Made in China 2025 and Make In India
Author: Lt Gen S L Narasimhan (Retd)
India and China not only follow different paths for their economic growth, they also do the same to improve the manufacturing capability, says noted China expert, Lt Gen S L Narasimhan (Retd).
China has been growing economically at a blistering pace for the last about 40 years. Even though her growth has reduced due to the global recession that occurred in 2008, she is still growing at the rate of approximately 6.5 – 7%. Assessing the economic growth of a country merely by the percentage of GDP growth is fraught with danger.
What one needs to understand is that when China’s GDP grows at the rate of 6.9% (2015), the growth is calculated over its $ 11.4 trillion economy. It implies that she has grown by $ 787 billion in that year. When India grows at 7.6% (in 2016) it implies she has grown by $ 175 billion because her economy is pegged at approximately $ 2.30 trillion. Both these countries have adopted different models for their economic growth.
China adopted a model of being the world’s workshop due to availability of cheap labour, electricity and raw material. Therefore, her economic growth was dependent on exports. However, she was concentrating on low end products. In contrast, India adopted a growth model of service oriented economy combined with domestic consumption.
Therefore, when the recession occurred in 2008, triggered by an unsustainable subprime lending in the USA, China was affected by it more. Though it also affected India, the effect was muted compared to China. But one thing was clear from the effects of the recession. It is the fact that both countries should look inwards and improve the manufacturing in their respective countries.
In 2006, India’s National Manufacturing Competitiveness Council (NMCC) prepared a national “Strategy for Manufacturing” under the directions of the first United Progressive Alliance (UPA) Government. Though many of the suggestions of the NMCC were incorporated in the 12 th Five Year Plan Strategy, the UPA government was not able to give the necessary impetus to the strategy. Therefore, it remained a still born baby till the UPA Government lost power in 2014. A good eight years were wasted.
When the present government came to power in May 2014, the Purchasing Managers Index (PMI) was at 51.5. PMI above 50 indicates growth. At 51.5 the index indicated that the growth in manufacturing was minimal. Moreover, India got the tag of being the biggest importer of arms for the period from 2011 to 2015. From 2000 to 2015 India had imported approximately US$ 120 billion worh of arms and equipment. This was because India’s arms industry had largely failed to produce competitive indigenously-designed weapons. The Defence Research and Development Organisation also did not live up to the expectations of the country.
That is when the government realised that it is important to give a boost to manufacturing in general and develop the capability for indigenous production of arms and equipment that her armed forces needed. On 25 September 2014, Prime Minister Narendra Modi announced the Make in India programme. After the programme was launched, India received US$ 63 Billion in Foreign Direct Investment in 2015. This figure made India the most favoured destination for investment ahead of the USA and China. Make in India programme is aimed at improving creation of jobs and skill development and enhancement in 25 sectors of India’s economy. The initiative also aims at maintaining high standards in the quality of products and minimising the impact on the environment. Mr Modi gave importance to this aspect with the slogan, “Zero Defect, Zero Effect”. By zero effect he meant that the quality of the products has to be very high and by zero effect he meant that there should be no adverse effect on the environment by manufacturing.
When all this was happening in India, China announced a policy called Made in China 2025 on 19 May 2015. GDP growth of China in 2014 was 7.3% and reducing. During the APEC Meeting in November 2015, Mr Xi Jinping said, “A new normal of China’s economy has emerged with several notable features. First, the economy has shifted gear from the previous high speed to a medium-to- high speed growth. Second, the economic structure is constantly improved and upgraded. Third, the economy is increasingly driven by innovation instead of input and investment”. It was an acknowledgement that the hey days of the double digit growth that China experienced for over three decades were over and China needs to get adjusted to a reduced growth of approximately 7% per annum.
After the recession, China felt the need to improve domestic consumption and also was looking to improve the manufacturing in the country. At that time the manufacturing sector was suffering from the problems of rising labour costs, environmental issues, resources and reduction in exports. Since the economic growth model was dependent on exports, the effects were severe. In order to overcome these problems, China brought out a Made in China 2025 policy on 19 May 2015. The question of whether or not China observed the Make in India programme before she came out with her programme can be set to rest by the fact that her programme for improving manufacturing in China was thought about earlier than the announcement of Make in India. However, it was given the necessary push only after Mr Li Keqiang, Premier of China, made a statement during the delivery of the 2015 Annual Government Work Report in March 2015 that, “We will implement ‘Made in China 2025’ strategy, seek innovation driven development, apply smart technologies, strengthen foundation, pursue green development and redouble our efforts to upgrade China from a manufacturer of quantity to one of quality.” It was further discussed in Lianghui 2015, the annual plenary meetings of China’s top legislative and consultative bodies, the National People’s Congress and the National People’s Consultative Conference in March 2015. China has identified 10 sectors that will be addressed in this plan.
Whether or not these plans have worked for India and China respectively needs to be seen critically. Therefore, in a series of three articles, it is intended to cover Make in India, Made in China 2025 and a comparison between the two. This is the first article of that trilogy.