It is gratifying to notice MIDS re-railing the focus on economic issues. There is a welcome flurry of lectures. The New Year began with an international conference on achieving accelerated manufacturing growth. There was active participation by the British Northern Universities India Forum, Brookings Institute, ICRIER and several senior administrators from the Government of Tamil Nadu - C V Shankar, K Shanmugam, S Krishnan, Kumar Jayanth, M Velmurugan. MIDS Chairman, K L Krishna and Director Shashanka Bhide deserve praise for this change in emphasis.
Subir Gokarn, Director of Research, Brookings India provided the theme in perspective. He listed the demographic dividend, with a large working population in countries like India, Bangladesh, Indonesia, Pakistan and Vietnam having the
potential to make manufacturing competitive. He pointed to the absence of sectoral transition of employment: the share of employment in agriculture has not reduced substantially though a share of this sector in GDP has fallen steeply, he pointed out.
Gokarn described the determinants of manufacturing competitiveness as exchange rate, inflation and trading patterns. He pointed to the limited scope for leveraging any of these. The economist referred to scale as a huge factor and pointed to what it means: “in 1991, India produced around 100,000 cars and today 4 million. Likewise in television, refrigerators, and air conditioners… everywhere production has grown many times since then. Due to the scale, prices have been stable and competitive.” Gokarn summed up the current as the race against the machine and job-solescence.
An interesting feature of the conference was the frank expression of views by senior civil servants. Additional Chief Secretary, Industries, C V Sankar referred to the strong cultural heritage of Tamil Nadu that was skills-rich and had a reputation for sea-faring to far away lands. “The social infrastructure is quite strong with over 500 engineering colleges and one of the best health infrastructures,” he said. He voiced concern over the quality of engineers and technicians and the government’s efforts in addressing these.
Finance Secretary K Shanmugam pointed to the strong manufacturing base with the sector accounting for 30 per cent of the state’s GDP. Shanmugam pointed to a few issues of concern. One, the intense competition in the garments sector among developing countries that results in large scale shifting of employment. Two, the intense price competition from China that impacts on the manufacturing units and cited an instance: “the Tamil Nadu government allotted in its budget Rs 2000 crore for supplying fans, mixies and grinders for free. But fans and mixies are imported from China. All laptops come from China. We have to become more competitive.” Shanmugam concluded that if the manufacturing sector is not innovative it will die and pointed to Detroit as an example.
The seminar laid emphasis on the SME sector, that provides for lot of employment and receive a lot of government support like capital subsidy. In my address I pointed to some of the deficiencies of the MSME sector. I cited the experience of such units in Guindy that pioneered the concept of industrial estates. Over 90 per cent of such manufacturing units, which once had the reputation for skills and excellence, are today extinct. They lack scale, thanks to the capital limit (and not employment) as the criterion; because of the small scale of operations and reservation several products for the small sector, there was the tendency to proliferate more number of small units in different names rather than build up size. The priority enjoyed by these in terms of lower interest vanished in the 1990s. Capital subsidy liberally provided is mired in corruption and red tape.
Director Bhide promised to hold more such conferences in quicker intervals. One should look forward to these. Adisheshiah in heaven should be quite pleased with this turn.