Take Off From The Coast

A few Shenzhen-style coastal economic zones can start a manufacturing revolution in India

It is generally agreed that a key element in the transformation of India is the creation of a large number of good jobs.

While micro and small enterprises provide lots of jobs, given their low average labour productivity , they are able to pay relatively low wages given their low average labour productivity .

Economists Rana Hasan and Nidhi Kapoor of the Asian Development Bank find, for example, that manufacturing firms with less than 20 workers employed 73% of manufacturing workforce but produced only 12% of manufacturing output in 2010-11. With such a large share in employment but small share in output, these firms could pay only a fraction of the average wage paid by larger firms, which is itself low in India when seen in the international context.

There is compelling evidence that productivity and wages rise with the size of the enterprise. Large firms are able to attain higher levels of productivity by exploiting scale economies.

They also operate predominantly in the highly competitive world market, which forces them to continuously improve product quality and adopt costcutting technologies. Their presence also enhances the efficiency of small and medium firms because these later must either become their ancillaries or compete against them.

Unfortunately , large firms are missing in India in precisely the sectors where they are needed the most: employmentintensive sectors such as apparel, footwear, electronic and electrical products and a host of other light manufactures. These are products in which China has done well, thereby generating a large volume of good jobs for its workers.

In 2014, China exported $56 billion worth of footwear, $187 billion worth of apparel and $782 billion worth of electrical and electronic goods. The corresponding exports by India were $3 billion, $18 billion and $9 billion, respectively .

The single most important key to China’s success in manufactures has been its decision to go for the large world market, which today stands at $18 trillion.In 1980, when China’s GDP was less than $500 billion at today’s prices and exchange rate, it began by establishing four very large Special Economic Zones (SEZs) along its southeast coast.

Shenzhen, one of these four SEZs, was then at best semi-urban with a population of 3,00,000. Attracted by its low wages and business-friendly environment, investors from Hong Kong and Taiwan flocked to it.Its coastal location allowed these investors to operate in world markets unhindered by poor infrastructure in the hinterland.

Today Shenzhen has a population of 11 million, gross city product of $265 billion and per-capita income of $24,000.Though originally Cantonese, it speaks Mandarin because the bulk of its population migrated from other parts of China. Most of the major multinational firms have a presence in Shenzhen.

Rapid growth has sent Chinese manufacturing wages shooting up, they now stand at Rs 5 lakh per year. Unsur prisingly , many multinational firms from China are looking for alternative lower wage locations. With its large labour force, India is well positioned to become home to these firms.

But this requires the creation of a business friendly ecosystem in locations that can serve as export bases for these firms. It is here that India can leverage the Sagarmala project of the prime minister. It can create a handful of Shenzhenstyle Coastal Economic Zones (CEZs) on its coasts next to deep-draft ports.

The CEZs must cover a large area (Shenzhen spans 2,050 sq km) and have some existing infrastructure and economic activity . They must also provide a business friendly ecosystem including ease of exporting and importing, swift clearances and speedy water and electricity connections.

They must also offer urban spaces to house the local resident workforce. For firms that create a threshold level of direct employment (for example, 50,000 jobs), a tax holiday for a pre-specified period may be considered. The incentive may be offered during a short window of three to four years to reward the firms that take early initiative.

An important advantage of locating the zones near the coast is that they would attract large firms interested in serving the export markets. These firms would bring with them technology , capital, good management and links to world markets. They would help create an ecosystem around them in which productive small and medium firms would also emerge and flourish.

Initially the number of these zones must be limited to two or three. This would help ensure that limited resources are not diluted and many sector-specific zones and clusters can emerge within each of them to fully exploit economies of scale and agglomeration.

Simultaneous creation of too many zones would spread the available public resources thinly while also diffusing economic activities with potential synergies. As initial zones succeed, more may be subsequently launched. This is not unlike the software industry , which initially concentrated in Bengaluru but subsequently spread to other towns.

One final point is worth noting.

Given the vast size of the world market and our tiny share (1.7%) in it, there remains vast scope for the expansion of exports even if the global economy remains stagnant. Slow growth of the world economy is not an insurmountable barrier to export-led growth.

Taken From : The Times of India, Jaipur
Dated : Febrauary 19, 2016
Written By : Arvind Panagariya
The writer is Vice-Chairman, NITI Aayog.
Views are personal and may not be attributed to either the Government of India or NITI Aayog

Stand Up To The Bullies

Why we must counter brute nationalism with a constitutional patriotism

It’s perfectly clear why the BJP and kin would use nationalism to end all argument. It’s a feeling that warms the blood, tingles the nerves. It’s not a word its adversaries use a lot.And so, we have watched as the HRD minister says Bharat Ma will not tolerate some students agitating on their own campus. When the BJP president insists that defending the fundamental rights of these students amounts to an “anti-national“ endorsement of terrorists. When a BJP MLA then assaults “anti-nationals“ outside the court at India Gate, and tells a TV camera defiantly “haan, nationalism ka theka le rakha hai“. When TV anchors supply the roaring team-spirit that needs to turn on others to feed itself.

We have let them set the terms, because we lack the right unambiguous words for national loyalty . It’s about time this comic-book nationalism is countered with equal vehemence, with constitutional patriotism. Those who serve at a nation’s border, like Hanumanthappa Koppad, are patriotic. So are those like JNUSU president Kanhaiya Kumar who have held it to account for betraying its better self.

You might say: “Did you hear what those students said about Bharat ki barbaadi? Is that not straightforward sedition? If you can ally with that, you hate India too.“

But nationalism is not a gag rule. India will survive the disloyal words of a few students, and, in fact, its spirit is sustained by the indignation of those like Kumar.

What “nation“ is the BJP government defending with a sedition law written by the British empire? Right before his arrest, Kanhaiya Kumar defended the Constitution, the document that encodes the nation. He spoke for the poor majority of this country . He challenged the “khoon se tilak karenge, goliyon se aarti“ RSS to a debate on violence. He asked what place their Bharat Mata had for his mother, an anganwadi worker. The point of education, he said, was “critical analysis of the common conscience“.

Kanhaiya Kumar’s words are the kind that keep India meaningful. He voiced a productive patriotism, which insists on holding the Constitution to its promise for every last citizen. Not so long ago, it might have seemed overwrought to quote Albert Camus, circa 1944. But as he wrote in his Letter to a German Friend who accused him of imperfect nationalism, “A nation is not justified by such love.“ For him, loving his country meant not wanting just “any greatness, particularly a greatness born of blood and falsehood“. It meant loving justice, and he believed his nation was worthy of that demanding love.

The brute nationalism now on display needs obedience rituals and “bravehearts“ to hide behind. It is the nationalism of damaged, angry people.It relies on strategic mob violence and scapegoating. It is a nationalism that likes it all stacked up ­ minorities, Dalits, women in their place, Muslim terrorists to fight and neighbours to intimidate. It has no scruples or hesitations.

Look at the nutty rationalisations that come from that “nationalism“. Real violence against journalists is justified but a premonition of violence is enough to single out a student from a crowd and charge him with sedition. Legal process spectacularly breaks down when lawyers and lawmakers assault journalists and academics in court. The police stands by , the police chief says move along, nothing to see here.Meanwhile, Prime Minister Narendra Modi affects distance from these petty terrestrial happenings. If this is not slow motion collapse of state authority , what is?
Against this dire world, where everything must be subordinated to a single end, there are universities like JNU, Jadavpur, Hyderabad Central University , where students protest a death-dealing state and hierarchies that block equal citizenship. When young people talk of smashing the state or patriarchy or capitalism, it is a yearning for justice. It is where alternatives are born. Student politics, as opposed to armed insurgency , carries the hope of redemption. The government, by crushing them, pretends that public order and political status quo are the same thing.

Meanwhile, progressives often allow themselves to be out-shouted on the question of patriotism. The state’s violence at its edges, its constant undoing of its claims ­ these preoccupy them, as they should.Arundhati Roy wrote recently , “What sort of love is this love that we have for countries?“ She can feel for the specific ­ a river valley , an old-growth forest, a mountain range. For other cosmopolitan intellectuals, solidarity extends to the world. The nation-state, that awkward intermediating bulk, is a tainted object of emotion. And so, they cast the JNU crisis as a war between “young people and the nation-state“.

But here’s the thing ­ this deep fount of emotion can’t be ceded to the bullies.When it’s bad, it is very , very bad, but it is national feeling that motivates millions to public-spirited work, makes them care about the fate of strangers. Those who returned their awards to the Sahitya Akademi did it out of a sense of membership and deep investment in India.

To counter BJP’s ugly nationalism, it is time to mobilise a patriotic perspective, to show it that those who are uncowed by it are not just rebellious individuals, but clear-sighted Indians. That nationalism would confront caste, military excess, violence, not bristle at their mention. In fact, it may look something like the teach-ins that Jawaharlal Nehru University is holding right now on Mohandas Karamchand Gandhi, B R Ambedkar and Bhagat Singh.

 

Taken From : The Times of India, Jaipur
Dated : Febrauary 18, 2016
Written By : Amulya Gopalakrishnan