Why NMP won't work: States should drive it, not Centre

The National Manufacturing Policy (NMP) that was green-signalled by the Union Cabinet on 25 October is really an acknowledgement of monumental failure - the failure of 60 years of flawed, centralised policy-making.

All our political efforts over the decades have gone into making life difficult for business - which has resulted in gigantic corruption, the emergence of crony capitalism, a close nexus between business, politics and crime, complete destruction of the environment, an overdependence on services to drive economic growth, and a bias against employing labour in a country whose only major resource is its abundant wealth of people.

The good thing that can be said about the NMP is that its goals are commendable: trying to create 100 million jobs over the next decade and raising the share of manufacturing in GDP to 25 percent from the current 16 percent are good stretch goals to have.

However, as the UPA enters its eighth year of power, the question to ask is not why it was asleep so long, but why it thinks this effort will succeed when previous ones to create special economic zones have failed and ended up riling the landed interests of rural India?

Moreover, there is also a more fundamental issue: barring trade policies, every other law is implemented by states. Should NMP thus be driven by the states or the Centre? We will discuss this in a bit, but first let’s look at the NMP policy framework - which is delightfully vague on the details, but seeks to achieve its goals by adopting the following principles and approaches:

• Creation of several National Investment and Manufacturing Zones (NIMZs) and industrial townships that are run more like corporations than regular cities.
• Creation of special purpose vehicles (SPVs) to create infrastructure and obtain environmental and other clearances so that businesses in NIMZs can hit the ground running.
• Rewriting labour laws and regulations to ensure that industry is facilitated rather than given a huge hurdle race in trying to set up units or exiting from them.
• Using size - minimum 5,000 hectares - to create industries with adequate scale and global competitiveness that can also create quality jobs.
• The guiding principle for land acquisition is avoidance of agricultural and ecologically-sensitive zones, use of degraded or waste lands, and use of land already in government or public sector (or private sector) possession.

If wishes were horses, the NMP should fly, too.

The problem with the NMP is not that it is too ambitious, but that it is poorly thought out in terms of its implementation. Also, its goals are in conflict with the current climate of competitive politics and the attempts to build an entitlement-based economy. Let’s look at land, labour, mining, and governance - which hold the key to NMP’s success. These are the issues that could completely up-end the NMP, never mind the intentions of its backers.

Land: Nothing has been more contentious in Indian politics than land. From Singur to Jaitapur to Gopalpur to Noida, politicians have consistently tripped on this front. To win votes, the Congress-led UPA has been busy creating legislation like the Land Acquisition Bill and Mining Bill that tell you what price you should pay for land, what you need to do for those who are displaced, and how much of your profits you need to share with those you displace.

This is fine as far as it goes, but no policy can be cast in stone. You can have an NMP or a land policy. Where the two conflict, you need to decide which one wins - as in the case of all special legislation.

If we want NMP to succeed, we will have to keep modifying the policy on land to suit the specific proposals that may otherwise make sense. The current coal shortage, for example, has already forced the government to abandon Jairam Ramesh’s draconian go-no-go policy under which the government would not even consider allowing mining in so-called no-go areas . If your best coal is in a no-go area what should you do? Abandon the coal, or see how you can compensate for the damage you may do by going there?

In the case of the NMP, if we abandon all agricultural, eco-sensitive and other areas, we will have to create NIMZs only in the deserts of Rajasthan or deep in the hinterland where no one lives - and where there is no market for anything, or ports to clear the products manufactured. The right approach is to create NIMZs where they make most economic sense, and adopt a policy of compensating (or even double-compensating) for any agricultural or environmental damage that may occur. The NMP’s broad policy can, at best, be a guideline. Till this is clear, the NMP won’t fly.

Labour: India has not created any worthwhile jobs in the organised sector for as long as one can remember. This is primarily because our labour laws simply do not allow companies to fire anybody. The net result has been the migration of jobs to contractual labour - the Maruti dispute in Manesar is exhibit A. Indian industry is investing more in services and technology, and not labour.

To add to this, schemes like the National Rural Employment Guarantee Act (NREGA) have ended up pushing labour costs even in rural areas - making farming unviable, and forcing farmers to opt for mechanisation . This does not mean NREGA is a bad thing, but we need to understand how it impacts the viability of an entire sector - and what it could ultimately result in. Is it more jobs or less?

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As Firstpost reported some time ago, the faster growth we have seen during the UPA regime has actually seen a dramatic slowing down in job creation which has foxed experts. We said: “An analysis by Crisil Research of the National Sample Survey Office’s (NSSO’s) latest jobs data found that the second half of the decade created all of 2.2 million additional jobs while the first half - during the NDA regime - created as many as 92.7 million new jobs.”

Why did faster growth (in 2004-09) create fewer jobs than when we had slower growth (1999-2004)?

The Crisil report also found that jobs were growing not in manufacturing but in areas like construction - where jobs are more contractual in nature. Clearly, it is labour laws that are at fault. No one is hiring, since no one can fire.

A good example of why good jobs are not being created comes from mining. If India has seen scores of illegal mining scams - from Goa to Chhattisgarh to Karnataka , Orissa and Jharkhand - there is one major economic reason for it. We have prevented responsible employers like the Tatas and Posco and Arcelor Mittal from acquiring land and setting up steel projects. We have created a situation where the world demand for steel is met by Chinese plants: we have exported good quality jobs to China, and retained shady, illegal jobs here.

And since the Chinese have been willing to pay premium prices for ore to conserve their own supplies of it, we have inadvertently encouraged illegal mining by creating a huge economic incentive for it. The country has lost in three ways: we make less money on ore exports than on value-added steel; we have lost valuable state revenues from illegal mining; and by not helping responsible steel plants to buy land we have encouraged irresponsible buccaneers in the business to exploit tribals and labour in the mine areas, and helped them generate tonnes of black wealth and corruption.

Governance: The key to a successful NMP is governance. Unfortunately, the NMP does not really address this issue squarely and instead talks about SPVs and NIMZs as though they grow in a vacuum. Governance means accountability - and accountability means power needs to be correctly decentralised with proper checks and balances.

This means NMP should be a state-level policy, and all decisions on NIMZs should be drawn up at the state-level, since everything from land to mining and labour laws are implemented there.

In fact, there is a good case for delegating all powers on the NMP to the states - including environmental and other policies, with no say for the Central agencies in this regard. Most of India’s states are big enough to be countries. If they were indeed countries, they would have their own land, labour and environmental policies. It is only because we are one country that we are centralising issues that ought to be decided at lower levels.

The NMP will work only when we devolve a lot more decision-making economic powers to the states, so that it would be possible for a Modi or a Mayawati or a Jayalalithaa to set the pace for success. The Delhi-Mumbai Industrial Corridor (DMIC) which is a critical component of the NMP,will work not because the Centre planned it, but because the states are ready for it. Gujarat is already gearing up for it, and DMIC will work because of the state’s ability to benefit from it when it happens.

We need a multi-speed NMP policy which allows the more dynamic states to blaze a trail which others can follow. Also, we need different models of NMP to see which one works better. If Jayalalithaa’s model works better, than others can learn from it. If Maya’s model works better, so be it. After all the Mayawati model for holding sporting events (F1) worked better than the UPA’s (CWG fisaco). Diversity of NMP models is vital to see which one is better. Having only one model imposed from above is a recipe for all or nothing - more likely the latter.

It is the states that should be empowered to create NMPs and change their laws to make it all happen. NMP will be killed by centralisation. The only thing the Centre should do is create master plans and set the states free to evolve their own NMPs. It must then get out of the way.