.553.560

Source: Mehrorta et al. (2014)

Further, if we were to examine the distribution of employment across rural and urban males and females (Table 3), we find that rural females have lost out significantly in employment opportunities (losing 21.8 million jobs between 2004-05 and 2011-12), and urban females have gained marginally. Urban and rural males gained significantly though for rural males the bulk of new jobs created was in the construction business; these jobs tend to be informal and precarious.

 

Table 3: Net Change in Employment (in millions) for selected sectors from 2004-05 to 2011-12

Rural MalesRural FemalesUrban MalesUrban FemalesAll
Agriculture & allied activities-5.6-26.70.6-1.6-33.3
Manufacturing1.9-0.42.90.75.1
Construction15.74.83.20.123.9
Services4.80.610.62.818.8
Total non- agricultural22.44.9173.848
Net change in total employment16.8-21.817.62.114.7

Source: Thomas 2014

During the period 2004-05 and 2011-12, rural females lost 0.4 million jobs in manufacturing and urban females gained 0.7 million jobs. Thus, of the total 5.1 million jobs created during this period, the proportion of manufacturing jobs for female workers was a meagre 5.9%. Further, adding the net change in total employment for rural males and females suggests a loss of 5 million jobs in rural areas during 2004-05 and 2011-12, whereas the net change in employment for urban males and urban females represented a total addition of 19.7 million jobs. Make in India does not explicitly address the regional or gender imbalance of employment creation and hence it is possible that this trend will continue into the future.

Skilled Employment

India’s post-Independence emphasis on capital goods production, and tertiary and higher education resulted in the growth of capital and skill-intensive industries. Even by the 1980s India was more skill-intensive relative to other countries of its size and income. Post-liberalization and other economic reforms, this trend has continued and is even reflected in exports. India’s share of exports in skill-intensive goods increased from about 25% in 1970 to 65% in 2004 (Kochhar et al 2006).

Registered manufacturing (as well as the service sector), which the Economic Survey regards as the pathway out of underdevelopment, is much more skill-intensive than unregistered or unorganised sector, agriculture and construction (Kochhar 2006; Amirapu and Subramanian 2015, cited in GoI 2015). But despite the Economic Survey’s focus on registered manufacturing, unregistered manufacturing also reflects increasing skill intensity and decreasing labour intensity (Kochhar et al 2006). Make in India, with its focus on registered manufacturing, is not expected to reverse or alter this trend. Most of the 25 sectors chosen are skill-intensive and require high educational attainment in a country beset with problems of low access to education. The Economic Survey laments the country’s focus on skill-intensive manufacturing but cites with satisfaction the rise in demand for private education in rural and urban India to combat the inefficiencies of public education, which it hopes “could be one of the offsetting benefits of the comparative advantage-defying, skill-intensive growth model” pursued by policy makers. The NDA government, like its predecessor, is keen on developing private education that will promote the push toward skill-intensive production. Affordability of such education, however, still remains a puzzle.

The Economic Survey agrees that high-skilled manufacturing does not offer a solution for India’s labour surplus, and ultimately will lead to a loss in better economic conditions for one or two generations. However, it argues that high-skilled manufacturing is more feasible than rehabilitating unskilled manufacturing. But high-skilled manufacturing requires more investment in educational and skill attainment, the burden of which the state and capital are happy to pass on to the working classes and their kin thus raising the reproductive costs borne by households.

Given such a situation, rather than confronting the declining labour-capital ratio and employment expectations from manufacturing, policy makers have squarely placed the blame of inadequate employment creation on “archaic” labour laws. Notwithstanding some sorely needed modifications, the emphasis of the proposed changes has been to benefit Capital rather labour.

Not in a Vacuum: Policy Environment

The CII report mentioned earlier lists the following requirements to turn Make in India from vision to reality.

  1. Revive manufacturing through timely and efficient execution of infrastructure projects, reforming labour laws and reducing bureaucratic bloat and red tape.
  2. Gain global competitiveness by building and supporting exports, attracting FDI and increasing investment in R&D.
  3. Claim global leadership by encouraging and building competitive sectors, and facilitating a change in the mindset of domestic and international consumers, as well as domestic producers. (Bhattacharya et al. 2014).

The CII represents the collective voice of a significant proportion of leading capitalists in the country. And the Modi government has not skimped on trying to keep the capitalists happy. Since his ascendance to power, Modi has worked on changing labour laws, making land acquisition and the procurement of project clearances, including environmental clearances easier. In addition, infrastructure and construction are also included in the list of 25 priority sectors (which prominently features manufacturing).

Notwithstanding other economic factors, industry leaders and bourgeois economists view the lack of adequate reforms on land, labour and environmental laws as the prime reasons for the economic slowdown of this decade and for jobless growth in this century. I briefly address each of these from the perspective of the working classes.

  1. Amendments and changes in labour laws:

Some impacts of the proposed reforms include amendments that will open to contestation the regulation of hazardous and dangerous substances and industries and make it more difficult for workers to challenge the demand for excessive working hours, modification of the definition of small enterprises to be less than 40 which will exempt many more enterprises from the purview of certain labour laws, and the downgrading of wage laws by allowing state governments to fix minimum wages thus setting the stage for a possible ‘race-to-the-bottom’, reducing the frequency with which wages have to be adjusted for inflation and scrapping equal pay for equal work thus modifying regulation on work done by regular workers versus contract or casual workers. Surendra Pratap, Anamitra Roychowdhury and Anumeha Yadav provide more in-depth analyses of labour reforms in India. It is suffice to state here that proposed changes heavily favour capital over labour.

The anti-labour tenor of labour reforms is of course not reflected in Modi’s speeches who exhorts the role of the labourer as a rashtra yogi and a rashtra nirmata (nation-builder). The burden of nation building is thus squarely placed on the working classes whose reward consists of being excluded from the benefits of development for at least one or two generations. Not only does this contradict Modi’s repeatedly touted ‘inclusive development’ and ‘win-win’ buzzwords, but further, is a throwback to Nehru’s exhortations to those displaced and affected (overwhelmingly Dalit and tribal) by the Bhakra Nangal Dam to sacrifice their interests for the ‘temples of resurgent India’.

  1. Land Acquisition

The previous government put in place a land acquisition law known as Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCLARR), 2013 replacing the outdated land acquisition law of 1894. The 2013 law was criticized for broadening the scope of eminent domain for mere public purpose to also private purpose, but it was welcomed by many for including provisions on social impact assessments (SIA), seeking consent of 70% affected residents when the project was for public purpose and 80% affected residents if land is being acquired for private purposes, and also putting in place higher compensation rates. It also required the land to be returned if the affected residents were not compensated and if land possession provisions were not carried out five years after the acquisition notice. The Modi government proposes to overturn most of what was praised as progressive elements of the 2013. It further proposes to make these changes through an ordinance, thus giving credence to the State’s role as a land broker for capitalists.

The Land Acquisition amendments, along with the amendments in environmental regulations, are crucial to the success of Make in India, particularly in promoting NIMZs and the construction industry, both of which appear key to the Make in India programme. Protests against the proposed amendment in which one protester self-immolated himself appears to have slowed down the breakneck pace at which the government was proceeding.

Alongside, however, is the announcement of Salwa Judum II under the banner of Vikas Sangharsh Samiti. It being headed by Chhavindra Karma the son of the Mahendra Karma (a Congress leader who spearheaded the Salwa Judum in 2005 and was killed along with his party colleagues in a Maoist attack two years ago). Incidentally, this announcement comes at the heels of MoU worth Rs. 24 crores in Bastar signed by the government similar to the Salwa Judum announcement in 2005 when the government signed MoUs with Tata and Essar. 

  1. Environmental regulations: Wholesale sell-out

Between September 2014 and January 2015, the Prime Minister’s Office ordered 60 amendments to environmental regulations, most of which were approved. With these amendments, industries located within SEZs and NIMZs will no longer require environmental clearance, the Environment Ministry will be restricted in its power to question the site location of the industry, and industries will no longer be required to obtain environmental clearances if they change their production process as long as they are certified by a third party agency and mandatory public hearings can be conducted by an entity other than the State Pollution Boards, which would set the process of clearance outside of democratic control and dilute the process of environmental clearances. Additionally, the duration of baseline data will be reduced from three months to 30 daysthus reducing the time to gather and prepare a comprehensive environmental impact report, and mandatory public hearings can be conducted by an entity other than the State Pollution Board In all these amendments add to the farcical nature of environmental clearances and hence not only do the amendments have implications for environmental and public health but also appear to undermine democratic decision-making.

The Neoliberal Authoritarian State under the BJP

The World Bank predicts that China will remain Asia’s fastest growing economy until 2017, however, some private sector analysts expect India to take over this mantle in 2015. It is clear that the growth path as outlined in Make in India is overwhelmingly favored by the capitalist classes for being “pro-business” and “pro-development” as the CNBC-IBN Forbes CEO poll suggests. The CII report views the policy very favourably whereas the other main business association FICCI has partnered with DIPP to promote FDI in India. While the economic programmes of the UPA and NDA governments are almost indistinguishable, it is clear that the latter is enamoured with the idea of being a developmental state. But there are many points of divergence from other “successful” developmental states such as the lack of land reforms, inadequate investment in education and health and ignoring the plight of millions of unskilled surplus labour in India and a concerted effort to withdraw from meagre social security provisioning. Instead, the Indian state seems committed in reworking the role of state officials and urban planners away from the welfare of the people into that of efficient “entrepreneurs” that work hard at attracting mobile capital, and re-shaping states and particularly cities as “incubators of neoliberal strategies” (Bannerjee-Guha 2011).

Connell and Dados (2014) in a recent piece discussing neoliberalism in the global South reiterate that the Chicago boys, the purveyors of neoliberalism, were not offering a textbook model of economic theory to General Pinochet. What the Chicago boys were offering, was “a solution to [Pinochet’s] main political problem: how to get legitimacy by economic growth, satisfy his backers in the Chilean propertied class, and keep the diplomatic support of the United States, without giving an opening to his opponents in the political parties and labour movement. Neoliberalism as a development strategy met those needs.” While the specifics differ, it serves as a good reminder of the intentions of Make in India and other economic policies under BJP as well as UPA. Narendra Modi, with his tendency toward authoritarianism, merely offers a more efficient and expedient way to draw on the Indian State’s long history of economic and non-economic coercion.

However, the perception of Modi as an economic messiah is not merely held by the capitalist classes, and last year’s elections are proof of that. It might be tempting to dismiss Modi’s ascendance as a consequence of a clever marketing strategy and of good propaganda and no doubt that had an important role to play. But we might also consider the last decade of jobless economic growth in conjunction with what Jamshidi (2011, cited in Connell and Dados 2014) refers to as the “bread contract” in Tunisia, in which people tolerate a repressive state in return for employment and provision of basic goods and services. Such a situation has also played out in other parts of the world. Nevertheless, the potential for Modi’s economic policies to adequately fulfil their end of the “bread contract” is doubtful both in terms of employment and in terms of providing basic goods and services. The current administration seems to be vigorously involved in rolling back the provisions put in place in the early part of this century. Even if these policies do not lead to absolute immiseration of the working classes, they will further add to the budget squeeze and will widen the growing class inequality in India (Vakulabharanam 2010).

Neoliberalism does not cause a complete withdrawal of the state, as was once believed. In fact, the rollout of the state is just as important as its rollback. In a country like India, with its bewildering laws, social norms, moral economy, the state assumes the role not only of a land broker as it has in the past and promises to be vigorous and expedient about it in the future, but brokers the social contract for new forms of exploitation and oppression. Some chinks in the Modi armour are already manifesting as with the resistance to the passage of the Land Acquisition Bill earlier this year. What we need is a vigorous debate on the growth path and the growth process because there are no easy answers to the predicament that India finds itself in. Growth, by itself, does not guarantee higher employment nor a higher standard of living. It is imperative that we prevent the resurrection of the TINA (there is no other alternative) discourse of the 1980s and 1990s during which the labouring classes across the world lost significant ground to the global capitalist class.

References:

Banerjee-Guha, S. (2011). New urbanism, neoliberalism and urban restructuring in Mumbai. In W. Ahmed, A. Kundu & R. Peet (eds.) India’s New Economic Policy. Routledge.

Connell, R., & Dados, N. (2014). Where in the world does neoliberalism come from? The market agenda in southern perspective. Theory and Society 43(2):117–138.

GoI (2015). Economic Survey 2014-15. Government of India.

Mehrorta, S., Parida, J., Sinha, S. & Gandhi, A. (2014). Explaining employment trends in the Indian economy: 1993-94 to 2011-12. Economic and Political Weekly, 49(32): 48-57.

Thomas, J.J. (2014). The Demographic Challenge and Employment Growth in India, Economic and Political Weekly, 49(6): 15-17.

Vakulabharanam, V. (2010). Does class matter? Class structure and worsening inequality in India, Economic and Political Weekly, 45(29): 67-76.

I thank Debarshi Das and Ravi Ravishankar for their comments.