A manufacturing strategy for India by ARUN MAIRA
28 Jan, 2011, 03.40AM IST, ARUN MAIRA,
Indian manufacturing has failed to be an engine of growth, which it must urgently become. Rather than exceeding and leading the overall growth of the economy as it should, manufacturing has just about come along. Moreover, the formal manufacturing sector has added few jobs in the past decade.
And worryingly, it is losing depth. While China's GDP is 3.8 times larger than India's, its production of machine tools, the 'mother industry' of manufacturing, is 55 times more! India needs a strategy to grow manufacturing 12% to 14% per annum, create 100 million new manufacturing jobs in the next 15 years to realise its 'demographic dividend', and create more depth in capital goods industries and innovation for its manufacturing sector to be competitive and sustainable.
China's remarkable success in manufacturing is the result of a strategy to win, as was the growth of the other Asian industrial powerhouses, Japan and South Korea. Having built its manufacturing base, China is scaring the world with its strategy to build 'indigenous innovation'. India too has announced its intention to strengthen innovation. An innovation strategy must be closely intertwined with a manufacturing one.
Science results in innovations when ideas are converted into real things that people can use. Therefore, it is not surprising that China's strategy to stimulate 'indigenous innovation' includes policies about what must be manufactured in the country, what the ownership of these enterprises must be, and what ownership rights these enterprises must have on the technologies used in their products.
Indian policymakers are dancing around the same issues. The idea of an industrial strategy evokes fears of returning to a planned economy. India must be open to foreign investments and new technologies from abroad. But they must result in jobs, innovations, and manufacturing depth in India. Appropriate receptors are required within a developing economy to absorb foreign technology.
The receptors are production organisations in the host country that use the technology to produce things for the market - domestic or export. Merely an R&D lab as a counterpart to a foreign R&D lab will not result in the absorption of technology. Indeed, even domestic R&D labs require production organisations to convert their ideas into usable innovations: hence the need for strong industry-lab partnerships.
The quality of the industrial partner in the host country and its ambitions to learn, apply, and improve the technologies determines whether the technology is well absorbed or not. This has been empirically established by studies of the growth of technological capabilities within developing countries, including Indian experience in the auto and pharma industries.
The local partner must have an 'industrial' orientation, not merely a 'trading' one: a long-term ambition to create an institution with technical depth, not merely an ambition to sell things and make quick profits. Therefore it is not surprising that absorption most often happens in private sector companies, which have ambitions to prove that 'it can be done in our country, and we will some day do it even better than you'.
This is the spirit that drove the Japanese and Korean industrialisation strategies. In the absence of enough such private sector companies, governments turn to PSEs as the reliable receptacles for receiving the foreign technologies, which is the case in China. Indian strategy should wean itself away from PSEs. However, for India to succeed in strengthening 'indigenous' innovation, our policymakers must consider the question of who are good receptors.
A strategy for growing 'Indian' innovation/industrial capabilities must explain why 'Indian-ness' should matter and what is 'Indian'? These questions surface, not only in India, but even in the US, when defence, telecommunications, and security are involved. Governments are accountable to their people for security - even if they leave industrial development to market forces.
Therefore governments must ensure that the means for maintaining security can be commanded by them whenever required. So, they would require that organisations in critical, security-related areas have national security as an objective overriding their obligations to their financial stakeholders. This is the reason why governments may insist that defence and security must be in public hands; and if not , then in the hands of 'domestic' companies.
But what is a 'domestic' company? A company must be responsible to its shareholders, wherever they may be. Whereas national governments, whether elected or not, must be principally accountable to their own citizens. The mismatch between the objectives of global corporations and national governments is leading to thorny governance issues even in the US: of reconciling what accountability means to a global corporation and what it means to a national government.
China's approach is very clear. Policies will be framed to strengthen domestically-owned and managed capabilities. One of the principal fears that foreign companies have is that China will steal their intellectual property. China has a large market that tempts foreign companies to stay even when Chinese government policies turn inhospitable, as regards intellectual property.
In fact, the Chinese government is framing IPR rules to further its own interests, suspecting that the rules being imposed on it have been devised principally to protect foreign companies' interests. China is using the lever of purchases by government agencies to develop indigenous technology.
It is also using the lever of national standards drawn up to suit local enterprises and shut out foreign competition. In contrast, India's position regarding IPR must be to actively engage in the discourse with global advocates of strong IPR. However, whatever these advocates propose need not be accepted as proven truths about the value of IPR. India must discover the best approach to IPR for stimulating the ongoing innovation it needs without creating monopolies through IPR rules.
The time has come for Indian policymakers to shape a national manufacturing strategy. The sustainability of India's growth story depends on it. We must, of course, overcome weaknesses in infrastructure and administration. But we must also address tough policy questions to promote Indian enterprises. And the strategy cannot be a return to a planned economy. Nor can it be an imitation of China. This is the challenge for Indian policymakers.
(The author is member, Planning Commission)
28 Jan, 2011, 03.40AM IST, ARUN MAIRA,
Indian manufacturing has failed to be an engine of growth, which it must urgently become. Rather than exceeding and leading the overall growth of the economy as it should, manufacturing has just about come along. Moreover, the formal manufacturing sector has added few jobs in the past decade.
And worryingly, it is losing depth. While China's GDP is 3.8 times larger than India's, its production of machine tools, the 'mother industry' of manufacturing, is 55 times more! India needs a strategy to grow manufacturing 12% to 14% per annum, create 100 million new manufacturing jobs in the next 15 years to realise its 'demographic dividend', and create more depth in capital goods industries and innovation for its manufacturing sector to be competitive and sustainable.
China's remarkable success in manufacturing is the result of a strategy to win, as was the growth of the other Asian industrial powerhouses, Japan and South Korea. Having built its manufacturing base, China is scaring the world with its strategy to build 'indigenous innovation'. India too has announced its intention to strengthen innovation. An innovation strategy must be closely intertwined with a manufacturing one.
Science results in innovations when ideas are converted into real things that people can use. Therefore, it is not surprising that China's strategy to stimulate 'indigenous innovation' includes policies about what must be manufactured in the country, what the ownership of these enterprises must be, and what ownership rights these enterprises must have on the technologies used in their products.
Indian policymakers are dancing around the same issues. The idea of an industrial strategy evokes fears of returning to a planned economy. India must be open to foreign investments and new technologies from abroad. But they must result in jobs, innovations, and manufacturing depth in India. Appropriate receptors are required within a developing economy to absorb foreign technology.
The receptors are production organisations in the host country that use the technology to produce things for the market - domestic or export. Merely an R&D lab as a counterpart to a foreign R&D lab will not result in the absorption of technology. Indeed, even domestic R&D labs require production organisations to convert their ideas into usable innovations: hence the need for strong industry-lab partnerships.
The quality of the industrial partner in the host country and its ambitions to learn, apply, and improve the technologies determines whether the technology is well absorbed or not. This has been empirically established by studies of the growth of technological capabilities within developing countries, including Indian experience in the auto and pharma industries.
The local partner must have an 'industrial' orientation, not merely a 'trading' one: a long-term ambition to create an institution with technical depth, not merely an ambition to sell things and make quick profits. Therefore it is not surprising that absorption most often happens in private sector companies, which have ambitions to prove that 'it can be done in our country, and we will some day do it even better than you'.
This is the spirit that drove the Japanese and Korean industrialisation strategies. In the absence of enough such private sector companies, governments turn to PSEs as the reliable receptacles for receiving the foreign technologies, which is the case in China. Indian strategy should wean itself away from PSEs. However, for India to succeed in strengthening 'indigenous' innovation, our policymakers must consider the question of who are good receptors.
A strategy for growing 'Indian' innovation/industrial capabilities must explain why 'Indian-ness' should matter and what is 'Indian'? These questions surface, not only in India, but even in the US, when defence, telecommunications, and security are involved. Governments are accountable to their people for security - even if they leave industrial development to market forces.
Therefore governments must ensure that the means for maintaining security can be commanded by them whenever required. So, they would require that organisations in critical, security-related areas have national security as an objective overriding their obligations to their financial stakeholders. This is the reason why governments may insist that defence and security must be in public hands; and if not , then in the hands of 'domestic' companies.
But what is a 'domestic' company? A company must be responsible to its shareholders, wherever they may be. Whereas national governments, whether elected or not, must be principally accountable to their own citizens. The mismatch between the objectives of global corporations and national governments is leading to thorny governance issues even in the US: of reconciling what accountability means to a global corporation and what it means to a national government.
China's approach is very clear. Policies will be framed to strengthen domestically-owned and managed capabilities. One of the principal fears that foreign companies have is that China will steal their intellectual property. China has a large market that tempts foreign companies to stay even when Chinese government policies turn inhospitable, as regards intellectual property.
In fact, the Chinese government is framing IPR rules to further its own interests, suspecting that the rules being imposed on it have been devised principally to protect foreign companies' interests. China is using the lever of purchases by government agencies to develop indigenous technology.
It is also using the lever of national standards drawn up to suit local enterprises and shut out foreign competition. In contrast, India's position regarding IPR must be to actively engage in the discourse with global advocates of strong IPR. However, whatever these advocates propose need not be accepted as proven truths about the value of IPR. India must discover the best approach to IPR for stimulating the ongoing innovation it needs without creating monopolies through IPR rules.
The time has come for Indian policymakers to shape a national manufacturing strategy. The sustainability of India's growth story depends on it. We must, of course, overcome weaknesses in infrastructure and administration. But we must also address tough policy questions to promote Indian enterprises. And the strategy cannot be a return to a planned economy. Nor can it be an imitation of China. This is the challenge for Indian policymakers.
(The author is member, Planning Commission)
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