Temples of modern India for manufacturing export
New Delhi is eager that more manufacturing companies choose India as a production hub, and has offered investment sweeteners. The wait is on for the trickle of FDI to turn into a flood. Marquee names, such as Tesla, are being courted.
Infrastructure is being created furiously to make the country hospitable to global manufacturing.
This would appear to be a perilous course with the Chinese model showing up its limitations. But it is the only available course for India to become an upper-middle-income country over the next quarter-century. Manufacturing's share of economic output has been stagnating.
Energy purchase creates persistent trade deficits. And services do not have the capacity to absorb excess labour from agriculture. Strong manufacturing exports solve all of these.
Production capabilities on a global scale also get around constrained domestic consumption. Besides, India has fallen off its peak investment rate as credit locked up in dodgy lending was freed.
GoI is funnelling an increasing part of household savings into infra to revive private investment. RBI has imposed pre-emptive curbs on runaway consumer borrowing.
India can afford to rebalance some demand away from consumption into investment. But it needs to exercise caution in overdoing it. The lesson from China is, social investment is as vital as physical investment for balanced growth.
The immediate need is for an infrastructure upgrade to boost manufacturing. Down the line, the emphasis should switch to building an adequate social safety net that props up consumption lower down the ladder. It's early days, though, for India and it can concentrate on building its manufacturing superstructure.
