India and industrialization

32 Comments

The question: why does China produce and export so much more than India does ? At the coarsest granularity, the answer comes down to demographics, distance and war.

Demographics: India and China may have similar populations today, but the size of China’s labor force is still around twice that of India’s. This is because of the different ways in which the two countries transitioned to low fertility. China had a huge surge in population growth after WW2, but its fertility fell dramatically in the 1970s. This has given it a huge pool of workers, nearly a billion, but their number will fall off equally rapidly in the coming years.

In contrast, India will never as many workers as China does today, but will have the largest workforce of any country for a long time. India’s transition to low fertility has been steady and smooth. Basically India’s labour force time series will be flatter with a lower peak, as compared to China’s sharp curve with a higher peak.

Distance: Distance matters. A lot. Within India itself, villages within 5km distance from an urban area became 20% richer between 1993 and 2005, whereas those more than 10 km away became 2% poorer in the same period. Wealth clusters, rich countries tend to clump together in Western Europe and East Asia. The same is true for the rich states of the American North East.

China benefited enormously from being proximate to Japan, Korea and Taiwan (total population 220 million). They were already plugged into the American led rich world, and China entered this network via its contacts with them. For India, the rich countries nearby were the oil rich Gulf states, and we did benefit from them via remittances. But these desperately underpopulated countries cannot be compared to places like Japan that experienced massive industrialization in the early 20th century.

War: Among the top industrial powers in the world, China ranks first, but this is mainly due to low tech goods and high tech reexports. But after China, the countries are the US, Japan and Germany. In fact, they were the leading industrial powers since WW2. (India, by the way is sixth after Korea).

The American economy expanded by a factor of 3 in the decade of the WW2. Even though Germany and Japan were devastated, the hysteresis effects from the large scale industrialization that fighting modern, mechanized wars remained. They had the will and memory to industrialize again.

India has also seen military conflict, but this has remained confined to its margins. We have just never experienced ‘war time’ economy and discipline for long periods of time.

If Indians wanted large scale industrialization, they would demand it. But they dont. They demand everything from reservations to train routes to temples. Perhaps, the payoff from industrialization for workers is not as great as our chattering classes like to think. Foxconn factory workers in Sri City make half the salary of a maid in nearby Chennai. For many families, a second child is a better investment over the long term than the temporary boost in income from the woman working a factory job.

Trying to become the ‘next China’ is not desirable at all, we have to find ways of increasing our service exports, and improving our agro productivity.

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32 Replies to “India and industrialization”

  1. “Trying to become the ‘next China’ is not desirable at all, we have to find ways of increasing our service exports, and improving our agro productivity.”

    Don’t you think there’s a lot of value in being able to make things?

    We are seeing that even now as countries like Germany and South Korea manage the pandemic much better than more services driven ones like the US.

    1. There is some value in making things, but pound for pound it is much lower than the value in providing services.

      The economies of Germany and South Korea exist to provide goods to the US. Household consumption expenditure in the US is three times that of Korea and 1.5 times that of Germany.

      You will find way more Germans in US academia, Silicon Valley and New York than Americans in Germany.

      The mantra of the US economy is “you dont even know what you can want”. Amercians are constantly looking to create new ways to make others live longer and better. This is not a mindset you will find in manufacturing oriented countries.

  2. And speaking of manufacturing, no German or Korean car maker will make a car like the Model 3 for at least a decade, if ever.

    The OLED tvs might say made in Korea or Japan, but the IP for how to make an OLED is held by a company in New York.

    Sony might make Playstations, and Samsung might make smartphones, but the most expensive components for these electronics are designed in the US (AMD, Qualcomm, Nvidia, Intel etc, Corning). And the machines that make these components are designed and made in the USA (Applied Materials, LAM Research).

    Dont even get started about medical equipment and pharmaceuticals and software. There is a reason why the US stock market has outperformed every single market on Earth for decades.

    1. @Vikram

      Americans despite holding the IP cannot manufacture it cost-effectively even if they wanted to and no one in India has any dream of ever beating them in IP creation. Indian service industry is not in the business of doing R&D or creating IP either. Why should we celebrate American victories? Our problem is that we don’t(may never) have the brain to produce IP like Nvidia, AMD, Xilinx nor can we manufacture stuff like China/Japan/Korea. It is not that all our people are already employed in service sector that we can’t send a few into manufacturing. We have hundreds of millions of unemployed people.

      I have commented on multiple occasions about Tesla, the gist is that Autonomy algorithms/hardware will be standardized across manufacturers eventually. It has to, the chain is as strong as the weakest link same is true for road safety. On paper/testing Waymo (Google) is(?) ahead of Tesla and one day they will make a product like Android for cars. Even if I am wrong then too Uber, Ford etc are NOT far behind. There can be an argument made in favor of Tesla on the lines that Apple is inherently superior to Samsung but I don’t buy it. Most of this is just Tesla’s marketing hype. A lot of manufacturers have electric drive-trains that are as good/better than Tesla.

  3. Nothing gonna change till India is a democracy. That’s the required but not the sufficient condition.

    And India will most likely remain a democracy (thank god for that).

    1. Currently India has no choice but to be a democracy given its insufficiently developed sense of nationhood. Being Indian isn’t the strong glue that being Chinese is, where any resentment against Communist dictatorship is countered by the sense of being one nation (except in Tibet and Xinjiang which aren’t central to Chinese economy).
      The Modi ‘doctrine’ is to address this insufficient sense of being a nation and may one day put India on the path to dictatorship. But hopefully by then, it will be too late to put the democratic genie back in the bottle.

      1. Well could be. But my point was something larger. Everyone talks about the reasons how China became China, from manpower to HDI etc, but conveniently skirting that one thing (in my view THE most important thing for any nation) and that’s their political system.

        1. Why arent other autocracies that rich then ? Or arent getting richer ?

          The first country to really get rich in the world was England, and they have had a totally free press since the 1600s.

          1. As i said , Autocracy is no guarantee of being rich. But it has been pre-cursor in almost all the cases. The history of SE and E Asia is laden with these examples.

        2. China before Deng Xiaoping and after Deng Xiaoping had a very similar political system. It was the economic system that changed drastically, and which produced results. Also, the openness to foreign trade and supply-chains.

          During Mao’s time, it could be said that China was trying the “Thanos” option (forgive me; the Avenger movies appear on cable almost everyday): kill a lot of people, or let a lot of them die, so that the remaining ones can aspire to something better. Come to think of it, the one-child policy seems to have been driven by a similar mentality.

        3. I hope that Correlation is not equated to causation. Otherwise India will get none of the economic boost that china has. Instead 2X of social problems and disharmony.(not that anyone here is seeking change to autocracy/ one party system in India)
          Democracy + federalism is best bet for India. If we could concentrate on better work ethic + discipline and de-hypenate profession & social status as mentioned in comments we may have a chance.

  4. It’s not just all those reasons, check out the statistics for literacy (data from Knoema):

    1981/82 – China 65.5, India 40.8 | diff. 24.7%
    1990/91 – China 77.8, India 48.2 | diff. 29.6%
    2000/01 – China 90.9, India 61.0 | diff. 29.9%
    2010/11 – China 95.1, India 69.3 | diff. 25.8%

    China’s maintained a roughly 25-30% lead in literacy since the 1970s onwards. This does lead to a qualitative change in the working-class population who can be trained to deal with more complex industrial production or agricultural cultivation methods.

    That’s only the beginning, we haven’t yet come to labour laws, competitiveness, security for business, land acquisition, female participation, availability of power, water, and infrastructure, and other stuff that isn’t demography related. If I want to set up an industry in Uttar Pradesh or Bihar, I need to know if the factory will be safe, the workers will come to work and not strike or go on a bandh, will I get regular power and good roads for transport, and if I need to deal with reservations or not. Might as well set it up in Jiangsu province where I don’t have to worry about all that, notwithstanding the higher labour costs.

    (Yes, I know that isn’t a fair comparison, and Jiangsu should be compared to coastal states like Gujarat or Tamil Nadu, but it’s the inner Hindi belt that’s having most of the problems and unless they’re at least in the same ballpark competitively they won’t be getting foreign industries.)

    “If Indians wanted large scale industrialization, they would demand it. But they dont. They demand everything from reservations to train routes to temples.”

    Industrial policy isn’t determined by people living on the margins, these are things are decided at top-level government/ bureaucracy/ think-tank/ university level, it’s the job of those at the upper echelons to figure these things out along with effective policy and implement these decisions in tandem with local governments after explaining and making it palatable to the populace.

    The everyday voter can’t be expected to know about the nitty-gritty of how a country functions, the average Chinese farmer in the 1970s wouldn’t know much about industry, it’s the government that would tell him to go work in a factory. As for the demands for reservation, it would get more subdued if there were actually more jobs to go about and average Joe wouldn’t need to fight for every last government position.

    1. @Ronen
      We have clowns like Adityanath and Keshav Prasad Maurya leading the charge towards industrialization in the largest state.

      “That’s only the beginning, we haven’t yet come to labour laws, competitiveness, security for business, land acquisition, female participation, availability of power, water, and infrastructure”

      I have so much to say on this and how difficult it is to run a manufacturing business in UP but it would become a rant. Lets focus on finding answers/solutions and make things better.

    2. I am skeptical of Chinese literacy numbers. Had a discussion with a few folks about this earlier, posting from that:

      “If there is indeed such a vast difference in literacy rates, I am curious to know why the number of newspapers sold in India and China are about the same. In fact, a lot of the growth in newspaper circulation in China has occurred fairly recently, and in per capita terms, its circulation is still about 25% lower than India’s. It should also be noted that the number of news publishing organizations in India is more than 3 times that in China.

      Note that within India, newspaper circulation is strongly correlated with literacy rates.

      If anything, this seems to indicate that it is China’s literacy rates that are exxagerated.”

      Data and references: World Press Report 2014 (WAN-IFRA)
      Correlation between newspaper circulation and literacy rates: http://public.econ.duke.edu/~psarcidi/lunchf08/besburgess.pdf

      1. Very few believe China reports anything as it is based on truth rather than what is required according to people in charge.

        Number of Newspapers & their circulation might not be the best to track literacy. Since it is associated with a much more important entity : information. Free flow of information is not seen as lightly I guess. So how many newspapers exist or are allowed to operate is governed by more than just economics of consumption.

        1. Yes, and thats why its likely China’s literacy numbers were probably lower than what they were reporting earlier.

    3. You forgot to mention the other thing that China has and India lacks – labor that is ready to work 15 hours per day and bunk in containers placed on the factory roof. What China doesn’t have – labor laws, political unions and environmental regulations – India has.

      1. This is true, but we need to understand how truly isolated we are (especially our interior areas). Our elite’s proficiency in English prevents them from feeling and experiencing the economic isolation India’s masses face.

        One option is to expand our network to the manufacturing centres of East Asia, this will be hard and will necessitate an attenuation of our political and psychological freedoms.

        The other is to deepen the network we already have, namely the US and Gulf states.

  5. “Trying to become the ‘next China’ is not desirable at all, we have to find ways of increasing our service exports, and improving our agro productivity.”

    High agro productivity => fewer people working in agriculture.

    Where does all of that semi-skilled, semi-literate labour go ?

    Manufacturing could be a nice stop gap, as it has been in other countries.

  6. What about most people don’t willing to work in factories/manufacturing etc. Seems like everyone wants to become IAS or Crack UPSC. This is an argument I’ve heard. Most people want to become a Developer etc i.e Computer Science field and even people from other branches such as electronics/electrical/mechanical lead to a shortage in skilled people in one trade and abundance of people who want to sit in AC room developing something.

  7. The non-emphasis on manufacturing in India probably stems from many factors, none of which have to do with crackpot theories like Indians being talkers not doers. To me it comes mainly down to a lack of hands-on training and overemphasis on theory even in the best engineering colleges which do not struggle for lab funding. The polytechnic education scene is almost dead except in a few places like TN, and most youth would rather chase white collar dreams rather than get their hands dirty in a plant. There’s probably a deeper reason for this, which I think boils down an association of manual work with low class/caste, and there being no dignity of labour. A good tradesman like a carpenter or plumber in Mumbai for example is very hard to come by and can cost a fortune, which is strange when there’s no dearth of underemployed youth and the relative low cost of trade training.

    There’s good news for places like UP in the near term –
    https://anchor.fm/bharatvaarta/episodes/3—Bharatvaarta—Uttar-Pradesh–Governance-aspects-covering-development–infrastructure–law-and-order-and-healthcare-ebav87
    But looking at this through the lens of infrastructure only is probably not the full picture, as unless the education system is revamped and human capital developed the emphasis on roads, rail, etc. will only go so far.

    In my brief experience of working in assembly plants in Chennai, Hosur and Pune, I found the shop floor workers in TN were competent, kept their heads down and got things done. They were quickly able to react to complex information, drawings, etc. and were all products of polytechnic training delivered in their mother tongues. Maybe that’s the way forward.

    And finally, maybe India may never become globally competitive at the scale of China, but import substitution for the domestic market is still a good prospect if localised manufacturing centres of excellence are developed and local know-how tapped into. For example – Aligarh for locks, Bidar for Brassware, etc.

  8. Factors like laws, government efficiency and quality of labour force are indeed important, but they are second order effects compared to networking and historical contigencies.

    We succeeded in IT, because the electronic nature of the trade neutralized our distance disadvantage and our proficiency in English bought us a proximity to the US that even its Western kin in non-Anglo Europe dont enjoy.

    Outsourced manufacturing is a race to the bottom. Any growth model in which authoritarian countries like China and Vietnam are our competitors will necessarily harm our democracy and will bring minimal gains to our mass workforce. Thats the whole idea of outsourced manufacturing. There are too many desperate, suppressed people whose leaders can compel them to become automatons assembling manufactured wares.

    There is a huge medical outsourcing opportunity in the US. Surgeries that cost $50,000 in the US can be done for a tenth of the cost in India. We have to get creative as to how to attract Americans to India for health care while giving them the security and familiarity of their health laws and standards.

    Japan has signed labor import agreements with many countries in Asia including Nepal and Myanmar. But India has not been included. We have to lean on Japan to include us in this agreement.

  9. Factors like laws, government efficiency and quality of labour force are indeed important, but they are second order effects compared to networks and historical contingencies.

    We succeeded in IT, because the electronic nature of the trade neutralized our distance disadvantage. On the other hand, our proficiency in English bought us a proximity to the US that even its Western kin in non-Anglo Europe dont enjoy.

    Outsourced manufacturing is a race to the bottom. Any growth model in which authoritarian countries like China and Vietnam are our competitors will necessarily harm our democracy and will bring minimal gains to our mass workforce.

    There is a huge medical outsourcing opportunity in the US. Surgeries that cost $50,000 in the US can be done for a tenth of the cost in India. We have to get creative as to how to attract Americans to India for health care, while giving them the security and familiarity of their health laws and standards.

    In other areas, Japan has signed labor import agreements with many countries in Asia including Nepal and Myanmar. But India has not been included. We have to lean on Japan to include us in this agreement.

    On agro, we need to target becoming the largest exporter of fruits, vegetables and meat in the world. Labor is increasingly the limiting variable in agro production (notice how US scrambled to make H2 visa workers ‘essential’), and we have abundant labor resources in our rural areas. Our democracy and lack of war has ensured that our rural society did not collapse like nearly every other society on Earth.

    1. Rightly said Agriculture is the backbone of India.
      How come be India become the largest meat exporter of India?
      It’s the second largest beef exporter ( Is the source mostly from bull/ox or female? )
      Still India is largest exporter of several grains ,spices and Vegetables.

      The main problem with college structure is that the MNC’S for trade other than CS/IT are scarce and don’t provide adequate money. That is one of the reason people switch to Desk Jobs i think.

      The waste management system of India is absolutely abysmal and unchanged since i was a kid. Now the sewage sucking is done by machines in big cities but in small societies/rural the sewage is done by manual labor without use of any safety equipment.

      I agree with the vernacular learning or any other related. Regional language can help people . Because if a average person yhinks in lets say hindi and have to write or understand english have to do double translation in his/her mind.

      It’s all about that government. No private!!

      1. Indigenising learning is so important. I’ve worked closely with people through the spectrum of english proficiency. the aptitude of common folk is profoundly underestimated in the english setting, we have failed them. The “double translation” of concepts is an extraordinary lag on thought. We only think of the success stories and project that possibility onto everybody, rather than see that kind of language acquisition as a specific talent.

        1. Unfortunately proficiency in English is often confused with knowledge of subject in India.
          Dual language schools (mothertongue + English) where mothertongue is used to assist in initial years could be of help.
          Also double translation doesnt help in any case. One needs to think in same language he /she is speaking. Everything else affects one’s efficiency/capabilities.

  10. We need to teach kids in college how to write a good patent based on prior examples of a particular field. It needs to become a STEM course. I learned only when I was in my 30s. It is key to industrial manufacturing that goes beyond copying. This is the biggest bottleneck. Engineers solve problems but do not transition to creating new ideas and IP from problems solved. We also need to build ecosystems that prototype inventions. Small step in learning but a giant leap in productivity. This is what Indians are good at in the US, why not India? We also need to strengthen patent laws and enforcement in India.

  11. “If Indians wanted large scale industrialization, they would demand it. But they dont.”

    We need new behavioral approaches for Indian industrialization. The new business process innovations have behavioral models more compatible for Indians. These need to be operationalized within manufacturing. These include how we source, manufacture and franchise in manufacturing- creating incentives all along the supply to sale chain creates micro incentives that are needed for Indians who do not have ‘automaton’ personalities…. we know that on this blog.

  12. India was the most industrialised country in the 15th century. To understand the current state, it is important to analyse the “forced de-industrialisation¨ of India during the colonial period. Look it up – it even has a Wikipedia page devoted to it.

    The numbers for FY2019-20 India’s external trade are –

    Trade merchandise deficit – 152.88 billion USD
    Services trade inflow – 82.72 billion USD
    Overall deficit – 70.16 billion USD

    This works out to a rather paltry import consumption of 215 USD per year per family (4 people). Looked in totality, India is at a stage where it is self-sufficient in capital goods and consumption goods. Intermediate goods is where the bulk of deficit happens (crude oil).

    The inflection point has been crossed in Services due to multiple tailwinds. The goods and merchandise sector suffers from historical apathy and colonial actions that led to erosion of human capital, social memories, network effects, loss of a critical mass in communal heuristics. But I believe India is now firmly on the path of a regenerative slope. It will take a couple of decades more.

    Literacy, labor laws, training – these are all the proverbial iceberg top.

  13. I fundamentally disagree with the 2 of the 3 points listed in the orignal post.

    Demography is not Destiny.

    People are going to find out this stark & harsh reality in coming years/decades, because they don’t want to learn the realistic lessons of history since it doesn’t align with their positive/addictive visions/hopes/wishes borne out of looking at on-paper projections of good Demography inevitably leading to future growth, progress and development.

    India’s Demographic Dividend is highly staggered.

    Distance Point.

    This argument is just ridiculous. China and India were both Land Powers and Civilizations. They were not Thalassocracies. China’s population mass movement from North China central plains to coastal is a modern phenomena which happened over the last 150 years. India never made that change and is thus still a Land State since mass of population is way inland.

    A way better argument for India’s Population mass dynamic can be made using the Freight Equalisation Policy.

    If Earth was unpopulated by a sentient species and Humans came on a ship, they would most likely Pick India as the land to settle on. That is how great Indian Geo-Strategic advantage is. Good stable weather, free from Earthquakes, plenty of rivers and water, insanely productive land (the single longest/biggest arable plain on face of the earth is Indus-Gangetic-Brahmputra Belt, its bigger in size than even North China Plain), protection from Northern winds, natural boundary on all sides barring 1 and 2 coasts leading to Ocean coasts of Africa and SEA.

    This is the jackpot and even the ill-implemented FEP was in essence made on the hypothetical understanding that Coasts are where the action in the Modern globalized world is(which was the correct interpretation). East Asia is insanely distant from Europe and North American East coast. India had the right geography, it just had a Population Mass distribution problem which it couldn’t solve and will not likely solve because the idea that TN, KR, MH, AP are going to absorb 200 Million+ UP, Bihar, MP people is beyond absurd and can only be made by outsiders who don’t understand internal Indian ground reality.

    Meaning Geography is also not Destiny.

    On 3rd point of War.

    This I actually agree with. Since Independence India has in totality (combined over time but not necessarily concurrently) had to wrestle with close to 25% of its territory engulfed in some form of serious Political strife (separatism, terrorism, open revolt against the Republic, etc) which acts as a huge strain on the Centre’s already stretched capabilities. This has hurt India without a doubt but not to the extent that it can be slotted as having like 30-50% share of 100% (which here means the total share of blames/reasons why India got left behind).

    —–

    There is no Universal, Absolute way to Develop. Such a thing Does Not Exist. However there are certain pre-conditions which are necessary and without which the process can not reach fruition.

    And primary among them is Competent Leadership (which can be of 1 or many, doesn’t matter). No human group (which is what a society and thus a country ultimately is) was/is successful (to the extent we are framing it, just surviving is not successful in this context) without having a Good/Competent Leadership.

    Next is Governance System. No Democracy in human history went from starting out, poor, newly formed, etc to Developed, having made it all under Democracy. NONE.

    Functionally and in Real terms, India is an Older True Democracy than USA, given that India had Real Practical Universal Suffrage more than a decade before US had it in mid 60s. India had already conducted a dozen elections by the time US became a real Democracy.

    One can’t use the argument that but US was democratic by 19th century standards because then one is Re-framing what one means by Development Under a Governance System. Development is Development and Governance System of a certain kind needs to be compared to a similar one for purposes of fair analysis.

    After all this comes Policies, like Land Reforms (which are also a pre-requisite), law and order, literacy and health and Urbanization (which is the growth engine of Chinese/Asian Tigers Model and one which India has also chosen and time will tell if this is the right approach).

    If India achieves success in coming decades and becomes Developed, it would have become the First and Only country in this planets post-Human-Civilization history to have done it this way. But that would not mean these pre-requisites would be upended. Exception still would have proven the rule for everyone else. India is an exceptional experiment but it missed huge fundamental approaches post Independence. Even now it is not capitalizing despite all the advantages of modern knowledge base.

    —-

    P.S. This comment is not meant to suggest India should use Chinese model, in fact India can not use this model (esp political) because time for that change is long gone and due to the current Demographic situation India is under, a political upheaval will waste the short probable advantage it does have. Meaning India will just have to slug it out.

  14. “India was the most industrialised country in the 15th century. To understand the current state, it is important to analyse the “forced de-industrialisation¨ of India during the colonial period. Look it up – it even has a Wikipedia page devoted to it.”
    Indeed, however the estimates are that the world GDP increased by a factor of 10 from 1AD to 1700AD and by 10000 from 1700 till now mainly because of patent laws and moving away from natural resource driven economies to human capital. The industrialization or deindustrialization before 1700 was a drop in the bucket relative to accumulated world GDP. The opportunity is now….

  15. I think this is totally wrong. For the simple reason that India is not losing out to just China but also to Vietnam. https://www.financialexpress.com/opinion/can-india-learn-from-vietnam-how-to-manage-export-led-growth/1679079/

    The reason why China in particular but “confucian” states in general (Vietnam, Korea and Japan) are able to mount such effective export-based growht is:

    1. homogeneity and effective state – Both these forces feed into each. While India is always bothered with getting the right mix of identities, castes and religion at the top; homogenous state for most part can focus on merit and merit alone – and thereby have the smartest people running things. If India did that, there would be too many Brahmins which would be scandalous for most parties. The tradition of a strong bureaucratic state in the Sinic world also helps

    2. Effective State allows a systematic industrial policy – THIS IS THE REAL REASON WHY. India’s attempts at industrial policy have been poor because they are ill-thought and ill-conceived (like Brazil and Malaysia). The is different in the Chinese world.

    3. Land and Labour (de) regulation: Unlike India where everything is litigated and re-litigated – this obviously is not the case with the Sinic World – with their lack of democracy, their disregard for human rights etc. in service of industrialisation.

    Also most importantly, industrialisation is NEVER and has NEVER been demanded. It is always a product of a top-down elite push. Because it is honestly one of the most painful things a country can undergo.

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