Can ‘Make in India’ work?

Why India is not going to be the next China – or anything like China ever


By Kanti Bajpai – Prime Minister Narendra Modi promised he would promote a ‘Make in India’ revolution. Nearly four years later, a manufacturing revolution is nowhere in sight. Make in India was supposed to not just boost manufacturing, it was also supposed to generate employment. Estimates show there has been virtually no jobs growth.

To be a manufacturing power, a country needs a strong state which identifies niche areas, supports them and encourages innovation. It enforces contracts and property rights. It also provides public goods including law and order and an efficient bureaucracy.

Nobody would pretend that the Indian state is anywhere near being a strong state. It is often violent and despotic, but that is a measure of its weakness, not its strength.

India has no history of industrial-scale innovation – no world historical inventions that it has scaled up.

It is a trading nation and a nation that does well in areas that requires delicate craftsmanship and care, areas that are (for want of a better word) human in scale. It is also a nation that does well in providing services. It could, with better laws, incentives, and technology, be competitive in tourism, hospitality, fintech, and international education and healthcare – areas where human beings still count, where more personalized attention matters and where machines and scale are less important. more>

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American lessons for India

By neglecting science and public welfare, the US is losing the marathon in some respects
By Dipankar Gupta – We look up to America for a number of good reasons. But there are a few cautionary tales as well, especially in the area of public spending.

The US, however, rarely looks outside its borders, east or west, for ideas. The Midwest, the country’s navel, is where it gazes most often. This is where elections are won or lost, and where homebred culture and cars are made.

Between 2000 and 2017 there have been as many as 25 train mishaps in the US, prompting the head of Amtrak to confess that the latest crash is a “wake up call”. It took 60 years, between 1940 to 1999, for 25 train accidents to happen, but only 15 years since to clock that number.

This graphically demonstrates how rapidly public railways have declined in America. We are not starting on the subject of the 56,000 US bridges that need urgent repair. This may sound and taste like India, but we are still talking America.

According to Mark Reutter of Progressive Policy Institute, in the first 13 years after 1956, as much as 46,350 km of interstate roadways were built and, tragically, 95,600 km of rail tracks taken out. In an ironic coincidence, 1956 was also the year when Japan started planning its high speed trains.

Railways have never won state support in the US after their heydays in the 1930s and 1940s. Politicians complain that trains will never make money, so why fund them? In Europe, the calculations are very different.

For example France’s prestigious, high speed TGV train service makes regular losses but gets government money anyway because the public benefits from it.

Not only does TGV reduce travel time, its wide network has also brought booms to towns, like Lille, that had gone bust in the 1950s. China’s high speed train system is also not a financial success, but the country is going ahead with planning a 500 kmph railway system anyway. more>

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Why is Trai even considering bill and keep model?

Airtel boss Sunil Mittal, in a letter to Trai chairman R.S. Sharma, says ‘at a loss as to why Trai should be considering bill and keep model’ and break away from the global practice of interconnect user charges
By Amrit Raj – What surprises the most, he wrote in the 24 July letter, is no one has talked about abolishing IUC (interconnect usage charge) for international call settlement, which is prevalent across markets.

Neighboring countries such as Bangladesh, Sri Lanka and Nepal charge about 2-13 cents. Similarly, when the calls come into India, Trai has set an IUC to be paid to the mobile operators at 53 paisa and, in turn, the Indian international operator charges approximately 1 cent as IUC for the incoming calls on their network.

“The Trai not even debating this issue, therefore, confirms Authority’s acceptance to the principle that IUC is indeed a settled global practice built on fair and equitable settlements for work done by each operator for carrying each other’s calls,” Mittal said.

Mukesh Ambani-controlled Reliance Jio Infocomm Ltd is pressing for the bill-and-keep model, wherein IUC (paid by the telco from which a call originates to the telco which receives the call) will be effectively scrapped.

Rivals Bharti Airtel, Vodafone India Ltd and Idea Cellular Ltd, on the other hand, want these charges raised to at least 30 paise per call from 14 paise now. more> https://goo.gl/Ntz5Cd

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Three consortia led by Alstom, Siemens and Stadler Bussnang eye Rs 2,000 crore ($310m) coach factory project

By Rajat Arora – The proposed rail coach factory that would produce coaches with aircraft-type interiors is expected to come up on railway land in Kanchrapara near Kolkata on a public-private partnership basis and will involve a total investment of Rs 2,000 crore.

This is the second-largest tranche of foreign direct investment (FDI) in the rail sector under the government’s ‘Make in India’ initiative.

The first major FDI in railways came in 2015 when projects to set up two locomotive factories were awarded at a total cost of Rs 3,300 crore ($511.5m). more> https://goo.gl/RJGrrK

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Reliance rattles Indian telcos again by unveiling ‘free’ 4G phone

By Promit Mukherjee and Sankalp Phartiyal – Despite Jio’s rapid rise, funded by mega-profits churned out by parent Reliance Industries’ (RELI.NS) core refining and petrochemicals operations, it has been unable to tap more than 500 million non-smartphone users in India, who still rely on old feature phones to make calls and send text messages, as its network only supports 4G-enabled phones.

Reliance sees the new handset, named JioPhone, allowing it to target India’s entire mobile market for the first time. more> https://goo.gl/bmB5N6

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India’s inward nuclear turn

It has taken 12 years for the Indo-US nuclear deal hype to give way to sober realism
By Brahma Chellaney – India, duped by its own hype over the nuclear deal, had announced plans to import Western reactors costing tens of billions of dollars. The Indian plans helped to motivate Toshiba to acquire Westinghouse – a takeover that ultimately proved a huge blunder, plunging Toshiba into a grave financial crisis.

Having invested considerable political capital in the vaunted Indo-US deal, India today confronts an embarrassing situation: the nuclear power promise is fading globally before New Delhi has signed a single reactor contract as part of that deal. To save face, India, with one of the world’s oldest nuclear energy program, has embarked on a major expansion of domestically designed power reactors.

Given that the Indian nuclear plant construction time frame averages seven years, India’s decision to ramp up its nuclear power capacity may contribute little to meeting its goal of making 24-hour electricity available to all villages and towns by 2022. But the decision will yield major economic dividends, including boosting domestic industry and creating tens of thousands of jobs. By providing $11 billion worth of likely manufacturing orders to Indian industry, the decision will help to transform the domestic nuclear industry.

In this light, the travails of the Indo-US deal may be a blessing in disguise for India. more> https://goo.gl/WXPswv

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Modinomics rings hollow

Look beneath government hype, and signs of deep economic distress are evident
By Kapil Sibal – This government is in denial.

It believes that black economy has been given a fatal blow. At 7.1% India continues to be the fastest growing economy in the world. Spurt in public investment has created jobs. FDI flows are evidence of investors’ confidence in the growth story of India. Reforms have led to ease of doing business.

Let us critically examine each of these claims.

On November 8, when the prime minister announced demonetization of all 500 and 1,000 rupee notes freezing 86% of India’s economy. If this ill-thought decision was an attempt at eradicating unaccounted wealth then it failed miserably. Most cash is either invested in real estate, gold or is stashed abroad. Undisclosed cash in circulation represented only around 5% of unaccounted wealth.

Now that real estate is outside the GST net, cash will continue to be a factor in real estate transactions. What is alarming is that unaccounted cash entered the banking system and is slowly being withdrawn and reconverted into undisclosed cash.

Modi believes in seducing foreign investors in digitizing the economy, little realizing that most of India earns less than Rs 10,000 a month and seldom accesses digital platforms for bank transactions.

Record levels of Sensex, we all know, do not reflect the true state of the economy. With real estate giving no returns and interest rates down, the only option for investors is in equities. This is risky because once the bubble bursts investors will be badly hurt. more> https://goo.gl/PjHNHq

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The resilience of the VIP

By Santosh Desai – By itself, the ability to claim the right to quicker passage in traffic, is privilege enough, but in this case, the siren as symbol was far more potent.

It signified a sense of screaming impatience with the very people that those in these vehicles were meant to represent. It identified people as the problem and power as the solution. By visibly identifying the special, it made everyone else ordinary.

Can one mere new rule change a time honored practice?

The whole point of reaching a position of power is to get the beacon, wangle some security and to hurtle past toll booths without paying.

As long as the principle that underpins this action is not challenged at a fundamental level, banning one action is bound to end up as a token nod to a half-hearted intent.

There can be no piece-meal approach to this problem. We cannot have a separate protocol for VIP handling for at airports. We cannot keep thinking of the waiver of frisking during airport security as a privilege, we cannot allow officials to put their designations on their car registration plates.

The extent to which this behavior is considered normal can be gauged by how easily and publicly a self-important high official can start groveling the moment someone even higher appears on the scene. The tableau of an untidy gaggle of people alternating between barking orders at underlings and groveling energetically in the direction of the presiding deity is a common sight. more> https://goo.gl/kTfYHk

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Irresponsible politics

EVMs (electronic voting machines) are a positive election reform, they can be further improved through VVPAT (Voter Verified Paper Audit Trail)
Times of India – Parties would do well to revisit India’s election experiences prior to widespread use of EVMs. Violence was common as parties used muscle power to seize booths and engage in ballot box stuffing. Furthermore, in tight contests results were vitiated as ballots that were ambiguously stamped would be declared invalid. These problems were overcome with the advent of EVMs and the level of violence associated with elections has substantially declined.

Among other positive spin-offs are an increase in the speed with which the process can be completed and a control of costs. Overall levels of crime too may have declined, as parties no longer need to nurture armies of goons to influence the political process.

While the advent of EVMs undoubtedly represents a change for the better, there is justification for the demand that electronic votes leave a paper trail that is easier to audit should the vote be challenged later.

In this context, it is welcome that Supreme Court yesterday (Apr 13) asked government to respond early next month in a case where litigants want compliance with the apex court’s 2013 directive to introduce paper trail in EVMs. Voter Verified Paper Audit Trail (VVPAT) is a system where a voter has the comfort of additional feedback. This will hopefully put an end to the unfortunate tendency of losers blaming the ballot box. more> https://goo.gl/EL68OC

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Economic development assistance is debt trap

The Times of India feature, “A ‘Risky’ State of Affairs,” (Oct. 18, 2016) describes the dismal state of development projects in Kerala.

The report says, “A comparison of the World Bank’s rating for its projects in Kerala and other southern Indian states show that risk factor is ‘substantial’ for two categories in Kerala – ‘Political and Governance’ and ‘Institutional Capacity for Implementation and Sustainability.’

“What is worrying is the ‘substantial’ SORT (Systematic Operations Risk Rating Tool) rating for two aspects of the on-going World Bank part-funded Kerala State Transport Project – 2 (KSTP-2), a five-year project which began in July 2013. The International Bank for Reconstruction and Development (World Bank) is funding $216 million of the total expected cost of $445 million.

“World Bank officials might downplay the substantial risk rating as the Kerala Government is their client and the bank couldn’t survive alienating its clients.” a policy maker commented on conditions of anonymity.

“According to the document, these aspects pose governance challenges to the current project: political interference in project implementation, poor quality of works, delayed payments to contractors, delayed decision-making, repeated termination and rebidding of contracts, poor sustainability arrangements for roads and lack of mechanisms for adequate citizen feedback and public disclosure.

“There is a substantial likelihood that weak institutional capacity for implementing and sustaining the operation or operational engagement may adversely impact the project development outcome. The implementing agencies have limited experience with bank and other multilateral development partner operations. The implementing agencies have some in-house capacity, but external consultants play an important role in the design and day-to-day operation implementation. Staff turnover is substantial and they have limited access to relevant training. There are significant gaps in the agencies’ monitoring and evaluation of arrangements, and the lines of accountability are somewhat unclear.”

“How many of bureaucrats have the expertise to see these projects thought?” asks D Narayana, director, Gulati Institute of Finance Taxation. “First thing they need is this expertise and then commitment.”

Even in the World Bank’s restrained language, the problems facing development projects in Kerala are clear: institutional capability deficits, lack of expertise among bureaucrats, lack of management skills, lack of dedication, and corruption.

It is not difficult to trace the causes of these problems. The problem starts with education. Kerala Government has full control of the quality of the education in the state – and the goal is to ensure uniform mediocrity. For example, recently there is a new initiative to offer WiFi in schools. However, such cosmetic efforts will not result in the skills needed for a vibrant economy. Studies have found that computers, smartphones and internet can be an inhibitor for learning. Fundamental education reforms are essential for effective functioning of the state economy. For instance, OECD recommends, “Governments should develop smart innovation strategies for education with the right policy mix to give meaning and purpose to innovation, including creating an innovation-friendly culture.”

Kerala Government and its agencies need change of mindset to bring real benefits from development projects. Here is an outline of a typical process for a development project.

  1. Target an agency to get loan from.
  2. Find a consultant who can prepare a proposal that will be accepted by the funding agency.
  3. Once the loan is approved, find another consultant to manage the project.
  4. Hire other consultants to implement the project.
    (In practice, there may be additional creative steps.)

The result of this process is that the supervising agency does not have the skills, know-how or expertise needed to supervise the project successfully — a problem identified in the World Bank report. In addition, the process inhibits the supervising agencies from acquiring essential expertise and know-how for effective project implementation (institutional capacity).

Kerala Government has so far received development loans from World bank, ADB, governments of Japan, France, Germany and others. Some of them are in the early stages. Projects that are due for completion share the fate of the World Bank KSTP-2 project or worse.

The situation with these development loans is all the more deplorable because there is no need for these loans in the first place. Kerala has huge amount of bank deposits and gold holdings to finance these projects and more. The problem is people (depositors) don’t trust the Kerala Government with their money. Instead, Kerala Government goes to these development agencies for loans to squander away, without accountability — as the World Bank has identified.

The economic development agencies — World Bank, ADB (Asian Development Bank [2]), governments of Japan [2], France [2], Germany [2] — are doing a disservice to the people of Kerala by giving loans to Kerala Government and its agencies by helping politicians and bureaucrats escape accountability.

What Kerala needs is assistance with institutional capability and capacity building. The priority for the economic development agencies need to be helping with institutional capacity building, not loans. Otherwise, they are just helping Kerala Government get deeper into the debt trap it is in.

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