Terming Modi's effort to rival China difficult and slim, FT cites closure of Nokia plant in Chennai as example

By Our Representative
In an year-end commentary, premier British business daily, “Financial Times”, has termed prime minister Narendra Modi's dream to redouble “India’s efforts to rival China by turning into a global manufacturing hub” as “important to his country’s future” but insists, it is “difficult to achieve”. Written by James Crabtree in the column “Inside Business” and titled “Modi faces uphill battle in mission to see India rival China”, the commentary arrives at this conclusion by saying that “India’s manufacturing frailty is well documented.”
“At just 15 per cent of gross domestic product, the sector is less than half the size of China’s”, the daily points out. Saying that “no poor Asian country has risen to middle-income status with such feeble figures”, the daily gives this as the main reason why Modi's Make in India drive to reach the pinnacle of Chinese-style exporting powerhouse are “slim”.
Conceding that India may have excelled in some “high-tech manufacturing” and “the likes of Ford and Hyundai run world-class local factories, packed with whirring robots”, with many global carmakers starting to see India as “a crucial export base”, the daily insists, “But lower skilled, labour-intensive industries such as clothes manufacturing and electronics do less well, causing alarm in a nation that must create 12 million new jobs a year until 2030 to meet a looming demographic bulge.”
Giving the example of now Nokia plant collapsed in India to prove its point, the daily says, “Until last year, the Finnish technology group ran a large, ultra-modern factory in Chennai, employing about 8,000 workers and exporting products globally. A local supply chain built up around the plant, attracting the likes of Chinese smartphone maker Foxconn. But this was before India’s revenue authorities took an interest. Two disputed tax claims scuppered plans to transfer the factory to Microsoft as part of a global deal. Now it is set to be sold or closed, imperilling workers and suppliers alike.”
“Worse”, the daily says, “Other phonemakers seem unlikely to follow where Nokia failed. Despite rocketing domestic demand, local players such as Micromax rely almost exclusively on Chinese suppliers. China’s Xiaomi plans a research lab in Bangalore as it attempts to grow in India, but no local production until at least 2016. As India seeks manufacturing success, labour-intensive products such as mobile phones should be an ideal fit. Instead, industry groups warn phone exports may drop to zero next year.”
Pointing out that “reversing such trends will be difficult, making the limited progress by Modi’s otherwise laudable Make in India drive all the more depressing”, the daily says, The phrase is often repeated by fawning industrialists, but has prompted scant policy changes.” It quotes Arun Shourie, journalist-turned-BJP politician to prove its point: “When all is said and done, more is said than done.”
The top daily takes issue with well-known pro-Modi economist Arvind Panagariya of the Columbia University, who believes that export-led manufacturing remains India’s best economic hope, saying, Panagariya's view that Make in India campaign only need for far-reaching reforms, such as scrapping outmoded labour and land acquisition laws, may not be easy to achieve, terming them “improbable”.
“Worse”, it underlines, “The nature of Asian manufacturing is changing in ways that make India’s task trickier. Cheap labour is still an advantage. But factors such as logistics and energy costs are increasingly important in persuading global companies to relocate — both areas where India struggles. Even manufacturers facing rising wage bills in China show few signs of moving to India en masse.”
Qouting Reserve Bank of India governor Rathuram Rajan who said that “the world as a whole is unlikely to be able to accommodate another export-led China,” warning against “sneaking in tariffs for favoured sectors under the cloak of pro-manufacturing rhetoric”, the daily says, “India ranks second only to Indonesia in a recent analysis of manufacturing costs across 25 large exporters by consultants BCG. Perversely, the country’s myriad manufacturing barriers should make it possible to remove at least some of those expenses, including the overzealous tax regime that damaged Nokia.”