Rajan has got it mostly wrong: 'Make in India' is largely about 'Make for India'

Too much has been made of RBI Governor Raghuram Rajan’s advocacy of ‘Make for India’ as though it is a contradiction of the Narendra Modi government’s ‘Make in India’ programme. I am not sure Rajan intended this contradiction, but if he did, he is surely largely wrong about it. First, I have never read anywhere that ‘Make in India’ is largely export-oriented or an import-substitution policy. Those policies failed under Congress-backed socialism till 1991. ‘Make in India is not a throwback to pre-1991 India. At best, one can say that it is an exhortation to foreign companies to make India a manufacturing hub. ‘Make in India’ is not thus in contradiction to ‘Make for India.’ [caption id=“attachment_86170” align=“alignleft” width=“380”]  PTI[/caption] I don’t know where Rajan got the impression that ‘Make in India’ is all about emulating China in making export the basis of growth. He should check the ‘Make in India’ website and nowhere does it give the impression that it is all about exports. The broad goals, stated upfront, on the ‘Make in India’ website (check it out for yourself here) are this: “A major national programme designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure.” In fact, you have to try very hard to even find the word ‘export’ on the website. Go into any of the industry-specific verticals on the website, and the emphasis is on the domestic market (ie, ‘Make for India’ is the theme, rather than just ‘Make in India’ for export to the world outside). The automobiles vertical points out that India is the seventh largest producer of vehicles in the world, and the “fourth largest automotive market by volume by 2015.” It also points out that autos have four large manufacturing hubs in India, and account for 7 percent of GDP by volume. Go deeper, and all the talk is about India’s potential, and not particularly the export market. The domestic market is touted as the main reason to invest, and the growth drivers too talk about the domestic potential. Go to the ‘Policies’ tab, and the talk is about ‘New processes’, “New sectors’, ‘New infrastructure’ and ‘New mindset’. Nowhere does it even mention new export-orientedness or new import substitution. Rajan can surely say that none of this will work, but that only time and experience will prove. It is not necessary to diss an idea at the outset, though Rajan did say he was not advocating “export pessimism.” It is only in the defence sector that there is even a hint of import-substitution, and here too it is only implied. There is a mention that 40 percent of the budget is spent on capital acquisition and 60 percent of defence equipment requirements are met by imports. So, clearly, here the aim is to reduce imports, and possibly build exports, since even Modi has talked about India being a global arms supplier. Defence, in fact, is the one area where no government believes in unbridled competition or import dependence because it is considered too vital for national interest. So, if anything, India is only doing what every other country in the world does: become more self-reliant in its defence needs. So what is Rajan really talking about? And how sensible is his idea of ‘Make for India’ as a substitute for ‘Make in India’ when the reality is that China is increasingly making more for India in several crucial sectors – from telecom to toys to electronic items to everything. The whole of small-scale manufacturing in India has been reduced to a packaging and labelling operation. Most manufacturing in India has been substituted by trading in the manufacturing zones of India. There is surely a case for making ease of doing business, which includes ease of manufacturing business, so that some of our competitiveness is restored. Rajan is also wrong to believe that the policy of backing specific sectors does not ever work. The success of the Indian IT industry was largely because of government support to it for more than two decades, where profits from the export of software were not taxed to encourage forex earnings. This is what is today saving us from a current account crisis. BPOs came to set up shop in India because labour was cheap and English-speaking talent was in abundance. India has become an auto hub precisely because the industry was nurtured under fairly robust tariff walls in its nascent stage. (I am not advocating protection at all, but just to show that Rajan cannot take a doctrinaire approach to industrial policy-making, when the global reality is one of mercantilism and protection. He can check if the Swiss will even allow an Indian watch-maker to succeed in their backyard.) Rajan’s bottomline is this: “I am counselling against an export-led strategy that involves subsidising exporters with cheap inputs as well as an undervalued exchange rate simply because it is unlikely to be as effective at this juncture. I am also cautioning against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China.” This is fine as far as it goes. Government should not be in the business of picking sectoral winners or losers, but there is no harm in backing up industries where India has a clear competitive advantage – like IT, generic pharma, textiles, metals (iron, steel, aluminium), etc. What Rajan should know is that ‘Make for India’ was India’s slogan till 1991 and it brought us the Nehruvian rate of 3-4 percent growth. India has slowly globalised and become more competitive, but the ease of doing business is still far behind the rest of the world. This is a key aim of “make in India’, not export-led growth or import substitution. Either Rajan has said it wrong or the media has interpreted him wrongly. ‘Make in India’ is largely about ‘Make for India’ even as it now stands. the policy may or may not succeed in all areas, but is Rajan trying to say it is not even worth trying?