With Make In India, Modi Should Not Attempt to Make Another China

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The Made In the USA movement could be compared to the tightening of a fist, while the Make In India slogan is more like an open arm gesture, to embrace all those willing to set up shop in India, literally. Both, in a sense, are also on a direct collision course.

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Prime Minister Narendra Modi’s Make In India pitch is more outward looking, asking even global companies (US included) to set up base and locate factories within India, with a promise to “replace the red tape that India is infamous for with a red carpet welcome.” Both campaigns, except for the commonality of words, are thus at the two ends of the spectrum – one asks Americans to build in US and its consumers to buy only Made in U.S., the other wants the world to come and set up shop in India, at the same time, asking Indian industry not to look offshore for its needs.

One example of this is Modi’s “instructions” to his ministries to ask Indian companies to discourage “inessential imports” and leverage the country’s manufacturing skills in substituting them.

A report in The Indian Express said Modi, in a meeting with bureaucrats, has asked them to regularly “track” imports, especially “non-essential” ones, as a major part of it could be reduced, recognizing India’s own manufacturing capacity.

The Indian Prime Minister’s instructions were meant for steel, oil, gas, coal, agriculture and telecom industries, and issued an order to bring India’s trade deficit on a more even keel than what it is today. For September, as per government figures, trade deficit was at $14,247.42 million, a year-on-year increase of 132.71%.

There is one thing common though between the Made In USA and the Make in India campaigns, and that is China. As its US counterpart, the Indian Government, too, is concerned by a spike in the imports from China that has hit some of its industries like steel and coal hard.

The Indian steel ministry has already raised a red flag that Chinese imports during the second quarter of FY 14-15 had exceeded 90 million tons, underlining its demand of doubling import duties on value-added steel products to 15% ad-valorem from 7.5% currently.

A similar story is being played out with minerals like coal and iron ore. India sits on one of the largest deposits of iron ore, yet regulatory and legal hurdles recently turned the country into a net importer of ore.

While the Make In India movement seems to be gathering steam, the question that everyone’s being asking in India – Will Modi succeed?

The answer depends on who you listen to. While some analysts have dubbed it a “brilliant tactical move” to reposition India as a global force, some have cautioned the government to ensure the thrust is on the manufacturing sector than services. A few others have outrightly dismissed it.

India is already somewhat of a leader in certain services sector including Information Technology, so that’s certainly not the way to go, feels the second group. Revival of manufacturing, which, in turn, will bring in more service jobs anyway, is what will propel India, they say.

This analysis in The Economic Times cautions the present Indian government against making the same mistake as its predecessor of listening to western businesses constantly on the lookout for cheap manufacturing destinations, especially because China has now “turned expensive.”

India, it said, should not fall into that trap and allow itself to become another base for cheap manufacturing and to be dotted with sweatshops and polluting industries. China was a factory to the west; India should not attempt to replace it.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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