It will be tough for India to grow its manufacturing sector by relying exclusively on exports the way China did. India might have to develop its own growth model says Gary C Coleman, global leader, Industries, at Deloitte Touche Tohmatsu, the global professional services network, in a conversation with Krishna Kant.
Prime Minister Narendra Modi plans to make India a major manufacturing destination, on the lines of China. How feasible is this ambition, in view of the economy slowing in Europe and North America?
The continued economic weakness in Europe and shift away from consumer-led growth in the US has surely complicated the export ambitions of emerging economies. It will be much more difficult and challenging for India to grow its manufacturing sector by relying exclusively on exports, the way China did. India might have to develop its own growth model, using a mix of manufacturing, coupled with many factors possibly, for the domestic markets and exports. India already has a significant manufacturing footprint in many industries and it can build upon this through greater foreign direct investment.
There is renewed interest among the world’s top companies to either scale-up their existing investments in India or set up a manufacturing base here. This is a positive signal and if policy makers are able to translate this into actual investment, it would give a big boost to India’s manufacturing aspirations.
China prospered by manufacturing and exporting basic consumer goods. Can we hope to replace China in this regard as the world’s top manufacturing destination?
That was true many years earlier. China is now losing competitiveness in low-end manufacturing and this is moving to more competitive destinations in Asia. There is an opportunity for India to harness a part of this shift. This will, however, require large investments in infrastructure, especially transport networks and power, beside improving the overall business environment and ease of conducting business. India currently ranks very low in the Ease of Doing Business Index and this acts as a deterrent for multinational corporations (MNCs) when they are scouting for investment destinations.
If we compare the list of India’s top 50 companies with a similar Chinese listing, ours is dominated by information technology (IT) companies, pharmaceutical exporters and automobile makers. China has the usual manufacturing heavyweights. Isn’t it time we focus on our strengths, rather than trying to import another model?
Yes, that is an alternative but we have to see the extent of opportunity available in these industries. India has demonstrated a competitive advantage in IT and knowledge- based sectors but there is a limit to how much more IT services can be exported out of India. Competition is rising from other English-speaking countries and wage arbitrage is narrowing as per capita income rises in India. In pharma and automobiles, Indian companies mostly operate at the lower end of the value chain and that limits their growth opportunity. They need to move up the chain to capture a larger share of consumer spending in these categories.