10/18/2014

Make for India, not just in India - The Hindu

OpinionComment
Published: October 18, 2014 02:43 IST | Updated: October 18, 2014 02:44 IST

MakeforIndia,notjustinIndia
Saurabh Chandra

ASE OF BUSINESS: Government policies that have made foreign investment easy, coupled with tax holidays in SEZs, have
provided incentives for setting up export-oriented captives. Picture shows a worker at an SEZ in Kochi. Photo: H. Vibhu

The Hindu

Thegovernmentspolicieshaveunwittinglytiltedthebalanceinfavourofinnovatingfortheworldratherthancreatingconditionsthat
encourageinnovationsforIndiasownneeds

With a large engineering workforce and links with the English language, India already has some natural advantages in
providing knowledge workers to global corporations. In addition, government policies that have made foreign
investment increasingly easy, coupled with tax holidays in Special Economic Zones that only large corporations can
afford to move into, have provided excellent incentives for setting up export-oriented captives in India.
In the last 10 years, the number of global research and development (R&D) captives in India has been progressively
increasing. A recent study by Zinnov Consulting found that nearly half of the top 500 global R&D spenders have set up
shop in India. These captives and their service providers together have created a globally exposed and competent
workforce in India in addition to a new wealthy class of a few white collared professionals. The positive impact that this
has made to the country is significant and real, even if it is limited to a small percentage of the population. To replicate
this success in manufacturing seems a worthy objective, but with lessons from the past, we can and should aim higher.
Innovation has two beneficiaries producers and consumers. For example, creating the light bulb was a profitable
venture for Thomas Alva Edison but it also benefitted millions of consumers with the innovation.
Sharingvalue
http://www.thehindu.com/opinion/op-ed/make-for-india-not-just-in-india/article6512290.ece?homepage=true&css=print

1/2

10/18/2014

Make for India, not just in India - The Hindu

In most cases, the knowledge workers seem to be pursuing problems of their employers in western countries. The
output of their work often tends to be irrelevant in India. Thus in this increasingly interconnected world, one can
effectively create islands of producers and consumers that are far removed from each other. The value created is shared
by a few producers in India and a lot of consumers in western countries. The recent Make in India campaign is trying
to extend this trend into manufacturing from services.
There is a silver lining to this approach. While the output of what workers create is removed from the needs of their
country of residence, the skills and capacity that they develop in the process are transferable. For example, workers
from the very same pool, using similar tools and processes, created the first of its kind Unique Identification project in
India. Aadhar aims to give a billion unique biometric IDs to Indian residents and has already achieved half of its target
within a few years.
However, where government policies in attracting more FDI and in encouraging the Indian outsourcing industry have
been a success, the track record in encouraging companies to innovate and make in India and for India has been poor.
With a dismal rank in the ease of doing business index, there is a systemic advantage that existing businesses enjoy
versus the problems that new innovative companies seeking to disrupt them have to face. However, improving the
countrys rank on this well-established score doesnt seem to be an important priority for the Indian government. Apart
from the many sound bites, no concrete action is forthcoming.

Thetrackrecord
inencouraging
companiestomake
inIndiaandfor
Indiahasbeen
poor

The initiative of implementing a uniform Goods and Services Tax will do more to
create an integrated domestic market than anything else. Equally important is to be
able to move goods across state borders without being subjected to harassment.
However, an export-oriented manufacturing policy sidesteps this issue since the
goods produced will mostly go out. Another key issue in India is a broken credit
system that makes it difficult for new businesses to raise debt. The Make in India
initiative will even further tilt the balance in favour of large domestic firms that hog
all credit and can also tap international markets or foreign firms that have better
access to capital in their home country. These are barely two in a long list of reforms
that India awaits.
Softwareasaservice

We can already see examples that frustrate businesses trying to make for India in the software sector. The recent trend
of delivering software as a service has proved to be an ideal solution for a capital-scarce country where consumers and
small businesses are happier with a pay-as-you-go system rather than investing upfront for using software tools.
However, the one thing that such businesses need an ability to easily collect recurring payments online is tedious
in India. This makes it is easier for an Indian company to serve customers in the U.S. than in India. This is tragic, apart
from being strange.
The collateral advantage of learning from exposure to western markets also comes with the inherent bias for creating
products and services more relevant for the richer countries. Innovations perfected in India on that scale would also
find relevance in emerging economies all over the world.
However, that is an unlikely scenario given the current policies we are pursuing. Right now, we are trying to encourage
creation of figurative islands in India with a red carpet for setting up factories and exporting those goods. We have
done that successfully in services and seen the limitations. A focus on Make for India will spur Make in India exportoriented businesses too but the reverse doesnt happen automatically. We have the opportunity to get it right this time.
(SaurabhChandraisaBangalorebasedtechentrepreneurandanadjunctfacultyfellowattheTakshashila
Institution.)
Keywords: Make in India, Special Economic Zones, foreign investments, research in India, Goods and Services Tax, tax
holiday, Indian outsourcing industry
Printable version | Oct 18, 2014 3:31:08 PM | http://www.thehindu.com/opinion/op-ed/make-for- View Comments (7)
india-not-just-in-india/article6512290.ece
The Hindu

http://www.thehindu.com/opinion/op-ed/make-for-india-not-just-in-india/article6512290.ece?homepage=true&css=print

2/2