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A note of caution on ‘Make in India’


[*Long post]

imagesGiven the media publicity, most of you must have come across the new flagship program of Narendra Modi Government – the ‘MAKE IN INDIA’ program. The program is designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure. At the outset, I would like to commend the way in which the program has been put across (or say, marketed) to the rest of the world. As I understand, Indian diplomatic missions were engaged to carry the message to the rest of the world.

I intend to caution the government in this post. Overlooking pertinent factors (inadvertently or not) will come at a great cost to the nation. The aphorism ‘slow and steady wins the race’ is an overarching formula for long term success.

Why ‘Make in India’ program?

Depending upon the shares of the particular sectors in the total production of an economy and the ratio of the dependent population on them for their livelihood, economies can be broadly classified as:

a) Agrarian economy (also known as primary sector): An economy is called agrarian if the share of its primary sector is 50% or more in the GDP of the country.

b) Industrial economy (also known as secondary sector) and c) Service Economy (also known as tertiary sector): The above principle shall apply mutatis mutandis in case of (b) and (c).

The general rule with regard to the stages of grown of an economy is:  agrarian economy → industrial economy → Service economy. India is an exception to the aforesaid rule. I shall elaborate.

At the time of independence, India was an agrarian economy. It now shows the characteristics of a service economy. The contribution of the primary sector has fallen to almost 14% of the GDP. However, more than 50% of its population still depend on the primary sector for their livelihood. This has resulted in a skewed scenario: India is no more an agrarian economy in monetary terms. However, in terms of dependency ratio, it is still an agrarian economy. Quite interestingly, tertiary sector enjoys not less than 60% of GDP. The share of secondary sector is around 18% of GDP.

Experts cite India as being the first case wherein 50% of its GDP has come from either primary sector or the tertiary sector. In fact, India ‘jumped’ the stage of being a fully-developed industrial economy. Almost the whole Euro-American economy is a service sector economy wherein over 50% of their GDP is being contributed by its tertiary sector and over half of the population dependent on the tertiary sector for their livelihood. While in case of India, more than 50% of its population still depend on the primary sector for their livelihood.  The expansion of secondary sector was not sufficient to attract significant labour force from the primary sector. In other words, without fully realizing the industrial and manufacturing potential, India merged into a service economy. This has created daunting macro and micro economic challenges for the nation especially considering the strong demographic dividend. This provides the broad context for ‘Make in India’ program. 

Tread this path carefully…Else, it may boomerang!

As ‘Make in India’ involves a ‘considerable’ investment, all the relevant factors have to be considered. Unfortunately, that is not the case. I am primarily concerned over the lack of focus on brand building. This oversight can have devastating consequences in a highly competitive world market. Let us take a closer look at this aspect.

The distinctiveness or strength of a mark (or say, a brand) measures its capacity to indicate the source of the goods or services with which it is used. In other words, strength ultimately depends on the degree to which the designation is associated by prospective purchasers with a particular source.  The strength of a mark is a factual determination of the mark’s distinctiveness. A mark is strong and distinctive when the public readily accepts it as the hallmark of a particular source; such acceptance can occur when the mark is unique in its quality or when it has received intensive advertisement or both. For instance, consider marks like ‘Mercedes-Benz’, ‘Tata’, ‘Dell’ etc. These marks evoke a particular kind of attitude / approach in consumers.

The ‘Make in India’ is completely silent on ‘quality standards’ of products. This is a serious shortcoming as nothing can substitute the role of ‘quality’ in long term brand building exercise. Fortunately, as I can gather from Economic Times news report, the government is studying the matter. According to the news report: “The government plans to introduce quality standards for automobile, food processing, electrical machinery, garments and textiles products among others as part of a drive to make the country a manufacturing hub for quality products….Appropriate standards are needed if the country has to emerge as a destination for quality manufacturing… Once the 250 products are identified based on the country’s competitiveness, the Bureau of Indian Standards (BIS) will develop or update standards in line with prevalent international benchmarks…..Whether to make the standards mandatory or voluntary will be decided after detailed examination.”

Building a brand is a time consuming process. It demands patience. The brand has to be inter alia nurtured by quality of the products. Any long term brand building becomes a futile exercise when quality is compromised. For instance, Japan is a world leader in electronics. The quality of products played a major role in building the “Japan” brand. The “Japan” brand, which was not built in a day, gives a certain degree of assurance to a consumer. Therefore, the question of voluntary compliance with standards should not even arise.

In blunt terms, “Made in India” does not instill the confidence that “Made in Japan” does in world electronics market. It is a fact that our nation does not enjoy a commendable track record on quality in a variety of products. For instance, we have come across quite a few situations when Indian agricultural products were banned for not satisfying quality standards [like “Ban on Indian mango imports to EU comes into force”] Also, in spite of a considerably strong steel industry, Indian steel is still looked down in the world market.  The Draft National Steel Policy, 2012, which aims to transform Indian steel industry into a global leader, laments the poor quality of steel produced by Indian industry.

Conclusion

Mr. Raghuram Rajan, RBI governor, made a prescient observation recently. He inter alia cautioned that an incentive-driven, export-led growth or import-substitution strategy may not work for the country in the current global economic scenario. Speaking at an event organized by FICCI, Mr. Rajan noted that an export-led growth strategy will not pay for India as it did for Asian economies, including China, due to the tepid global economic recovery, especially in the industrial countries. According to him, “the world as a whole is unlikely to be able to accommodate another export-led China.”

In an extremely competitive environment, absence of quality will spell the doom for the entire initiative. Brand building is an inevitable exercise for sustainable industrial growth. And brand building is intricately connected with the quality of a product. It is imperative to note that India is a late entrant. Just as “Made in Japan” instills a certain degree of confidence, “Make in India” should do the same. Let us be patient here. There is no shortcut to success. Also, let us pause for a while on ‘Make in India’ and critically examine all the facets of the program in a time bound manner. Any oversight will come at a cost to the nation. This Business Standard report titled “Modi says make in India, but even thalis are from China” can be the starting point for any brainstorming on the subject.

If the news reports can be relied upon, GoI is considering the aspect of standards in ‘Make in India’. Even though it is a welcome move, this should not have come as an afterthought. I find this to be disturbing. I would like to sign off by quoting Mr. Gautam Bhati (an architect based in Delhi who regularly writes in ‘The Hindu’). Though made in a different context, his (scathing) comments in a recent article are quite pertinent: “The history of being second rate has been so deeply ground into the Indian psyche; it is now part of the real character of being Indian. There is an implicit mistrust of something that works, does not fall apart, is efficient and is visibly differentiated in its design and implementation. Surely it must be foreign, or assembled by foreigners.”

[H/T: I would like to thank Swaraj for his inputs.]

[In the past, SPICYIP carried some insightful posts on BIS standards. Swaraj blogged on the collective petition for making the BIS standards available and accessible to the general public for free. Pursuant to this post, Thomas analysed whether BIS standards are, in fact, copyrightable.]

 [For some pertinent news reports on ‘Make in India’, see the following:

http://www.thehindu.com/business/Economy/easier-entry-rules-competitive-taxation-key-to-attracting-investments-jaitley/article6735033.ece

http://www.thehindu.com/todays-paper/tp-international/prime-ministers-call-to-make-brand-india/article6737007.ece

http://www.thehindu.com/opinion/lead/opinion-on-make-in-india-campaign/article6736040.ece

]

Mathews P. George

Mathews P. George

Mathews is a graduate of National University of Juridical Sciences, Kolkata. His interest in intellectual property was kindled when he bagged the second position in his very second year in the prestigious Nani Palkhiwala Essay Competition on Intellectual Property. Winner of almost a dozen essay competitions in his law school days, he was involved in various research and policy initiatives relating to intellectual property. His stint as a student of Prof. Shamnad Basheer further accentuated his interest in intellectual property.

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