India has a long way to go to match the manufacturing scale of China, admits Niti Aayog Vice Chairman Arvind Panagariya in an exclusive interview with BOOM's Govindraj Ethiraj. Panagariya said that the big challenge for the Narendra Modi government is to create jobs, which can only be done if large corporates are encouraged to invest in labour intensive sectors like clothing, footwear, electronics and electrical goods manufacturing.
Edited excerpts from this exclusive interview
Q) You have been arguing that external trade is important but others believe that the prospect for global trade for various reasons, including de-globalisation, the nature of change in jobs, is going to work against that. Whats your view?
There are two issues - global markets and technology. On global markets, it is a very large market. Today it is $ 16 trillion. Our share in it is only 1.7% - merchandise exports. Services is another 5-6 trillion. Our share in this 1.7% is a very tiny slice of a very large cake. What we need is to get a larger slice.
Q) How are we going to get a larger slice - indeed where we are today and larger forces we are battling including that of jobs?
The technology issue is that more and more things are going to be done by robots and 3D printers and therefore manufacturing is going to be simply not what it used to do and that affects our ability to compete as robotics and 3D printer technology are something US, Europe and China will be better at competing. So we need industry that can provide a lot of jobs and we can be competitive due to a large labour force and availibility of skills to some degree. These are industries like clothing, footwear, electronics, all kind of light manufacturing, all types of labour intensives. There also, it is not as if though tech will come in tommorow. Like stitching two pieces of cloth, only human hands can do that. They have tried robots but without much success.
Q) So you are saying India's hope lies only in fighting a light engineering battle?
In manufacturing, we have certain strengths which we dont want to lose. Like auto, auto parts, engineering goods, petroleum refining, pharmaceuticals software. We need to build on that but we are a bit weak in industries that can create a large number of jobs. Like clothing, electronics and footwear industry. Today for China exports about 180 bn dollars worth of goods while we do about 17-18 bn dollars. Bangladesh does more, even Vietnam has now exceeded us in clothing exports. With such large labour force like 500 million people, we ought to do better and capture a large market.
Q) Why are we losing ou to Bangladesh and Vietnam. Why have we not been able to stem the fall?
Historically we discouraged the entry of large firms into these labour intensive sectors...
Q) But we changed that about 15 years ago?
Yes right, we did by 2000 so its a bit puzzling that why have our manufacturers have not gone into these sectors. Part of the reason is the labour laws which have been very stringent. Some states have tried to introduce more flexibility than in the past. So partly that but it is the exclusion of the large manufacturers through several decades through small scale sector reservation has created a mindset and built into the DNA of our large entrepreneurs, like our Tata or Reliance, they never think there is an opportunity in clothing or footwear. So even in electronics we have a large number of companies but they are smaller. Electronics and electrical industry- China exports about 800 bn dollars worth of goods and we do less than 10 bn dollars. So entrepreneurs have to take charge but we also have to look at policy changes to facilitate them.
Q) When we look ahead, what is your jobs blueprint and what is the role of manufacturing in it?
To begin with we need to resolve the issue of NPAs as it holds back credit. From specific manufacturing point of view, we create 2 coastal employment zones. Thi is very much the development happened in , China. In 1980, this region was a collection of fishing villages with a population of about 3 lakh people. Today, this has about 11 mn people and per capita income is Rs 24, 000 dollars.
Q) But we have done this before - special economic zones?
Special economic zones were not done quite correctly and in many of the cases it became a play of getting the land. These were too small as well.Shenzen is 2,000 square kms. CEZ are very different. We need 500-600 square kms of area even if actual virgin land maybe very less.But take larger areas and create CEZ and create flexible set of laws and markets within that region so that economic activity can operate more flexibly and dynamically. Coastal proximity will help in importing goods from abroad, process them using our labour force and export them.
Q) One area to bring more jobs is coastal employment zones. What are the other aspects?
You need to do more on trade policy side.I have been arguing Let's unify all our tariff rates to 7%. There are lot of tariff inversion that the industry is complaining about. So if you reunify everything to 7%, there will be no issue of inversion. You also need to do lot of trade facilitation so that goods can move freely- that is a big handicap, electricity has to be very affordable and available. Electricity in India to industrial users have been very expensive so that needs to change.
Q) Last question, what is that one thing you have enjoyed doing at Niti Aayog, considering your long stint as an academic?
My enjoyment is what I do at Niti Aayog. For any academic, to get an opportunity like this and what is most important that the Prime Minister absolutely wants change. Lot of the work we do, closing of sick PSUs, privatisation or sales of PSUs, medical education reforms and all other reforms we are doing, PM is very much in support of this. I was going to say that this is a dream come true, but frankly i never dreamed that this will ever happen, but i never dreamt that this will happen.