16 Oct 15 What should we make in India?
Make in India – the phrase has as many meanings as people using the phrase. The bigger question is what should we make? And equally important – what should we not make in India?
Historically, thanks to socialist ideals and the idea of self sufficiency in everything, we made everything – or everything we could. Relatively closed trade borders and Soviet style thinking meant a higher reliance on “core” industries and commodities. These have been very dear to Indian planners, but are outdated in an era of increasing cross-border trade facilitated by low duties and trade treaties.
If we have to successfully make in India, we need to focus on industries that play to our strengths – not on those where we are at a competitive disadvantage.
Yet, we keep on pushing industries like steel, mining, aluminium, and such like.
These are all commodities, and the only advantage lies in how cheaply you can get it out of the ground. All such projects consume large quantities of land, capital and power; while employing (relatively) few people and damaging the environment. India is densely populated, with intense land pressures. Capital is expensive, while people are plentiful. There is no significant advantage that we have (unless licenses are given away cheap).
Significant political intervention is inherent in such projects, as the large project size (including land deals) and multitude of permissions creates powerful vested interests.
Such type of investments have historically provided low return on capital Further the risk arising from delayed land acquisition, clearances, etc. as well as uncertain commodity prices make these very risky.
Many banks (including most of our private banks) don’t like to fund such projects. But our public sector banks are often arm-twisted into lending to these white elephants. A look at NPAs is illustrative. This is not new – very similar distress was seen in the nineties. We throw more and more money on these companies, and somehow they limp back – but returns on investment are poor.
In many ways the global commodity crisis may be a good thing for India. We might actually realize that huge smoke belching, earth-destroying, Capex-intensive commodities are simply not worth making in India. What do you think?
prosper
Posted at 18:17h, 30 MayVery useful Blog.Thanks for sharing info.
Saurabh Jain
Posted at 14:34h, 21 JanuaryInvesting in Core Industries is a long term strategy and must be part of long term national strategy even if it requires government support.
Current slowdown in commodity prices is a cyclical event and is closely linked to China slowdown, Oil crash and global realty/construction slowdown.. This does not make it a reason to ignore this sector.
Important thing is to weed out corruption and bureaucracy/govt. involvement to increase efficiency. .
Aamod Gokhale
Posted at 14:35h, 07 NovemberI agree with you on the point that we should play to our strength and not try to make everything, Arun. Make in India has faced as many challenges if not more as the marketing buzz created around it. So this question should have been obvious. But what we make and what we should not are both difficult questions to answer. Steel is a major input to all machinery, auto etc. – and we are set to be the 3rd largest automobile market – but then if we cannot produce steel competitively, then we are better off investing that capital somewhere else with sustainable long term advantage.
Arun Jethmalani
Posted at 12:51h, 09 NovemberHi Aamod,
Thanks for the comment.
I agree that “what to make or not make, in India?” is a difficult question. However, this is a question that we need to ask, and debate much more than we do. Else, we will squander our scarce resources on the wrong investments.