Fixing Make in India

  • Trump’s "Make America Great Again" agenda resulted in trade tensions, primarily with China, causing global economic uncertainty.
  • Countries are scrambling to strike bilateral trade deals with the US.
  • However, Japan and China, with their strong manufacturing bases, are in a better position to negotiate with the US, due to:
    • Their global industrial relevance.
    • Their investment in US Treasuries, helping prop up the US economy.

Free Trade vs. Strategic Industrialization

  • Theory of Comparative Advantage: Countries should produce what they do best and trade the rest.
  • But this theory fails because competitive advantages are not fixed, especially in manufacturing.
  • Industrialization is a process of learning and building capabilities.
  • Developed countries (US, EU) protect their industries and intellectual property, yet criticize developing countries’ protectionist policies.
Fixing Make in India

The Inverted Import Strategy Trap

  • Developing countries like India face a peculiar trap:
    • Assemblers (final product makers) grow rapidly as consumer demand grows.
    • They demand easier component imports to cut costs.
    • Component manufacturers, in turn, demand import of machinery to stay competitive.
  • This cycle undermines domestic capital goods
  • Consequence: Weak domestic industry and loss of long-term competitiveness.

Lessons from Japan and China

  • Japan:
    • Post-WWII: Industrial revival guided by MITI (Ministry of International Trade and Industry).
    • Focused on long-term capability-building, becoming a global hub for automobiles, electronics, and precision tools by 1990.
  • China:
    • Leveraged WTO and TRIPS regimes post-1995.
    • Built massive capital goods capacity.
    • Became the world’s largest exporter of high-tech goods.
    • Chinese firms learned from Western technologies and competed on equal terms, despite Western allegations of "theft."

Where India Stands:

Indicator Japan China India

Manufacturing sector

(Value and % share in GDP)

$995 billion

(19%)

$4.7 trillion

(25%)

$469 billion

(13%)

Merchandise exports

$717 billion

$3.4 trillion

$437 billion

Manufactured goods exports

(% of merchandise exports)

$600 billion

(84%)

$3.1 trillion

(92%)

$297 billion

(68%)

Currency reserves

$1.23 trillion

$3.24 trillion

$676 billion

Investment in US Treasuries

$1.1 trillion

$761 billion

$226 billion

India's Industrial Missteps

  • India dismantled industrial policies prematurely in the 1990s.
  • Didn’t build:
    • Domestic capital goods sector.
    • Competitive high-tech manufacturing.
  • China’s high-tech exports today are 48 times India’s.
  • India’s over-reliance on assemblers and import-based consumption weakens long-term industrial capabilities.

Labour as a Productive Asset

  • A fundamental mindset shift is needed in India:
    • Workers shouldn't be seen as disposable "resources".
    • Instead, like in Japan, they should be “appreciating assets”.
    • Skill-building on the job can make Indian workers globally competitive.

Way Forward for India

  • India must:
    • Focus on long-term industrial strategy.
    • Protect and promote domestic capital goods manufacturing.
    • View labour as partners in innovation.
    • Avoid blindly following Western trade narratives.
    • Learn from East Asian industrial policy models.