India's limited entrepreneurship
If the call for globalisation and free international market access is vital for export-oriented China's growth and survival, India's biggest challenge to its progress and economic stability is just the reverse — ensuring substantial localisation instead of facing an onslaught of globalisation. India must manufacture more in the country to find new jobs with a sustainable income for its people. Unfortunately, India is lagging far behind in manufacturing — basic or consumer — and getting increasingly saddled with poor quality employment or unemployment for its young job seekers. Cheaper imports are ruining domestic manufacturing and technological pursuits. For instance, India, the world's second largest cellphone user, neither manufacturers their memory chips, nor phone instruments. Despite having a near equal population of China's, India's production of capital and employment-intensive power, steel, engineering, minerals and non-ferrous metals, cement, petrochemicals and chemicals is a fraction of that of its mighty neighbour. The 'Make-in-China' initiative by its Communist government in the late 1980s focused on joint ventures by foreign investors in China, carrying import substitution and export obligations. Thus, FDI assisted in creating massive trade surplus for China year after year. Joint ventures also led to the creation of a new generation of local Chinese entrepreneurs with a global vision. The first 15 years of economic liberalisation in China witnessed a double-digit-plus industrial and economic growth.
According to the latest reports from IMF and other international agencies, India's industrial sector contributes only 26 per cent to its GDP while the service sector accounts for as much as 57 per cent of its nominal GDP of over $ 2.45 trillion. Ideally, the industrial sector's contribution should have been at least 60 per cent. India has a long way to reach anywhere near China's current $ 11.8-trillion economy. During the height of China's economic growth in the last decade, the industry sector contributed close to 70 per cent of its GDP. Even now, it is above 40 per cent. The IMF has projected that the nominal GDP for the US, the world's largest economy, and China for the year 2022 will be around $ 23.76 trillion and $ 17.71 trillion respectively, while the GDP in terms of PPP (purchasing power parity) is projected at $ 34.31 trillion for China, nearly $ 11 trillion more than that of the US by that year. India's slow and phased economic liberalisation programme since 1991-92 has failed to create many industrial visionaries and entrepreneurs in the country barring a few like Jet Airways' Naresh Goyal, Bharti Airtel's Sunil Mittal and Adani group's Gautam Adani. Jet Airways was founded in 1993 and Bharti Airtel in 1995.
Though the Gujarat-based Adani group started its journey as a small commodity trading firm in 1988, it rose rapidly in the 1990s to become a giant infrastructure and core industry enterprise in India and abroad. It developed its own port in Mundra. The company established a portfolio of ports, power plants, mines, ships and railway lines within and outside the country. In 2002, Adani handled 4 million MT of cargo at Mundra to become India's largest private port.
If the last 25 years of India's economic reform hardly produced any world class entrepreneur, there is no immediate reason to believe things are going to change even after the new set of economic policy that the Narendra Modi government plans to introduce to make the 'ease of doing business' experience smoother. The government has no choice but to rely on foreign investors for the next stage of manufacturing in the high-technology and capital-intensive sector. The latter would be interested only if the government allows those investors to have a majority control over their ventures. At this stage, there is no need for joint venture Indian partners, if they are not quite suitable as co-promoters. Instead, foreign investors in high-tech, capital intensive projects may be asked to dilute their stake up to 49 per cent through the initial public offering (IPO) route. This will enlarge the stock market and expand investment opportunity for resident Indians. At present, the size of India's stock market, led mostly by old blue chip companies, is very small. The top ones, by market capitalisation, are all old, such as Tata Consultancy Services (TCS), Reliance Industries (RIL), ONGC Limited, ITC Limited, HDFC Limited, Coal India, Sun Pharmaceutical Industries, Infosys, State Bank of India (SBI) and ICICI Bank. It may be time to see more global companies enter India and get listed on the stock exchange for the benefit of India's small investors, better operational transparency and good corporate governance.
India must substantially reduce defence and telecom imports by inducing foreign manufacturer-suppliers to build them within the country on reasonable terms. It would also do well to produce locally at least short-haul passenger aircraft, world class cargo vessels, heavy transport equipment, petrochemicals, solar power equipment, special steels and alloys, high-tech electrical and electronic equipment, sound recorders and reproducers, nuclear reactors, basic drugs, optical and medical apparatus, surgical implants, high quality glass and glassware, man-made filaments and staple fibres, to name a few. Such items form a substantial part of India's current import list, outside crude oil and gold. During 2016, mineral fuels, including oil, topped the country's import list in value terms, US$ 89.3 billion, or 25 per cent of total imports, followed by gems and precious metals, $ 48.1 billion or 13.5 per cent. While India will remain import dependent for them, there does exist opportunities to manufacture most of the remaining key items of imports in India. Foreign investors should be welcomed to manufacture such products that have the potential to emerge as one of India's high growth sectors. This is necessary to provide a proper shape to Prime Minister Narendra Modi's dream of the 'Make in India' program to place the country as a top global manufacturing hub. Can the country's new industrial policy meet this aspiration? IPA
(The views expressed are strictly personal.)