THE GIST of Editorial for UPSC Exams : 10 APRIL 2019 (To replicating the IT success in manufacturing (The Indian Express)

To replicating the IT success in manufacturing (The Indian Express)

Mains Paper 2: Economy
Prelims level: Special Economic Zones
Mains level: IT success in manufacturing

Context

  • India has witnessed extraordinary growth in the information technology (IT) sector in the recent decades.
  • In this context, it is essential to understand, in comparison, the manufacturing sector - the shortfalls, potentials and the measures needed.

IT sector's growth

  • There is a widely-held myth that growth in the IT sector was possible as the sector had no intervention from the government.
  • But in reality, the government, at the outset, did the necessary things, needed for IT' sector's success.
  • Internet - The government spent public money in creating high-speed internet connectivity of global standards with the U.S. for the IT software parks.
  • This was done years ahead of telecom modernisation in India.
  • Creating islands of high-speed connectivity for a nascent industry independent of the telecom system was a bold move then.
  • This enabled the seamless integration of the Indian IT industry into the US market.
  • Trade - The government brought trade in services into the regulatory framework of imports and exports.
  • It allowed the IT industry to import duty-free both hardware and software.
  • It also gave it all the incentives that were being provided to exporters of goods.
  • This enabled the Indian IT industry to get integrated in the dynamic US market without any disadvantage.
  • Regulations - In addition to the above, the IT industry was able to function under the Shops and Establishment Act.
  • It was, therefore, not subject to the over 40 laws relating to labour and the regulatory burden that these impose.
  • Human capital - Further, the IT sector had the benefit of low-cost high-value human capital.
  • This was actually created by the investments made a generation earlier in higher scientific and technical education.

Implication

  • Certainly, the IT success story was possible only because of planned government interventions and did not happen all on its own.
  • So the key lesson is that the state can take steps to nurture competitive advantage in a sector; in manufacturing too.
  • But there is a false ideological divide of ‘state’ verses the ‘market’ and a growing faith in the latter.
  • In effect, this argument is hampering the task of replicating the IT success for manufacturing.
  • In comparison, to boost manufacturing, China created world class infrastructure.
  • This included Special Zones along the coast and even housing for workers.
  • It supported them in getting foreign and domestic investment in manufacturing.
  • Within a few years, it started becoming the factory of the world and now becoming an economic superpower.

The challenge in India

  • In India, development of industrial areas has been the responsibility of the States.
  • But there exists the political need to spread scarce resources equitably across regions.
  • So the creation and maintenance of globally competitive infrastructure for manufacturing remains a challenge.
  • The Central government did recognise this problem, but efforts at addressing this have been feeble.
  • Moreover, the efforts are constrained by an excessive faith in the potential of private investment.

The shortfalls in the approach

  • SEZs - The Special Economic Zones (SEZs) were conceived and promoted from the year 2000.
  • These had a zero import duty regime along with no taxes on profits.
  • With these, the government provided a favourable regulatory regime.
  • But it assumed that the private sector would develop these zones successfully.
  • The private sector succeeded in the IT sector as the land and investment needed were modest.
  • But other than the IT SEZs, only few manufacturing ones with scale really took off.
  • The private sector did not have the scale to create globally competitive physical and social infrastructure for manufacturing to be competitive.
  • Here, if the Centre in partnership with the States had taken the lead in assembling land and investing adequately, the outcome could have been quite different.
  • The private sector could have been roped in only where it had the potential to.
  • Industrial Corridor - In 2005, the ambitious Delhi Mumbai Industrial Corridor was set up.
  • The initial decision was to get the private sector to invest and develop industrial areas along the Delhi-Mumbai Dedicated High Speed Freight Corridor.
  • But it was eventually found that private investment on the scale needed would not be forthcoming.
  • The need for Central government financing for the trunk infrastructure was soon realised, but is yet to be developed.
  • This is the case with Kolkata-Amritsar and Bengaluru-Chennai Industrial Corridors as well.
  • The same applies to the recently proposed idea of developing large economic zones with world-class infrastructure around sea ports.

Way forward

  • A successful IT park equivalent for manufacturing will have to be developed.
  • The physical and social infrastructure should be comparable to the best in the world and help connect to the global markets seamlessly.
  • Workers’ housing which is key to productivity should become an integral part of industrial area development.
  • [The software SEZs having housing and workplaces within walking distance had contributed significantly to its success.]
  • In addition, such an industrial area needs to be large enough to have the critical mass for generating positive externalities and the increasing returns to scale that follow.
  • This has been the key to China’s success - such economies of scale have resulted in unbeatable prices for a wide range of manufactured products.
  • India needs to build new and large world-class manufacturing areas speedily, especially in the industrial corridors and along the ports.
  • These are critical for the competitiveness needed for being part of the global manufacturing supply chain.
  • The economic returns and job creation from such investment will be tremendous.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) LCA Tejas, is a/an indigenously designed
a) Combat aircraft
b) Electric motor vehicle
c) High Performance Diesel
d) Solar Cell

Answer: A

Mains Questions:
Q.1) Explain the replicating the IT success in manufacturing. Comment.