When I was the international director for the Tata Group,
India’s largest manufacturer, some 15 years ago, we found that we could buy truck wheels from China cheaper than the steel cost in India. We, like thousands of other companies, ramped up sourcing from China.
Things look different today. With escalation of costs in China, shifts in exchange rates, and now the threat of tariffs, China is no longer a cheap manufacturing location. Sourcing of volume goods, like textiles or electronics, is migrating from China. So far, India has not been a major beneficiary of this trend; this looks set to change.
India has followed a different development path from most other successful Asian economies in not prioritising export-led manufacturing. Despite India’s long history of sophisticated manufacturing, strong engineering capabilities and abundant affordable labour, industry accounts for only 23 per cent of GDP. Misdirected government policy, poor infrastructure and crazily complicated regulation have historically contributed to the unrealised potential of India as a manufacturing hub.
One of the first initiatives of the government of Prime Minister
Narendra Modi in 2014 was to launch the “Make in India” campaign to boost manufacturing. This was viewed as essential to drive higher GDP growth and create jobs for the million young people who enter the labour market each month.
The results of Make in India so far have been modest. One of the headline announcements in 2015, for example, was that
Foxconn would invest US$5 billion in multiple assembly plants in the country. A world-class factory was constructed in Andhra Pradesh but the promised major investments in Maharashtra failed to materialise. Recently, however, Foxconn has confirmed that it will soon start producing the
Apple iPhone in India for the first time.
While its record of attracting major manufacturing projects has been poor, Modi’s government has made impressive progress in addressing the key negative factors that have held back manufacturing. While an
infrastructure deficit persists, higher investment in roads, airports and ports is beginning to make a noticeable difference. After years of power shortages, India this year will generate surplus electricity. In the
World Bank’s Ease of Doing Business rating for 2018,
India was ranked at 77, up 23 slots in a year and 65 places higher than in 2014.
