The New Manufacturing Policy: Another Hot Air Balloon
By Vijaya Kumar Marla
10 June, 2016
The Union Cabinet on May 25, 2016 approved, what they call, the first-ever policy for the country's capital goods sector. The government claims that it is meant for realising the vision of 'Building India as the World class hub for Capital Goods'. It will purportedly play a pivotal role in overall manufacturing as the pillar of strength to the vision of 'Make in India'. The whole idea, the government claims, is to “unlock the potential of this promising sector and establish India as a global manufacturing powerhouse.”
According to the government sources, the objective of the National Capital Goods Policy is to create an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 7.5 lakh crore by 2025 from the current Rs 2.3 lakh crore. The policy aims to increase direct domestic employment from the current 1.4 million to at least 5 million and indirect employment from the current 7 million to 25 million by 2025, thus providing additional employment to over 21 million people. It also envisages increasing the share of domestic production in India's capital goods demand from 60 percent to 80 percent by 2025 and in the process improve domestic capacity utilisation to 80-90 per cent. The aim is "to increase exports from current 27 percent to 40 percent of production.”
All tall claims, which cannot stand scrutiny. The world’s economies are facing a glut and there is excess manufacturing capacity, amounting to almost 30%, and China is no less a culprit with almost 40% overcapacity. The “Johnny-Come-Lately”, India is going to face a stone wall with its efforts to build a huge manufacturing capacity to take on China at this stage. And the trillions of dollars of investment required are supposed to be met through FDI inflows. The first question that stares us in the face is, “who in his right mind will be willing to invest in new manufacturing capacity, when there is so much over capacity coupled with slackening demand?”
India’s development is dependent on building up our manufacturing base, to meet domestic needs as a priority. While we should not under estimate the importance of heavy industry, which is vital for building the backbone of our economy, we should be careful in not squandering our valuable capital and resources. Instead of building up fresh capacity, we should strengthen and modernize our already existing heavy industry, most of which is in the public sector. The blind neo-liberal stress on building up for exports will starve the country of much needed resources, while facing an uncertain prospect of steep competition from China’s aggressive dumping of steel and capital goods in the world market.
A manufacturing powerhouse?
Let’s face the reality. Simple manufacturing today is not going to make you rich. The dough lies in patents and know-how. Take Apple for example: Foxconn in China makes most of the mobiles and other devices for Apple and makes a measly 3% in revenues, where as Apple in California corners 30% revenues, as they own the patents and the knowhow. So is the case with most of the capital goods such as high-capacity turbines and other advanced machinery. The MNC which extends a facility in India will only assemble components made elsewhere and in the process, value added in India is very insignificant, even considering low labour costs here. And, with the development of Artificial Intelligence driven robots in manufacturing, cheap labour has ceased to be an attractive factor. With the all pervading slackening of demand and a global manufacturing overcapacity, investing new plants and equipments in India is not a very attractive proposition for the global investors at this stage.
Whatever industries are coming up with FDI are mostly assembly units for MNCs to meet local demand. Most of the high-end car manufacturers employ a handful of workers, with nominal or peripheral manufacturing and local outsourcing, use high degree of automation and at the same time, enjoy the benefits and tax concessions extended to companies set up with FDI. Forget technology transfers – we will be perennially dependent on the mother MNC for know-how and know-why. And moreover, China’s share of the world’s natural resources amounts to a whopping 40% and now facing the inevitable prospect of slowing down growth, China wants to cut costs by monopolizing the resources using its clout.
Nothing can grow forever
China’s economy had grown by an average of 8% in the last decade and India at a slightly lower rate of around 6.5-7%. Now consider this. Any economy that grows at a rate of 8% will double in size in 9 years and the demand on natural resources also grows at a higher proportion as, with growth in incomes, use of resources increases inevitably at a higher pace than GDP growth. If China and India keep up even 7% growth, their demand of natural resources will exceed the total available resources in a decade. USA with 5% of the world’s population gobbles up more than a third of the world’s resources. And there is Europe, Russia and the rest of Asia and other continents, where demand on resources is also going up. It is predicted that by 2030, our resources requirement will be double that of what Mother Earth can provide. Mineral resources from the Moon, Asteroids and Mars are still very far off and no sane investor will rely on such fantasies. So, there are natural limits to growth. The only way to grow is in the direction of sustainable growth, while improving the quality of life of a vast majority of the country’s population. Manufacturing for profit, ignoring the looming crunch of resources is akin to jumping off a cliff, without a rope to hang on to.
And looking a bit far into the future, many of the developments in capital goods sector will be dependent of technologies such as solar energy, superconducting technologies and such other areas, which rely heavily on exotic minerals. The troubling fact is that China holds a monopoly in these resources. For example, to build superconducting magnets, which will be used in a host of applications such as medical imaging, high-speed trains, fusion reactors or high density power equipment, we need materials such as barium-yttrium compounds and the only known source today is China. Without access to original patents, indigenous manufacturing capabilities and skilled man power, building India as a manufacturing super power will remain a pipe dream. And know-how, know-why and skilled workers will not drop from the sky. It requires decades of sustained effort and investments in education, public health, child nutrition and manpower training to get all the ingredients ready for such a marathon mission. We need to strengthen our own indigenous scientific and technological base by upgrading and modernizing our central laboratories, so that they can be a vehicle for building indigenous and rural centered eco-friendly industrial base.
The manpower factor
It is estimated that nearly 12 crores of young aspirants will enter the labour force over the next decade, what with 65% of the country’s population below the age of 35 years. Most will be unskilled youngsters or farmers moving to cities, seeking jobs in the low-skilled kind of labour-intensive factories. As on today, 70% of those looking for work have educational qualification below 5th class. Forget high-end manufacturing jobs, these multitudes of youngsters are not even fit to work in medium scale industries as most of the new industries, big or small are going for automation. The demand for labour has almost halved in the past decade, while production is increasing. What we are witnessing is the realization of the neo-liberal mantra of “Jobless-Growth”, where profits increase for the capitalist, while no new jobs are created.
The Modi dispensation had grandiosely announced the “make-In-India” scheme, with the same intent as the new “Capital Goods Policy”, with a promise to create 2 crore jobs annually. In the last two years, though many promises were made, the ethereal FDI has failed to pour into the country on the scale that is needed. Does this new policy mean that the government has abandoned its “Make-In-India” initiate, which anyway is a non starter and a damp squib? As Mr. Raghuram Rajan, the RBI Governor rightly suggested, we will do well to have a “Make-for-India” initiative instead. And to top it all, just 1.35 lakh new jobs were created last year, against the tall promise of 2 crore jobs, which translates in to a success rate of less than 1%. Budgetary expenditure on public education, child nutrition and health are being slashed down, while at the same time, tax concessions and sops for the rich (a.k.a Revenue forgone) is rising steeply in every successive budget. With rapidly changing technology, no amount of basic training will be able to equip our youngsters with the necessary skill sets to work in modern industries, even after providing them with necessary basic education. It should be made mandatory for industries to regularly retrain and update their manpower.
Reality is staring us in the face. Mere investment in industrial capacity is not going to create jobs for the crores of aspiring youth in our country. After having promised jobs and gaining power, the Modi dispensation will do well to understand that mere ‘jhumlas” will not satiate the unemployed youth. The best-laid plans of mice and men often go awry, as the saying goes. The designs of the Sangh Parivar to divert the nation’s attention away from economic failures with slogan mongering about ‘anti-nationals” and ‘Bharat Mata ki Jai”, will no doubt rebound on their face, as after all, the pangs of hunger are more omnipotent than the Almighty Himself.
The only sensible way to go
The announcement on Capital Goods policy claims that MSME sector will get a boost with investments, ostensibly from FDI inflows. FDI inflows in to MSME sector has always been miniscule and was never a deciding factor. In our country, 93% of the workforce is in the unorganized sector and the small and medium industries employ more than 40% of the workforce, where as the whole of the organized sector accounts for a measly 7%, which includes, the Railways, Telecom, most of the service sector, government employees and of course, the large industries. Building up heavy industry, with Foreign Direct Investment, employing modern technology is neither going to create crores of jobs nor is it going to absorb the mostly unskilled and uneducated labour force seeking livelihoods. Let us not forget that most of these youngsters come from artisan families, with inbuilt talent for traditional crafts. By modernizing the village crafts and micro scale enterprises with much lesser investment, we can provide gainful livelihoods to the multitudes of job aspirants and over a time train them in modern technology, so that they can upgrade their enterprises to meet world class standards. Here modern technology can help, as manufacture of high quality and hi-tech equipment no longer needs heavy industries with large investment. As the example of Japan shows, we can upgrade our MEME sector, and especially our village level micro enterprises to world standards in a decade, if we put our best efforts in the right direction. This can also make our villages self sufficient and curb migration to urban areas. And more people with livelihoods means a bigger domestic market.
Vijaya Kumar Marla is a retired engineer. Presently National Working President of All India Progressive Forum, a nationwide organsation of socially conscious intellectuals. Email: email@example.com