Make Machines In India

Why economists arguing against policy emphasis on manufacturing are completely wrong

- Dipankar Gupta

The policy encouragement today to manufacturing is being decried by some experts on the ground that we should encourage the service sector. This is in many ways an extension of our fantasy when liberalisation was still young – that we would grow up rich powered by cheap labour in the export sector.

We soon realised that just as one can never be too thin, you can never be too cheap either. In time, other countries were undercutting India with lower labour costs. Even then, some resisted turning to manufacture and instead argued that the service sector would handhold us to prosperity.

The reason this notion gained ground was simply because of our belief that if our service sector is so big, contributing about 55% of our GDP, then it must be good too. But is size alone important? Shouldn’t muscle tone replace flab to make size really count? What we forget is that Simon Kuznets (the father of GDP) had warned us decades ago that GDP is a measure of wealth, not of welfare.

● Our service sector is largely manned by a low-to-unskilled labour force.

● As much as 80% of jobs in this category are in construction, transport, retail and beauty.

● The slightest acquaintance with India would immediately tell us that there is hardly any skilled labour working at these jobs and none of them of exportable quality.

● Indian doctors are not a good reference point.

● They do well in the US and UK as they are trained and supported by medical technology and drug manufacture over there.

● This is what their counterparts in India long for in vain.