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Does Economic Survey Say Make In India Is Failing?

Sutanu Guru goes through one chapter of the Survey to find out structural problems remain as they were decades ago

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One chapter in the latest Economic Survey tantalizingly refers to apparel and footwear in the headline while asking if India can reclaim low cost manufacturing. Futuristic, forward looking and optimistic as the chapter seeks to sound, the message is loud and clear: the Indian economy is not even close to taking the first baby steps towards making Make in India a reality. According to the Survey, sectors like apparel and footwear hold out the most promise when it comes to generating gainful employment which could also be socially transformational as the two sectors employ a lot of women. And yet, the promise remains a promise.

Here are chilling words from this chapter in the Survey: "India has an opportunity to promote apparel, leather and footwear sectors because of rising wage levels in China that has resulted in China stabilizing or losing market share in these products. India is well positioned to take advantage of China’s deteriorating competitiveness because wage costs in most Indian states are significantly lower than in China. Alas, this is not happening, or at least, not enough. The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels; Vietnam and Indonesia in case of leather and footwear. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia. The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in these sectors. Hence, the urgency."

It is not very often that you see a government document de facto admitting that it is missing the bus. But the admission is stark. It is also interesting how the chapter has picked up apparel and footwear as the two sectors. In terms of job creation, the reasons are immediately and painfully apparent. The Survey says: "The data show that the apparel sector is the most labor-intensive, followed by footwear. Apparels are 80-fold more labor-intensive than autos and 240-fold more jobs than steel. The comparable numbers for leather goods are 33 and 100, respectively. Note that these attributes apply to the apparel not the textile sector and to leather goods and footwear not necessarily to tanning. Drawing upon the World Bank employment elasticities, we estimate that rapid export growth could create half a million jobs annually".

But the jobs are not being created. At least not at the rate needed. In stark contrast, poor Bangladesh which is still designated as a Least Developed Country has moved miles ahead of India in apparel exports. The average annual growth rate of apparel exports from Bangladesh over a 20 year period is close to 30 per cent. For India, it is less than 13 per cent. No wonder that apparel exports from Bangladesh have gone ahead of India and the gap is widening year after year. One reason for this, according to the Survey, is that exports from Bangladesh get tariff free entry to crucial markets like the EU and America. In contrast, exports from India attract at least 10 per cent tariff making them less competitive. In some ways, this reflects the failure of successive governments to sign trade agreements with countries. The Survey admits as much.

But the real problems lie at home. The Survey identifies structural distortions and rigidities in the tax structure and labor markets as the key problem areas. Sadly, even Dr Manmohan Singh had identified them as problem areas when he was finance minister more than two decades ago. But nothing has been done since then to address the problems. The failure of the apparel and footwear sectors as manufacturing and export juggernauts despite so many advantages is a signal how difficult Make in India can be as a mission.