It is imperative for India to replicate the spectacular success in mobile phone handset manufacturing and more modest success in automobile manufacturing.
In the previous column (Coalition or not, reforms are key, 7 July), the authors highlighted three important issues that the Modi-3.0 government needs to pay a lot of attention to. The first was that CVoter surveys over the years have revealed that about two thirds of “ordinary” Indians find it very difficult to manage household and family budgets. The CVoter surveys have also revealed that more than two thirds single out unemployment as a serious issue. Third, the authors argued how a sustained growth in manufacturing activity is the only way for the government to resolve the first two issues, despite the politically laced cynicism expressed by the likes of well-known economists like former Reserve Bank of India governor Raghuram Rajan. History since the 19th century makes it very clear that no major country in the world has achieved middle income status (forget becoming rich) without a massive contribution from high productivity domestic manufacturing. India faces the same challenge. It currently reports an annual per capita income of $2,500 or so. That must double to $5,000 a year for economic growth and development to actually benefit ordinary Indians. Irrespective of how seriously reforms are pursued, India will become the third largest economy in the world in a few years’ time; almost certainly before the next Lok Sabha elections are due in 2029. But whether the family income of a typical aspirational Indian goes up from about Rs 150,000 a year to Rs 300,000 a year will depend on policies.
And that remains the biggest challenge for the Modi-3.0 government, irrespective of coalition pulls and pressures and despite the heckling and hectoring by a rejuvenated Rahul Gandhi and the I.N.D.I Alliance. Recently, the media was awash with a story from Gujarat. A private company in Bharuch advertised walk-in interviews for 10 jobs at a local hotel. More than 1,800 candidates landed up and the commotion was such that a railing collapsed, leading to a near stampede like situation. Nothing new there. There are routine media reports of how more than 100,000 people, many with Master’s degrees, have applied for about 100 jobs for Class IV employees or peons in a government office. As highlighted earlier, the problem is that aspirational Indians are mostly unable to find the right kind of jobs and livelihoods that offer a decent monthly income on a sustained basis. For the last decade or so, gig work as delivery partners of e-commerce platforms and logistics companies have become the go to places for ordinary aspirational Indians. But that will never make India a middle-income country. The only way out is manufacturing.
In the previous column, the authors had highlighted how the inability to raise the contribution of manufacturing from 15% to 25% of the GDP has been a consistent failure of all governments since economic reforms were unleashed in 1991. The authors had also highlighted how the Modi government has achieved selective success in at least one manufacturing sector: consumer electronics or more particularly mobile phone handsets. Let’s revisit what was briefly written in the previous column: “When he took over as Prime Minister in 2014, the manufacturing of mobile phones inside India was virtually zero with just two odd plants assembling mobile phones. As aspirational Indians bought hundreds of thousands of mobile phones, China happily exported them to India earning tens of billions of dollars. The Modi government started and sustained the Production Linked Incentive (PLI) scheme despite severe criticism by the likes of Raghuram Rajan. In value terms, mobile phone manufacturing in India rose from Rs 18 thousand crores in 2014 to Rs 4 lakh crores in 2024. More than 97% of local demand is met by domestic manufacturing and a quarter of the output is now exported. Apple has already announced that 25% of its global output of iPhones will come from India. Millions of jobs inside the mobile manufacturing factories and in allied activities have been created.”
Another sector where economic reforms have led to a measure of robust manufacturing success since 1991 under successive governments has been automobiles and auto components. Once upon a time, well off Indians could choose between a rickety Premier Padmini or a rickety Ambassador car for mobility. The middle-class Indian had to wait years for a Bajaj scooter. The arrival of Maruti and Japanese technology driven motorcycles transformed the automobile industry in India. While nowhere as successful as South Korea and China, India has emerged as a hub for automobile exports. Less talked but more successful has been the success story in the auto components sub sector. Auto related exports generated close to $25 billion last year. And auto clusters in Uttar Pradesh, Haryana, Gujarat, Maharashtra, Tamil Nadu and Karnataka have become humming manufacturing hubs that have created millions of jobs not just in the thriving factories, but also in allied service activities. Visit any of these clusters and you will find hundreds of thousands of migrant workers earning a livelihood that they could not even dream of back home in Odisha, Jharkhand, Bihar, West Bengal and Uttar Pradesh. The automobile story is a classic symbol of creating a virtuous cycle. Critics of reforms argue that automobiles are meant for rich and bring no benefits to poor or aspirational Indians. Wrong. First, there are the jobs in the factories. Then many more in the hundreds of thousands of showrooms and service stations. And then more in sub sectors like insurance companies. And then millions more in repair and maintenance services.
It is imperative for India to replicate the spectacular success in mobile phone handset manufacturing and more modest success in automobile manufacturing. These manufacturing jobs are high productivity ones and offer far higher incomes than work in agriculture and allied activities. The fact is, for India to become middle income, the current share of 50% of Indians being dependent on agriculture for a livelihood has to come down drastically. The only way for that to happen as economies over the last fifty years have shown is manufacturing.
And therein lies the challenge faced by Modi-3.0. Tiny Vietnam earns ten times more than India through consumer electronics exports. Even more embarrassing, Bangladesh now earns more than India through readymade garments exports. As Nirmala Sitharaman gives finishing touches to her budget to be presented on 23 July, the authors will write next week on how to achieve manufacturing success.
Yashwant Deshmukh is Founder & Editor in Chief of CVoter Foundation and Sutanu Guru is Executive Director.