Speaker 1: Welcome to Kobe Time, a podcast series on Markets and
Speaker 1: Economies from D BS Group Research. I'm Tambe, chief economist,
Speaker 1: welcoming you to our 134th episode.
Speaker 1: We had Vasuki Shastri on Kobe Time back in the
Speaker 1: spring of 2021 on episode 51. At that time, we
Speaker 1: talked about the challenges for developing Asia drawing from his
Speaker 1: book has Asia lost its dynamic past turbulent future. Uh
Speaker 1: But today's podcast is focused on India Basuki and a
Speaker 1: number of other economists and analysts have lately been thinking
Speaker 1: hard about India's potential
Speaker 1: which can arguably only be realized through large scale manufacturing
Speaker 1: and uh manufacturing, lead value addition and uh employment creation.
Speaker 1: Uh I'm looking forward to this conversation because this issue
Speaker 1: is also close to my heart and some of the
Speaker 1: ideas that Basuki has put out in some of the
Speaker 1: articles that he's published recently. They have resonated with me tremendously.
Speaker 1: Uh Vasuki Shari is a senior advisor at Gatehouse advisory partners,
Speaker 1: a Geostrategic consulting firm. He was formerly with the IMF
Speaker 1: Standard Chartered Bank and the Boundary Authority of Singapore.
Speaker 1: He serves on the advisory Council of Chatham House and
Speaker 1: the Institute of Human Rights and Business. He's the author
Speaker 1: of three books, I've already mentioned one of them as
Speaker 1: Asia lost it. But also in 2018, he had published
Speaker 1: resurgent Indonesia from crisis to confidence that that can be
Speaker 1: another podcast another day. And also his book from last year,
Speaker 1: The Notorious ESGV Shastri. Welcome back to COVID time.
Speaker 2: I'm delighted to be here, Taimur, it's been, been a
Speaker 2: long time. Uh But, you know, absolutely delighted that you've
Speaker 2: kept uh the podcast going and I listened to many
Speaker 2: of them. They're really, really interesting and living far away
Speaker 2: from Asia. It's a fascinating window for me on developments
Speaker 2: on the ground.
Speaker 1: Uh Thanks for your kind words, Vasuki. It's people like
Speaker 1: you who make it happen. So I'm grateful that you're
Speaker 1: back on the podcast. Um Vasuki, let's get right to
Speaker 1: the heart of the matter. Um We are approaching the
Speaker 1: 10th anniversary of make in India, help us take stock,
Speaker 1: uh what is making India and how has it evolved?
Speaker 2: Yeah, I think there's a historic backdrop as to why
Speaker 2: Prime Minister Modi within three months of assuming office in 2014,
Speaker 2: uh decided essentially to reconfigure the Indian economy, which still
Speaker 2: is and still was at that time, heavily dependent on
Speaker 2: consumption and services. There was a deeply held belief in
Speaker 2: the policy community in India and this dates back many
Speaker 2: decades that,
Speaker 2: you know, we wouldn't, probably wouldn't be having this conversation
Speaker 2: if India's state owned enterprises had delivered value, had captured
Speaker 2: a greater share of GDP over a period of time,
Speaker 2: you know, they were placed in the commanding heights of
Speaker 2: the economy for many decades. Uh they faltered, many of
Speaker 2: them failed. So there was a sense of a need
Speaker 2: for renewal even in the early 19 nineties when India
Speaker 2: embarked on its reform journey,
Speaker 2: but I think it all came into place uh in
Speaker 2: a way in 2014, uh there was a sense that,
Speaker 2: you know Indian growth had been and particularly in the
Speaker 2: 19 nineties, 8% GDP. On average, there was a sense
Speaker 2: that this growth journey would end at some stage and
Speaker 2: you certainly needed to revive manufacturing, incentivized manufacturing. So in
Speaker 2: a very simple way, there were two concepts, uh two
Speaker 2: defining beliefs
Speaker 2: when making India was launched in September 2014 1st is
Speaker 2: of course, man drive manufacturing, increase its share of uh GDP.
Speaker 2: You know, it's in the low teens. Uh it's increased
Speaker 2: marginally over the past uh uh decade, we can talk
Speaker 2: about uh why
Speaker 2: and, and, and when uh of this concept and the
Speaker 2: second thing really is India's, you know, on one hand,
Speaker 2: demographic speed spot a billion people under the age of 30.
Speaker 2: But at the same time, you need to create those
Speaker 2: quality jobs for the estimated 8 to 10 million young
Speaker 2: people coming into the job market every year. And you know,
Speaker 2: at the outset that has been a failure and, and
Speaker 2: you know, the India's underemployment problem
Speaker 2: really poses social and political risks. And the fact that
Speaker 2: it has not happened is always a puzzle for me.
Speaker 2: So bringing it all together uh uh and, and to make,
Speaker 2: making India really, really attractive,
Speaker 2: the government really had to junk
Speaker 2: 5 to 6 decades of philosophy that you don't incentivize
Speaker 2: foreign investors. But you know that any incentives that are
Speaker 2: given at the margin, give it to the domestic private sector.
Speaker 2: But absolutely hold all of those incentives for the state. And,
Speaker 2: and so, you know, really unshackling uh that thinking
Speaker 2: and, and, and putting up the uh center that we're
Speaker 2: going to provide production linked incentives for foreign investors to
Speaker 2: come and make in India and to come and make
Speaker 2: in India in 25 sectors. Many of these are core
Speaker 2: what the government has identified as core industrial sectors, you know,
Speaker 2: advanced manufacturing, semiconductors, uh uh tele telecommunications, automobiles.
Speaker 2: So there was a great deal of ambition in these
Speaker 2: in this uh make in India project great deal of
Speaker 2: energy and enthusiasm on the part of the government to
Speaker 2: promote this. They promoted this ceaselessly across global platforms. You know,
Speaker 2: you saw Prime Minister Modi acting as salesperson in chief
Speaker 2: uh at Davos uh for example, you know, rubbing shoulders
Speaker 2: with the fortune 100 CEO S still.
Speaker 2: And, and I think it's useful as we uh uh
Speaker 2: uh take a deep dive to differentiate between the enthusiasm
Speaker 2: and the performance of making India in the first term
Speaker 2: of Mr Modi.
Speaker 2: And I think there's a differentiated set of performance in
Speaker 2: the second term. And the second term I think has
Speaker 2: been more problematic
Speaker 2: in terms of regulatory uh uh uh outcomes in terms
Speaker 2: of the sense that many in India have, particularly in
Speaker 2: the private sector,
Speaker 2: that this is not a level playing field. But that
Speaker 2: sense was not there in the first two or three years.
Speaker 2: And you know, you've got to remember this happened
Speaker 2: pre China us uh uh Cold War or trade tensions,
Speaker 2: whatever you might. So this happened at the time. Uh
Speaker 2: So this pre pre dated China's own uh make in
Speaker 2: China 2025 which is really focused on advanced manufacturing and
Speaker 2: really sent a scare in Europe and the us that
Speaker 2: China was catching up fast. So India was in that
Speaker 2: sweet spot
Speaker 2: and you know, the headline that I'd like to give
Speaker 2: before we discuss this in detail is it's been a
Speaker 2: qualified failure. It's been a qualified failure for a variety
Speaker 2: of reasons. There have been a number of high profile
Speaker 2: foreign investors who've taken the dive, you know, micro, certainly
Speaker 2: all the contract manufacturers of apple. So the iphone
Speaker 2: uh 14 or 15 billion work are shipped out of
Speaker 2: India these days. Uh This is a tiny, tiny proportion
Speaker 2: of what is produced still in China. So bringing all
Speaker 2: of this together, I think we've got to focus a
Speaker 2: little bit on geopolitics. Uh The fact that a lot
Speaker 2: of foreign investors are moving away from China. So there's
Speaker 2: a fundamental question that make in India has faltered has
Speaker 2: been a qualified failure.
Speaker 2: Can this government in its third um pick up the
Speaker 2: pieces and really uh benefit from this wave of investment
Speaker 2: uh coming out of China in the supply chains, much
Speaker 2: of it is going to Vietnam. Uh but can India
Speaker 2: capture this? I think that's the big philosophical question for
Speaker 2: the next three years. Let me pause here.
Speaker 1: No, that's a great way to set up this whole conversation.
Speaker 1: But I want to uh work with you in terms
Speaker 1: of going through some data on a bunch of parameters
Speaker 1: to establish that assertion which will be headline grabbing no
Speaker 1: question about the unqualified failure of making India. But before
Speaker 1: I do that, I just want to go back to
Speaker 1: 2014 for a second. But at that time, I remember
Speaker 1: Raghuram Rajan who was
Speaker 1: the governor of RB A at that time and he
Speaker 1: himself questioned the philosophical underpinning of making in India. And
Speaker 1: I think he said something like we should focus on
Speaker 1: make for India, which I interpreted that if we are
Speaker 1: going to give some performance link in investments incentive, uh
Speaker 1: we should
Speaker 1: do it for import substitution, not necessarily for export orientation
Speaker 1: because that's a hyper competitive landscape. Uh Do you think
Speaker 1: that's my right read of what Rau was coming from and,
Speaker 1: and what was your take at that time, this import
Speaker 1: substitution versus export orientation around making
Speaker 1: India,
Speaker 2: right? So if you look at the value chain proposition
Speaker 2: that India had, and unfortunately, I think if you go
Speaker 2: low down, if you're looking at low value addition, labor
Speaker 2: intensive industries like textiles and garments, the India has essentially
Speaker 2: been outmaneuvered by Bangladesh, Cambodia and Sri Lanka.
Speaker 2: Uh uh Indian wages are, are high compared to these
Speaker 2: uh three countries. And there's complexity really in e even
Speaker 2: in producing textiles and garments. And that's the, that's the
Speaker 2: reason why India has consistently lost market share. But so
Speaker 2: if you take the uh uh proposition that you can
Speaker 2: make in India for India,
Speaker 2: then because of the uh uh labor intensity and because
Speaker 2: of the fact that, you know, you've got millions of
Speaker 2: people uh uh knocking at uh uh literally looking for
Speaker 2: a job every single year. So how can you match
Speaker 2: those
Speaker 2: low technical skills with low wage industries like textiles? And
Speaker 2: India has kind of missed the bus in that. I
Speaker 2: I don't know if the current problems in Bangladesh presents
Speaker 2: a window of opportunity for India to reassert itself in,
Speaker 2: in textiles and garments. So then if you go at
Speaker 2: high
Speaker 2: value addition, the problem is you can't make in India
Speaker 2: for India, iphones are an example where it's part of
Speaker 2: a complex regional supply chain components have to flow through
Speaker 2: from Singapore, from Malaysia and other parts of East Asia
Speaker 2: into the final assembly point be China or, or India
Speaker 2: as it happens to be the case. But India has
Speaker 2: got this very, very ambivalent approach
Speaker 2: towards imports and has always had this strong sense that of,
Speaker 2: of self reliance which Prime Minister Modi kind of renewed
Speaker 2: uh in his first term. And, and that's a problem.
Speaker 2: I mean, it's a problem if you're going to say
Speaker 2: that you're going to make in India for India, then
Speaker 2: you kind of have to be like the Chinese manufacturing
Speaker 2: majors who are world beating, who are producing in China
Speaker 2: for China, you know, the by DS
Speaker 2: and the Catls of the world and then have resumed
Speaker 2: global market share.
Speaker 2: That seems to be a very, very difficult hurdle, I
Speaker 2: think for India, there are a couple of industries in
Speaker 2: India which are world beating,
Speaker 2: right? So you bring it all together and then you
Speaker 2: want to increase value addition, you want to absolutely increase
Speaker 2: manufacturing employment and you want to increase GDP share. And
Speaker 2: the only way you can do it in today's globalized world.
Speaker 2: I know, I know there's a lot of debate on
Speaker 2: whether de de globalization is a reality or not.
Speaker 2: But in that reality, you've got to do it
Speaker 2: for India to be part of a regional supply chain,
Speaker 2: which is, which traditionally and historically it has stayed away from.
Speaker 2: And I think when we review performance, we make in India,
Speaker 2: I think that's one of the biggest hurdles. I think
Speaker 2: it's a mindset challenge both on part of the policy
Speaker 2: makers and on part of the private sector. And you know,
Speaker 2: uh uh to your point on Rur Rajan Raghu has
Speaker 2: come out more recently
Speaker 2: arguing that the absolute amount uh given out, for example,
Speaker 2: for the micro facility in India, where the, you know,
Speaker 2: the uh uh uh subsidy runs in excess of 1.81
Speaker 2: 0.9 billion on part of the government, federal and state
Speaker 2: that this exceeds in many ways uh the budget for
Speaker 2: higher education, right? So I is India making a calculated
Speaker 2: choice of putting all of its uh uh eggs
Speaker 2: in, in the micron basket or the apple basket. And
Speaker 2: what kind of long term value addition is there gonna be?
Speaker 2: And then I think that's a, that's the right question
Speaker 2: uh uh uh to ask of a policymaker. But if
Speaker 2: you ask, you know, le let's be fair
Speaker 2: uh with the government. And I think the government's proposition
Speaker 2: has always been, they want to make this work. They
Speaker 2: don't believe there's a single approach of plis for everybody
Speaker 2: in order to uh uh uh you know, make, making
Speaker 2: India successful. There's also a sense that we've got to
Speaker 2: improve the business environment and the regulatory environment for everyone
Speaker 2: else to do. Well. And I think that is where
Speaker 2: the bottleneck is at the moment,
Speaker 1: right? OK. Let's do uh performance evaluation of making India FD. I,
Speaker 1: how has it been over the decades since the program began?
Speaker 2: Right. So you've got two sets of statistics. Uh ta right,
Speaker 2: let's be fair. Uh, the Indian government to make an
Speaker 2: India secretariat,
Speaker 2: uh, has made the assertion that in the last 10
Speaker 2: years you kind of have attracted uh between 600 to
Speaker 2: 900 billion in, in foreign direct investment. And I've actually
Speaker 2: gone and checked through the numbers. Uh uh it seems
Speaker 2: to be a consolidated gross number that they're quoting because
Speaker 2: there's lots of and, and I still have an open
Speaker 2: question mark of whether that includes portfolio flows
Speaker 2: uh right. So there's a lot of noise in that data, right?
Speaker 2: So then you look at an outside credible source like
Speaker 2: uh T AD which is over the over a long
Speaker 2: period of time has put out FT I data
Speaker 2: and the A N A data, for example, between 2019
Speaker 2: and 2024 suggests 200 plus billion has come in Greenfield
Speaker 2: investment commitments which are future commitments for which foreign investment
Speaker 2: uh flows have not yet come in. They again of
Speaker 2: the order of 200 billion or so. But so it's
Speaker 2: a mixed picture and I think uh uh when we,
Speaker 2: when we say making India has been a qualified failure,
Speaker 2: there was this sense that there would be this absolute
Speaker 2: mad rush on the part of multinational corporations looking to
Speaker 2: reso looking to relocate uh manufacturing in India, you know,
Speaker 2: mainly because of the India growth story, you had the
Speaker 2: ability to cater to the domestic market in India. Geography
Speaker 2: is very favorable. So it could also be used as
Speaker 2: an export destination.
Speaker 2: But the FD I data, right. So if you if
Speaker 2: you try and link
Speaker 2: the high numbers quoted by the American India secretariat and
Speaker 2: then you go down and see
Speaker 2: has this actually moved the needle on ma manufacturing share
Speaker 2: of GDP. So even if you assume uh uh the
Speaker 2: Indian government statistics suggest 28%
Speaker 2: is the number of manufacturing share of GDP, private sector
Speaker 2: estimates are significantly low. They're in the high teens at
Speaker 2: the moment, right? So,
Speaker 2: so you've got to have a great deal of faith
Speaker 2: in the official data to say it's been a unqualified success.
Speaker 2: But if you look at the noise in the data,
Speaker 2: it would, it would suggest that there's been a much
Speaker 2: more modest success in making India. And there are lots
Speaker 2: of big question marks at the moment on, you know,
Speaker 2: level playing field, regulatory enforcement. And this is not just
Speaker 2: a question, I think for foreign investors as concerned, it
Speaker 2: is increasingly a question for
Speaker 2: India's large business houses. Who again, if you look at
Speaker 2: the data coming out of uh sources like CMIE
Speaker 2: have have essentially over the last 10 years,
Speaker 2: pocketed all the profits uh uh after tax profits that
Speaker 2: they have generated, they're also benefiting from a lower corporate
Speaker 2: tax rate uh uh over the last seven years, but
Speaker 2: at the same time, they seem to be reluctant. And,
Speaker 2: you know, the statistic that one looks at is gross
Speaker 2: uh capital formation, uh which again does not match with
Speaker 2: this over enthusiasm in the making India story as, as
Speaker 2: suggested by the government.
Speaker 1: Right. Uh I think, you know, data is certainly an issue.
Speaker 1: Uh We've had also issues with the GDP data. So
Speaker 1: when we talk about manufacturing share of GDP, both the
Speaker 1: numerator and the denominator, you know, there are question marks
Speaker 1: around that. Uh Unfortunately, uh Vasuki, notwithstanding data issue. Uh
Speaker 1: what's your sense of job creation around making India over
Speaker 1: the last decade?
Speaker 2: Right. So you can, you, you, you've got to probably
Speaker 2: divide this up into three buckets, right? So you've got
Speaker 2: elite foreign investors, right? So you've got Apple, you, you,
Speaker 2: you now have uh micro but micros facility is still
Speaker 2: under uh construction.
Speaker 2: 11 can say that the three Apple contract manufacturers uh
Speaker 2: probably have the ability to create between 50,000 to 100,000
Speaker 2: jobs
Speaker 2: if the Apple production facility has been able to scale up.
Speaker 2: If increasingly you're finding that in Shenzhen and other parts
Speaker 2: of uh southern China, there's a relocation actually taking place
Speaker 2: in the Apple
Speaker 2: iphone production away from China into Vietnam uh into India, right?
Speaker 2: So that's that story. So that number of 50,000 to
Speaker 2: 100,000 clearly is unimpressive, right? So if you're looking at,
Speaker 2: you know, the uh the ambition
Speaker 2: at the start of making India was we are going
Speaker 2: to create 100 million jobs between 2014 and 2022. And
Speaker 2: one can safely say that number has not been matched, right?
Speaker 2: So if you look at again, there's a problem with
Speaker 2: data
Speaker 2: if you put together manufacturing employment in the last decade.
Speaker 2: Uh and this extends to beyond Lake in India, you
Speaker 2: come up with a number of probably
Speaker 2: 55 60 million.
Speaker 2: Uh
Speaker 2: Then you've got the issue of how many young people
Speaker 2: are entering the job market
Speaker 2: every year. And that really is a surge. I mean,
Speaker 2: it's like a, it's like a tsunami uh mainly because
Speaker 2: of India's rich demographics,
Speaker 2: it's a r tsunami which you know, in theory should
Speaker 2: uh uh uh should help India grow on a sustained
Speaker 2: basis for the next 2 to 3 decades, at least.
Speaker 2: But then there's a big question mark surrounding quality of education, right.
Speaker 2: So if you're able to match
Speaker 2: these young educated and they could be the graduate engineers,
Speaker 2: they could be coming out of the vocational technical training institute.
Speaker 2: Uh Right. So there's no supply problem in theory,
Speaker 2: but on the demand side, what the employers are saying
Speaker 2: is there's a skills deficit, there's a skills deficit of
Speaker 2: a magnitude
Speaker 2: which the private sector alone cannot resolve.
Speaker 2: Therefore, there needs to be some kind of public private intervention.
Speaker 2: You've got to figure out whether you can, you know,
Speaker 2: take people in as apprentices and train them. And this
Speaker 2: is a long term journey and it's never going to
Speaker 2: happen overnight. That is why you still see these eye
Speaker 2: popping headlines in Indian media about this vast
Speaker 2: reservoir of young people, you know,
Speaker 2: probably stayed out of college, right. So in the 19
Speaker 2: to 30 age group, I mean, this is the group that,
Speaker 2: you know, any aging society like Japan and Korea really,
Speaker 2: really uh be desperate uh to have at this point
Speaker 2: of their own growth story, but India's ability and the
Speaker 2: India is of course, not alone, I think in this
Speaker 2: uh but in terms of volume, certainly a big problem
Speaker 2: if you look at Indonesia
Speaker 2: and certainly look at Sub Saharan Africa, I mean, they're
Speaker 2: likely to face similar challenges down the line. So and again,
Speaker 2: the contradiction here is, I mean, the economy is chugging along, right,
Speaker 2: chugging along at 6 to 7%. Notwithstanding challenges with uh
Speaker 2: the GDP numbers. But one can kind of feel at
Speaker 2: least in the urban centers, one can kind of feel
Speaker 2: there's a growth momentum
Speaker 2: under way. But at the same time, one can see
Speaker 2: that there are a number of people who are unemployed, right?
Speaker 2: So manufacturing, I would argue would be the solution at
Speaker 2: all levels starting with textiles, garments, low value addition.
Speaker 2: And there hasn't been unfortunately a cohesive plan, right. So
Speaker 2: making India is almost functioning like an elite island for
Speaker 2: really top notch uh uh foreign investors and Indian investors
Speaker 2: who are in that same league. And then you've got
Speaker 2: this vast category below
Speaker 2: of mid size business, uh uh who really feel that,
Speaker 2: you know, they face all the depredations of, you know,
Speaker 2: tough labor legislation. You've got the tax person knocking at
Speaker 2: the door of these uh uh mid size businesses. So
Speaker 2: there's regulatory harassment. So that explains, I think the gap
Speaker 2: of the fact that they have not been able to
Speaker 2: meet this 100 million number and they're well short of
Speaker 2: it and they're likely to be well short of this
Speaker 2: if making India is kind of not reconfigured and make
Speaker 2: it easier. I would say 11 easy fix would make
Speaker 2: it easy for domestic business to invest. Once again.
Speaker 1: I want to stay on the job creation issue a
Speaker 1: little longer. Um What about regional heterogeneity in Indonesia in India?
Speaker 1: I mean, are the northern part of India States creating
Speaker 1: more jobs in the southern part of India? Do we
Speaker 1: see more youth unemployment in up versus we see in Karnataka?
Speaker 1: Give us a little sense of, you know, because India
Speaker 1: is a big country, there are a lot of interregional
Speaker 1: heterogeneity there.
Speaker 2: Yeah. So the mobility story is, is an interesting one, right?
Speaker 2: If you go to go to the southern states, uh
Speaker 2: and southern states almost and the typology
Speaker 2: is almost like a
Speaker 2: East European country, a middle income, East European country with
Speaker 2: an aging population and with lots of imported labor, right?
Speaker 2: And these, these tend to come from the north and
Speaker 2: the east
Speaker 2: and, and for those, and for this vast army of
Speaker 2: construction labor of, of labor working in uh uh low
Speaker 2: value manufacturing.
Speaker 2: For them, it's their upward mobility ticket of, of moving
Speaker 2: to richer parts of India
Speaker 2: and, and of, of course India, unlike China does not
Speaker 2: place any restrictions on inward mobility,
Speaker 2: right? So you, you find that uh uh there's already
Speaker 2: some signs of domestic pressure, I mean, local pressure, people
Speaker 2: feel that all of these outsiders have come over and,
Speaker 2: and taken all of these uh and they don't necessarily spend,
Speaker 2: you know, in their language, linguistic complexity
Speaker 2: makes it all the more difficult to build this cohesiveness, right?
Speaker 2: But
Speaker 2: one can argue that if you're building in Tamil Nadu,
Speaker 2: an automobile component uh manufacturing facility,
Speaker 2: you tend to hire either from the West or from
Speaker 2: the South, that's where most of the qualified graduate engineers
Speaker 2: and technicians and even, you know, welders and plumbers happen
Speaker 2: to be. But if you're looking to clear land and,
Speaker 2: and build a massive uh residential or commercial complex, uh
Speaker 2: then you import labor from Uttar Pradesh or Bihar
Speaker 2: and, and, and this labor by the way has mobility opportunities,
Speaker 2: not just within India, you know, they can, they can
Speaker 2: go to Saudi Arabia, they can go, they can go
Speaker 2: to the Middle East and that's been a traditional route
Speaker 2: uh uh for many of them, and many of them
Speaker 2: actually come back with better skills uh particularly in construction.
Speaker 2: And I would argue that quality of Indian construction
Speaker 2: office buildings has probably improved dramatically in the last two
Speaker 2: decades because many of the returned have come back with
Speaker 2: better skills.
Speaker 2: But the, but the problem uh once again is if
Speaker 2: you're an apple and you're, you know,
Speaker 2: you're trying to recruit 10,000,
Speaker 2: I mean, the Foxconn facilities in China, for example, employ
Speaker 2: 500,000 people,
Speaker 2: right. So try to imagine replicating 500,000
Speaker 2: in a Foxconn Apple
Speaker 2: network in Southern India or Western India. And that would
Speaker 2: be a challenge I think because there is a real
Speaker 2: skills deficit this fil where, you know, if you're a
Speaker 2: qualified engineer, you don't necessarily have to stay in India,
Speaker 2: a qualified professional as you know, I mean, India uh
Speaker 2: is is an exporter
Speaker 2: of high value talent.
Speaker 2: So I think there will be that absolute hurdle uh
Speaker 2: uh when it comes to Apple ever making a decision,
Speaker 2: OK, we are now ready to move,
Speaker 2: right. So India will always, I think be in that
Speaker 2: sub optimal space
Speaker 2: of being able to create uh employment of technical employment
Speaker 2: of the kind that a multinational firm like Apple will need.
Speaker 1: Right. Right.
Speaker 1: Um Just one final question on the employment side, Basuki,
Speaker 1: whenever we talk about youth unemployment in India, the picture
Speaker 1: that is typically drawn for us is this
Speaker 1: young, likely northern Indian male who can get a job.
Speaker 1: And there are social implications for that. I, I feel that,
Speaker 1: you know, the young women are sort of, you know,
Speaker 1: devoid in that discussion. And India has been surprisingly um
Speaker 1: under performing in terms of female participation in the labor force.
Speaker 1: Uh you had mentioned earlier, the garment industry in Bangladesh
Speaker 1: there we have seen in the last 23 decades, a
Speaker 1: huge change in terms of the fact that it's largely
Speaker 1: women who work on those factories. So
Speaker 1: I I'm sure even without looking at the data, we
Speaker 1: can say that unemployment among women to those who are
Speaker 1: actually looking for, it is a more challenging phenomenon in
Speaker 1: India than it is for male and within the Making
Speaker 1: India construct. Was there ever any sort of, you know,
Speaker 1: policy toward helping uh increasing the ratio of women's labor
Speaker 1: participation
Speaker 2: not within making India? Right. So ma making India is
Speaker 2: a very high level that they're going to introduce new processes,
Speaker 2: new infrastructure and new investment into manufacturing. So it is very,
Speaker 2: very high purpose. But certainly, you know, uh the government
Speaker 2: has tried over the last 10 years, it has recognized
Speaker 2: that they need to increase female labor force participation, which
Speaker 2: uh for a country like India, it's appallingly low,
Speaker 2: right? And, and you know, there've been all kinds of
Speaker 2: uh
Speaker 2: right. So you've got two kinds of challenges in doing that.
Speaker 2: I don't think the education challenge is one of them. Surprisingly,
Speaker 2: I think you, you even if you go down to
Speaker 2: a technical institute
Speaker 2: in any part of India, uh the num number of
Speaker 2: women now studying
Speaker 2: engineering or even undertaking technical training, that number is high.
Speaker 2: But you've got these social barriers which really prevent this
Speaker 2: translation of those skills from the classroom into the manufacturing facility.
Speaker 2: I think Indian employers have,
Speaker 2: I mean, again, one has to differentiate but in, in
Speaker 2: certainly in manufacturing, I've not done a very good job
Speaker 2: and I've seen that myself in other work that I do,
Speaker 2: they not not done a very good job in creating
Speaker 2: that welcoming environment and culture.
Speaker 2: The men and women
Speaker 2: can work in the same manufacturing place. I think it's
Speaker 2: probably improved in, in offices in white collar jobs and
Speaker 2: that's probably always been the case. But in manufacturing, you've
Speaker 2: got simple things like distance,
Speaker 2: right? So how do you overcome distance in terms of,
Speaker 2: you know, providing transport for female workers and, and doing
Speaker 2: so in a safe and secure manner?
Speaker 2: How do you make sure that uh they work that
Speaker 2: they have the ability to work multiple shifts? I think
Speaker 2: working night shifts is still a stigma
Speaker 2: and and these are really structural barriers on a micro
Speaker 2: level
Speaker 2: that no federal government in Delhi can sit. I mean,
Speaker 2: federal government in Delhi can create the enabling environment, but ultimately,
Speaker 2: it comes down to local government and the states and
Speaker 2: the states which have done, which are doing a better
Speaker 2: job compared with the national average, again, tend to be
Speaker 2: in the south and the west. Uh but again, it's
Speaker 2: a very, very mixed picture and, and, you know,
Speaker 2: uh uh
Speaker 2: 10 years I think is a long time to take stock. And,
Speaker 2: you know, one can argue that, you know, making India
Speaker 2: probably premature for me to say only 10 years, why,
Speaker 2: why am I staying qualified failure? But I think in
Speaker 2: terms of female labor force participation, I mean, this predates
Speaker 2: the modi government and no, no government has been able
Speaker 2: to fix this and and right and, and they can
Speaker 2: be a powerful growth driver. And the fact that, you know,
Speaker 2: India probably can learn
Speaker 2: from the late Japanese Prime Minister Shinzo Abe
Speaker 2: uh who under international pressure and domestic pressure and the
Speaker 2: fact that Japan is aging so rapidly, Italy has made
Speaker 2: a concerted policy push uh in in this area. And
Speaker 2: India probably needs something similar to that in parallel with
Speaker 2: anything that they do would make in India in the future.
Speaker 1: Correct, correct. Uh So 10 years is a long time.
Speaker 1: So I think we should be able to make some evaluation.
Speaker 1: I think that's fair. Uh And the one that I
Speaker 1: want to talk about now is tech transfer. Uh we
Speaker 1: have seen even before making India, you know, global consumer
Speaker 1: goods companies from Unilever to Starbucks to Domino's, you know,
Speaker 1: they've come to India over the decades. Uh Did we
Speaker 1: see some,
Speaker 1: their supply chain management spill over into domestic Indian F
Speaker 1: and B supply chain and then the over the last decade,
Speaker 1: the push to bringing global manufacturers like Foxconn and others in,
Speaker 1: are we seeing some positive spillover out of that with
Speaker 1: respect to tech transfer or, you know, skilled labor or
Speaker 1: skilled entrepreneurs getting experience in those companies and building something
Speaker 1: on their own in India.
Speaker 2: Right? So you've got to look at this and you
Speaker 2: can't divorce. I think when we discuss this from the
Speaker 2: technology sector and, and the fact that, you know, uh
Speaker 2: and you know, India has got well beating
Speaker 2: public goods like the India stack. Uh the fact that
Speaker 2: you've got uh many of the America's big tech majors
Speaker 2: who've got significant uh uh you know, research facilities in India,
Speaker 2: including the likes of IBM. And I think the IBM
Speaker 2: facility in India is still one of the largest uh
Speaker 2: single uh location for employment, right. So you've got this
Speaker 2: again and got these islands of excellence.
Speaker 2: And India more recently in the last two decades, has seen,
Speaker 2: you know, the Starbucks and the Tim Hortons
Speaker 2: setting up franchise operations all over the country. You've got
Speaker 2: the entry of many hotel chains, consumer goods manufacturers. There's definitely,
Speaker 2: you know, a, a skills transfer taking place.
Speaker 2: But I guess the question is, and again, not to,
Speaker 2: not to speak poorly of uh fast food franchise chain ski,
Speaker 2: the skills transfer that takes place. It's probably essential, I
Speaker 2: think in a country like India where you've got so
Speaker 2: many people
Speaker 2: looking for jobs in the 20 to 30 age group
Speaker 2: that, you know, I used to two decades ago, uh,
Speaker 2: really be amused at the fact that you've got these
Speaker 2: master's degrees proliferating in India and events management
Speaker 2: and, you know, so, you know, every, every second university
Speaker 2: had an events management undergrad and a and, and, and
Speaker 2: a graduate degree. And I al I was always thinking,
Speaker 2: you know, what possible value
Speaker 2: does this create? And I was probably wrong because India
Speaker 2: now does have a vibrant events management space. They're learning
Speaker 2: a lot in putting up events from concert promoters from
Speaker 2: other parts of the world. So you've got these pockets
Speaker 2: uh where there are skills transfer taking place, people are
Speaker 2: upgrading their skills and for those who want to access
Speaker 2: online education tool
Speaker 2: that is available in India today. But, but you've got
Speaker 2: to be proficient, you've got to, you've got to be
Speaker 2: at a certain educational level in order to tap into
Speaker 2: those uh uh online courses and upgrade your own skills.
Speaker 2: Because ultimately, you know, learning is, is also an individual journey,
Speaker 2: not just the responsibility of the state,
Speaker 2: but when you come to actual manufacturing and advanced technologies, right?
Speaker 2: So there was this this talk of semiconductors and I
Speaker 2: think Prime Minister Modi was in Singapore last week. This
Speaker 2: collaboration on semiconductor testing, India is probably way way behind that.
Speaker 2: And that explains this controversy over what Myron
Speaker 2: is attempting to do in Gujarat where the technology on
Speaker 2: offer is seen as being slightly behind the curve.
Speaker 2: So there's a lot of hope and expectation on a
Speaker 2: single company like Apple because I think people have seen
Speaker 2: the Apple journey in China and the absolutely transformative power
Speaker 2: that it had in really upgrading skills. Really, you know,
Speaker 2: I don't think Apple could have succeeded
Speaker 2: without the presence of Foxconn and the tremendous investment it
Speaker 2: put in, in in human skills development.
Speaker 2: And and so you need, you need that scale and Vietnam,
Speaker 2: although much smaller country
Speaker 2: is doing that because it's had the benefit of Korean
Speaker 2: investment in the last two decades. So India in many
Speaker 2: ways is starting off behind the curve and and that
Speaker 2: skills transfer
Speaker 2: has to happen
Speaker 2: with these manufacturing companies being able to say that they're
Speaker 2: going to take people on board and actually train them
Speaker 2: on the shop floor,
Speaker 1: right?
Speaker 1: Um Mau OK, let's put aside the low end of
Speaker 1: the scale spectrum and the top end, let's focus on
Speaker 1: the middle end
Speaker 1: like are we going to see Indian entrepreneurs or even
Speaker 1: the large conglomerates creating Indian made in India TV brands
Speaker 1: or drones? So not like you know, the three nanometer chip,
Speaker 1: super fancy smartphone, but you know what we call, I
Speaker 1: guess lagging edge technology in which there are you know,
Speaker 1: hundreds of billions of dollars worth of potential investment and
Speaker 1: job creation and so on.
Speaker 1: Um But are we still seeing basically, you know, Chinese manufacturers,
Speaker 1: assembling cell phones in India or even like for a TV,
Speaker 1: it's really made in China TV, that is coming into India.
Speaker 1: We don't have that much of a homegrown technology stack
Speaker 1: to replicate that yet.
Speaker 2: Right. So, you know, there's a lot of talk here
Speaker 2: in Washington DC on how the US in, particularly since
Speaker 2: the early 19 nineties, when both China entered the WTO
Speaker 2: in uh 2000 and predating that of course, was NAFTA
Speaker 2: that you have this in exodus of manufacturing away from
Speaker 2: the US and, and, and which led to this overdependence
Speaker 2: on China or for almost everything from toys uh to
Speaker 2: light bulbs and everything else similar thing has happened, I
Speaker 2: think in India and, and, and you know, India is
Speaker 2: at this very interesting policy juncture now
Speaker 2: where I think the national security community is deeply concerned
Speaker 2: of Indian business over reliance on China, particularly in key
Speaker 2: sectors like pharmaceuticals in in and you mentioned mobile phones.
Speaker 2: Uh and and there are any number of other industries
Speaker 2: and I think the China India trade numbers really reflect
Speaker 2: the fact that India is exporting very little beyond commodities and,
Speaker 2: and perhaps metals,
Speaker 2: but it's importing vast quantities of stuff that it should
Speaker 2: be in a position to produce itself,
Speaker 2: right? So India has kind of ceded that ground. And
Speaker 2: I think where there's a very late realization
Speaker 2: that you can't have a national security and a border
Speaker 2: dispute with your giant neighbor.
Speaker 2: And at the same time, be so reliant on imports.
Speaker 2: And there's already pressure now building up from Indian business
Speaker 2: groups that there, there's got to be a pathway where
Speaker 2: the national security issues are discussed at a separate level
Speaker 2: and it should be business as usual.
Speaker 2: And so perhaps this should provide some kind of an
Speaker 2: incentive I think for India to be I I hate
Speaker 2: to use the word self reliant but in areas like
Speaker 2: advanced pharmaceutical ingredients, api si mean, India is a world
Speaker 2: beater in the pharma industry, you know, producing vaccines, producing
Speaker 2: basic drugs and it's pretty astonishing that you're still relying
Speaker 2: on imports from China. And and this is not a
Speaker 2: new story by any means.
Speaker 2: Then if you look at uh products like cement,
Speaker 2: if you look at products like uh right, if you're
Speaker 2: looking at basic chemicals, if you're looking at automobiles, I
Speaker 2: think India has got probably more resilient industrial capacity to
Speaker 2: produce stuff for the domestic market. But the wide open
Speaker 2: question mark is why can't you use uh all of
Speaker 2: that excellence in local manufacturing to be world beating? And
Speaker 2: you know, there's a tension here, there's tension here with
Speaker 2: the Indian government feeling very nervous
Speaker 2: when Indian companies invest overseas. Uh There's a sense that
Speaker 2: you're kind of betraying your country and you know, Finance
Speaker 2: Minister Sitar Rahman
Speaker 2: actually chastised uh Indian Business uh two or three years
Speaker 2: ago that they were not that they were inadequately investing
Speaker 2: in India, right. So if you want to be world
Speaker 2: beating large Indian Business House, you kind of have to
Speaker 2: step out of your comfort zone.
Speaker 2: But they feel, you know, there is a barrier in
Speaker 2: doing that. But at the same time, the absolute proliferation
Speaker 2: of well beating companies coming out of China.
Speaker 2: Uh I think there's a sense within the Indian business
Speaker 2: community
Speaker 2: that that train has left the station, right? So India
Speaker 2: has kind of lost that wave that it could have
Speaker 2: capitalized on. And the speed dates make in India
Speaker 2: right now, you're stuck with large manufacturers, kind of saying, OK,
Speaker 2: we're going to tap into the domestic market,
Speaker 2: then you're going to see these foreign investors come into
Speaker 2: advanced manufacturing. So there's, there's going to be that sense
Speaker 2: of grievance
Speaker 2: and, and I don't think, I mean, un unless there's
Speaker 2: an emboldened leadership
Speaker 2: trying to shift dramatically the current policy path, it's very
Speaker 2: hard to see how India is going to get out
Speaker 2: of this. Uh I, I don't know to call this
Speaker 2: rut but certainly this challenge situation of not being able
Speaker 2: to increase manufacturing share of GDP.
Speaker 1: So you, you
Speaker 1: touched upon uh local business houses and their grievances and
Speaker 1: et cetera. So let's talk about them for a second,
Speaker 1: have the um incentives and the investments brought in through
Speaker 1: making India made India more competitive.
Speaker 2: Right. Again, you've got to, you've got to do this
Speaker 2: at the product level, right? Is the Apple iphone,
Speaker 2: uh price competitive and manufacturing competitive when it comes out
Speaker 2: of its facilities in Southern India.
Speaker 2: Apple seems to suggest. Yes.
Speaker 2: And, and I think, uh uh if you're, if you're
Speaker 2: comparing wages with Shenzhen and Southern India, there's obviously a
Speaker 2: huge gap because Chinese wages have really gone up
Speaker 2: uh more significantly than, than India's have. But this is
Speaker 2: not just a be competitive, this game, this is a,
Speaker 2: this is a game of being able to upgrade technological
Speaker 2: skills and be ready. You know, Apple, the iphone 16
Speaker 2: is going to be launched in two weeks time. Can
Speaker 2: that be produced in India? Uh immediately answer is probably not.
Speaker 2: And
Speaker 2: a lot of other foreign investors I think are looking
Speaker 2: at uh the Apple experience
Speaker 2: to figure out they'll be able to replicate it. And
Speaker 2: this is happening really because a lot of multinational companies,
Speaker 2: you're a European company or an American company, you're hearing
Speaker 2: from your policymakers probably every single day that you've got
Speaker 2: to build away from China. You've got to look at
Speaker 2: other place. You've got to reso if you can, first
Speaker 2: of all, why not create jobs at home?
Speaker 2: If your argument is you're not able to reso immediately,
Speaker 2: then you know, try to look for alternative destinations.
Speaker 2: So India always looms large in these conversations and and
Speaker 2: so you need a critical mass of investors who are
Speaker 2: able to make the kind of technological leap and the
Speaker 2: skills leap that you're talking about, right? So you're using
Speaker 2: see 14 billion of iphone products, that number has to
Speaker 2: be 100 and 40 billion.
Speaker 2: In order to say you've created this critical mass of
Speaker 2: skilled workforce who are fungible, right? Who can literally work
Speaker 2: not only in India but anywhere else in the world.
Speaker 2: And at the same time, kind of marrying the kind
Speaker 2: of advanced research that the IB MS of the world
Speaker 2: are carrying out and translating that into manufacturing within India
Speaker 2: because most of that research and development knowledge currently is
Speaker 2: exported away.
Speaker 1: Yes.
Speaker 1: Yeah. Uh And what about,
Speaker 1: you know, when you have not the apples of the
Speaker 1: world is impossible to sort of, you know, create an
Speaker 1: Indian entity that can be competitive vis a vis apple,
Speaker 1: but again, in the middle end of the technology spectrum.
Speaker 1: And I'm thinking really on, you know, sort of the
Speaker 1: not the highest end smartphones, but the mid end, like
Speaker 1: the stuff that, you know, Shami and Oppo are producing
Speaker 1: and Indians seem to be very happy buying that made
Speaker 1: in China phone. Um in that area, are we beginning
Speaker 1: to see any sign of
Speaker 1: local grown technology or local grown companies becoming a bit
Speaker 1: more competitive? Uh and, and trying to give the imported
Speaker 1: brands that run for their money,
Speaker 2: right? So let's let's talk a little bit. Um, I'll,
Speaker 2: I'll come back to uh mobile phones.
Speaker 2: If you look at two wheelers and three wheelers.
Speaker 2: India is huge competitive advantage. In fact, India is still
Speaker 2: the world's largest manufacturer
Speaker 2: of, of two wheelers. And many of those two wheelers
Speaker 2: manufacturers are beginning to electrify
Speaker 2: and they're creating this uniquely, you know, the, the Hindi
Speaker 2: word called Juga, which really is homegrown innovation at a
Speaker 2: very low price. That probably is the best translation that
Speaker 2: I can think of. Good one, not bad at all. And,
Speaker 2: and so you've got an auto shop line, the streets
Speaker 2: of Mumbai,
Speaker 2: many of them at the moment are on CNG.
Speaker 2: Uh but I think they see the value in electrifying
Speaker 2: and the, and we're not talking Tesla supercharges
Speaker 2: in terms of how these two wheelers and three wheelers
Speaker 2: uh uh go into a charging station, charging station is
Speaker 2: probably uh the local tobacconist, right? It's a local pawn
Speaker 2: shop which happens to have an electric charger where the
Speaker 2: rickshaw guy can charge his vehicle.
Speaker 2: And so there is innovation taking place, right? So let's
Speaker 2: not forget that.
Speaker 2: And in the start up space
Speaker 2: again, it's pretty vibrant, but they tend to go into
Speaker 2: uh uh social media, e-commerce services type of solution services
Speaker 2: rather than the kind of uh mobile manufacturing that you're
Speaker 2: talking about.
Speaker 2: And I think there's this big question on whether you're
Speaker 2: able to produce everything at home
Speaker 2: or you still need to rely on China or Vietnam
Speaker 2: even to produce a low cost, you know, ₹500 phone.
Speaker 2: And I think there's vulnerability there for India, not everything
Speaker 2: is available or manufactured in India from scratch there. I
Speaker 2: think India can lead is not in trying to compete
Speaker 2: with the Xiaomi
Speaker 2: or Lenovo or or any other Chinese manufacturer. But for
Speaker 2: domestic entrepreneurs. And again, moving away from the large business
Speaker 2: houses
Speaker 2: to innovate on a smaller scale
Speaker 2: to find and and you know, again, move away from
Speaker 2: trying to cater to the urban elite,
Speaker 2: but try to find solutions for your three wheeler driver
Speaker 2: to say that you know, by operating an electric uh
Speaker 2: three Wheler,
Speaker 2: uh you're not only benefiting from lower costs, but there's
Speaker 2: a social value attached to that anything you need to,
Speaker 2: you got to happen on that scale and you need
Speaker 2: obviously uh uh a widespread
Speaker 2: success all over the country across a number of sectors
Speaker 2: which will really break this logjam where where India can
Speaker 2: really send these skills. You know, two wheeler three wheeler
Speaker 2: are translatable where India can really help sub Saharan Africa,
Speaker 2: for example, which face similar infrastructure challenges. There is probably
Speaker 2: slightly more advanced. The China offering for many parts of
Speaker 2: Africa in this field is probably too high tech and
Speaker 2: and too expensive.
Speaker 2: And I think Indian innovation can really excel at this level.
Speaker 1: Fascinating. I I want to talk to you in greater
Speaker 1: detail about the green transition story in a moment. But
Speaker 1: uh Maui, in the conversation that we've had so far,
Speaker 1: you have mentioned Vietnam a bunch of times. So let's
Speaker 1: do a little compare contrast. I don't think Vietnam had
Speaker 1: uh flashy making Vietnam campaign. They probably did it a
Speaker 1: little more organically and they probably, you know, sort of
Speaker 1: got the Chinese to get embedded in a far friendlier
Speaker 1: manner in their economy, both with FD I as well
Speaker 1: as tech.
Speaker 1: Um but nonetheless, are there lessons for India from Vietnam's experience?
Speaker 2: Absolutely. Right. So you mentioned China, actually the Vietnam uh
Speaker 2: uh manufacturing experience
Speaker 2: is entirely, you know, it's a, you know, appeal to
Speaker 2: Samsung to come make in Vietnam. And I think Samsung
Speaker 2: was the absolute original big investor in, in Vietnam. Uh
Speaker 2: there was a period of time when uh Samsung had
Speaker 2: so many engineers
Speaker 2: working for its facility in Vietnam. A lot of other
Speaker 2: foreign investors started to complain that there was some kind
Speaker 2: of hoarding taking place.
Speaker 2: And I think the Vietnam lesson uh uh for, for
Speaker 2: India is and again,
Speaker 2: uh many Vietnamese uh uh uh businesses would say they're
Speaker 2: too small a country, right? They can't be compared possibly
Speaker 2: with India. But I think Vietnam
Speaker 2: focused on and did not give up the low value
Speaker 2: edition that easily and eventually all of that migrated to Cambodia.
Speaker 2: But at the start of the journey, right, if you
Speaker 2: really look at uh the early 19 nineties after the
Speaker 2: Paris agreement which essentially normalized Vietnam's uh integration with the
Speaker 2: rest of the world. Also normalized Cambodia's integration.
Speaker 2: Vietnam took a calculated bet at manufacturing. They looked at
Speaker 2: China and said this is exactly what we want to do,
Speaker 2: but we are not in China's place at this point
Speaker 2: in time. So we're going to focus on, first of all,
Speaker 2: taking away all the shoe manufacturing that existed in Indonesia
Speaker 2: in the 1919 eighties and 19 nineties, all of them
Speaker 2: moved and many of them were Korean investors, all of
Speaker 2: them even sneakers, sneakers. That's right. All the sneakers that
Speaker 2: when I was, lived in Jakarta in the 19 nineties,
Speaker 2: they were all produced in, in Indonesia and they moved
Speaker 2: the following decade all to Vietnam, right? So that was
Speaker 2: kind of. So they really learned
Speaker 2: with textiles, they learned with shoe wear, they learned with toys.
Speaker 2: And then when Samsung made the offer that they were looking.
Speaker 2: And at that time, Samsung's
Speaker 2: really wanted to manufacture television sets and, and other low
Speaker 2: end consumer electronics
Speaker 2: in Vietnam because Korea was getting too expensive and like
Speaker 2: Korean Che balls, you know, the LGS and the others followed.
Speaker 2: And it was that success, which laid the foundation for
Speaker 2: Vietnam to be able to stay. Now, we can, we
Speaker 2: can embrace
Speaker 2: uh uh mass scale manufacturing, we can bring in a
Speaker 2: greater number of, of uh uh multinational companies to come
Speaker 2: and make in Vietnam. And that I I know Vietnam
Speaker 2: is going through its own unique structural and political challenges
Speaker 2: at this point in time. But if you ask any
Speaker 2: foreign investor today that if you cannot make in China,
Speaker 2: what would be a logical next destination
Speaker 2: without batting an eyelid, they'll say Vietnam, they probably pause
Speaker 2: for about 10 seconds and mention India.
Speaker 1: Yeah, so India is still up there but not quite there.
Speaker 1: Uh And, and you're right that the supply chain with
Speaker 1: which um Vietnam has sort of prospered, has a wide
Speaker 1: range of lessons for any country that wants to embrace
Speaker 1: manufacturing the warehouses, the logistics, the port, the tax system,
Speaker 1: I mean, for a country that is sensibly a communist country,
Speaker 1: they're remarkably capitalistic when it comes to accommodating foreign investors.
Speaker 2: Yeah, absolutely. You know, there's a story told to me
Speaker 2: over a decade ago.
Speaker 2: Uh and, and this probably is a caricature, right? So
Speaker 2: your foreign investor who lands in Delhi and says I
Speaker 2: want to build 100 million manufacturing facility
Speaker 2: and, and he runs up immediately against the obstacles. Uh saying,
Speaker 2: you know, you need not only permits and clearances from Delhi,
Speaker 2: you've got to figure out which state you're going to
Speaker 2: operate in, you need permits and clearances and the state
Speaker 2: and the federal government are not necessarily working in concert.
Speaker 2: There's no coordinations,
Speaker 2: we try to do the same in Vietnam. And uh
Speaker 2: uh the, the guy in Hanoi, uh the state official
Speaker 2: has the ability to call up the provincial official and
Speaker 2: coordinate and make that investment happen in an at a really,
Speaker 2: really amazing space including providing electricity connections. If the road
Speaker 2: needs to be built,
Speaker 2: that's the challenge, that's the gap that India needs to overcome. And,
Speaker 2: and there isn't, I mean, India is uniquely
Speaker 2: uh political system and the way the economy is arranged
Speaker 2: does not allow for that kind of co ordination,
Speaker 1: right?
Speaker 1: OK. A little bit of crystal ball gazing. We've had
Speaker 1: a decade of making India, it promised a lot. It
Speaker 1: has delivered somewhat but nothing compared to what the original
Speaker 1: promises were. But again, looking forward, uh both, what do
Speaker 1: you see happening and what should be
Speaker 1: happening,
Speaker 2: right. So this is India's moment, I think and and
Speaker 2: has been India's moment uh for the last three decades.
Speaker 2: Uh I think any policy maker looking back could say,
Speaker 2: you know, India has done reasonably well, it has accelerated
Speaker 2: economic growth, it has removed some of the shackles uh that,
Speaker 2: you know, led to the infamous Hindu rate of growth
Speaker 2: since the 19 fifties. Uh You have a more affluent
Speaker 2: middle class, uh you've created an economy which provides opportunity
Speaker 2: for those who wish to stay back home and, and
Speaker 2: they certainly, you know, visibly
Speaker 2: you've got this class of billionaires and millionaires.
Speaker 2: But I think the big question mark for India is
Speaker 2: how do you sustain this India group story? Right? Can
Speaker 2: you continue to be the fastest growing economy
Speaker 2: in the G 20
Speaker 2: uh for the next 20 years without uh providing that
Speaker 2: manufacturing story. And I would argue at some stage, India
Speaker 2: will come up against the obstacle that, you know, and,
Speaker 2: and maybe hopefully that stage is today rather than 10
Speaker 2: years from now when it be, when it may be
Speaker 2: too late. Uh for India to catch up,
Speaker 2: there's an absolute sweet geopolitical spot where India can play
Speaker 2: in at the moment. Uh India obviously is aligned perfectly
Speaker 2: with the US on, on security issues. And India is
Speaker 2: a member of a quad, it's a member of IP
Speaker 2: F even though it's not part of the trade chapter
Speaker 2: of the Indo Pacific economic framework. And there's a greater
Speaker 2: exchange of ideas, greater exchange of uh uh policy dialogue
Speaker 2: that happens
Speaker 2: in, in the democratic world including India today
Speaker 2: uh than at any time in the past, right? So that,
Speaker 2: that should provide an enabling environment for foreign investors and
Speaker 2: local investors to make more in India policy obstacles by
Speaker 2: the three
Speaker 2: barriers which which, which really uh the government should address
Speaker 2: uh in the next year or so. First, in the sense,
Speaker 2: it's not a level playing field,
Speaker 2: the fact that you've got favored groups who seem to
Speaker 2: be getting all of the benefits in terms of contracts,
Speaker 2: in terms of being able to produce that scale uh
Speaker 2: with very little barriers. And at the same time, you've
Speaker 2: got a lot of others who feel that they don't,
Speaker 2: you know that these favored groups are disproportionately benefit. So
Speaker 2: India needs to level the playing field really to enable
Speaker 2: other large scale business houses who have the ability, who
Speaker 2: have the skills and the knowledge to also invest in
Speaker 2: this Indian growth story.
Speaker 2: Second is, and this has been a prob problem. Predating
Speaker 2: make in India is lack of predictability on regulatory enforcement
Speaker 2: or on tax claims. I mean, the GST is and
Speaker 2: has become a very blunt instrument. I mean, the Indian
Speaker 2: company enforces
Speaker 2: which as you know, is an it services company was
Speaker 2: today was recently placed with a
Speaker 2: absolute staggering GST came uh which seems to have come
Speaker 2: out of nowhere. So there's a lack of predictability and
Speaker 2: regulation on enforcement and on taxation that is due from
Speaker 2: companies either to state or, or, or the center. And
Speaker 2: that absolutely plays a chilling role, I think in uh in, in,
Speaker 2: in businesses not being able to plan
Speaker 2: and, and they're absolutely scared that there's going to be
Speaker 2: a knock on the door
Speaker 2: which is going to take away management time and attention.
Speaker 2: I would say the third
Speaker 2: problem
Speaker 2: and, and, and this has got a lot to do
Speaker 2: with politics which has kind of been, I think uh
Speaker 2: uh
Speaker 2: has been a feature much more dramatic in the last
Speaker 2: 10 years
Speaker 2: than in previous governments. There's a real sense of polarization
Speaker 2: and I don't mean societal polarization alone, there's political polarization
Speaker 2: that if you're a non ruling party
Speaker 2: government running a state.
Speaker 2: There is the co ordination that was possible in the
Speaker 2: past with the ruling party in power in New Delhi.
Speaker 2: That is a challenge and that absolutely is a problem
Speaker 2: for investors. Uh Because you, if you're a foreign investor,
Speaker 2: putting a significant amount of money, you are either come
Speaker 2: through the fast track, right, where everything is made easy
Speaker 2: for you. It's arguable whether that the number of those
Speaker 2: investors will be 1020 30 it certainly can't be 300
Speaker 2: because that will absolutely overwhelm uh uh the government's capacity
Speaker 2: to deliver, right. So you need to create the fast
Speaker 2: track should be available for everyone to participate in. And
Speaker 2: there's got to be that greater level of co ordination
Speaker 2: and sense of national purpose and cohesion. Uh The political
Speaker 2: environment is charged, it's very difficult. I know, but
Speaker 2: from a foreign investor perspective, uh that's an absolute challenge. And,
Speaker 2: and if India is not able to overcome this, you're
Speaker 2: always going to find successes. I don't mean to say
Speaker 2: that all foreign investors are going to turn away. I
Speaker 2: think the share size and attractiveness of Indian market uh
Speaker 2: will remain,
Speaker 2: will keep India in the trail for a long period
Speaker 2: of time. Uh But you know,
Speaker 2: time is money and businesses will, I mean, there are
Speaker 2: other destinations which are knocking on the door and businesses
Speaker 2: will simply turn away
Speaker 1: right from Mexico to Hungary. There's quite a few out
Speaker 1: there asking for the same investment dollar. But finally, you,
Speaker 1: you talked about the sort of the view from the
Speaker 1: inside that's sitting in India, what India needs to do
Speaker 1: to attract foreign investment. But let's say you encounter a
Speaker 1: foreign investor tomorrow in Washington DC and New York who
Speaker 1: are looking at India as a possible destination for their
Speaker 1: investment dollars. How would you guide them?
Speaker 2: Right. So the two challenges uh so 22 challenges and
Speaker 2: two questions,
Speaker 2: I don't think foreign investors need to be persuaded a lot.
Speaker 2: If you're making breakfast cereals, if you're making
Speaker 2: consumer products, they don't need a great deal of persuasion
Speaker 2: that they've got to make in India.
Speaker 2: And they increasingly feel that in order to make in
Speaker 2: India successfully and and in order to do it quickly,
Speaker 2: you need to partner with someone locally
Speaker 2: that seems to be the model for non make in India,
Speaker 2: advanced manufacturing kind of, right. So you, you get a
Speaker 2: joint venture partner and, and you know, you, you outsource
Speaker 2: the regulatory tax issues to your joint venture partner, you
Speaker 2: take a smaller stake and India is now allowing majority
Speaker 2: stake in many sectors so they can still retain some
Speaker 2: level of uh majority control.
Speaker 2: That's an easy proposition. And that has happened, I think
Speaker 2: since the India opened up 30 years ago. But you know,
Speaker 2: the central part of our conversation today
Speaker 2: that is still not delivering the kind of employment levels
Speaker 2: and value added. Uh uh compared with the others. The
Speaker 2: second set of questions
Speaker 2: that the manufacturer of semiconductors uh right. Can I create
Speaker 2: a fab? Can I build a fab fab lab
Speaker 2: in India using NVIDIA GP us? Can I can I
Speaker 2: build a network of data centers?
Speaker 2: Uh because I want to train, I want to train
Speaker 2: my large language models
Speaker 2: in India because of uh uh availability of land availability
Speaker 2: of technical skills, at least at that high level. That
Speaker 2: is where the complexity is, that is the problem that
Speaker 2: make in India has been attempting to solve
Speaker 2: in creating this fast track. But the fact that for me,
Speaker 2: the worrying thing is the take up rate.
Speaker 2: But it's one thing to say that you've put $28
Speaker 2: billion on the table in plis production incentives. But the
Speaker 2: take up rate on the part of foreign investors has
Speaker 2: been very, very low and 10 years is a long
Speaker 2: time to say that you've barely touched 2 billion or
Speaker 2: 3 billion, which happens to be the number,
Speaker 2: right. So the advice to the foreign investor in the
Speaker 2: second category is how compelling is your business model at
Speaker 2: the moment that you do need to move from China
Speaker 2: perhaps at a slower trajectory than what one reads in
Speaker 2: the newspapers where you know the feeling in Washington DC
Speaker 2: is you simply click off the switch
Speaker 2: exit China and there beckons India and Vietnam that's not
Speaker 2: going to happen that way. I think China is going
Speaker 2: to be a significant manufacturing destination for a long period
Speaker 2: of time, much longer than what political leaders seem to
Speaker 2: seem to believe.
Speaker 2: But if you place India on that slower track, so
Speaker 2: India is able to sort out its regulatory problems, the
Speaker 2: co ordination problem that I pointed out,
Speaker 2: but it's more drip that gradually India is going to
Speaker 2: scale up, then it's probably an attractive destination. But as
Speaker 2: you well know,
Speaker 2: foreign investors are impatient
Speaker 2: if we were talking. For example, I think uh 20
Speaker 2: years ago,
Speaker 2: I, I think 20 years ago, we have fixated too
Speaker 2: much on growth in India growth at all costs.
Speaker 2: And I think the conversation is appropriately now turned to
Speaker 2: what is the quality of that growth? What are the
Speaker 2: growth drivers? Are we are, should we be satisfied with
Speaker 2: consumption and services and the fact that the the greater
Speaker 2: sense of urgency, those questions are being asked within India?
Speaker 2: I think lends me to believe that there'll be some
Speaker 2: change uh whether the change is going to be to
Speaker 2: everyone's satisfaction, of course, remains to be seen. But I
Speaker 2: think making India is an honorable aspiration uh for the
Speaker 2: country's policymakers to regain.
Speaker 1: Right. Vasuki, I had earlier promised that we're going to
Speaker 1: talk about the potential of green transition. We're gonna leave
Speaker 1: it for another day. And also I want to talk
Speaker 1: about Indonesia with you another day as well. But for today, Vasuki,
Speaker 1: thanks so much. For your time and insights.
Speaker 2: Thank you ta It's always a pleasure to chat with
Speaker 2: you and I will continue to be a fan of
Speaker 2: copy tm. May copy TM thrive and prosper for the
Speaker 2: next few decades.
Speaker 1: Ok. It is copy time. I'm not a coffee shop,
Speaker 1: but yes, I, I will try to keep the lights
Speaker 1: on in the studio as long as I can. Uh
Speaker 1: Thank you Vasuki and thanks to our listeners and viewers.
Speaker 1: Copy time was produced by Ken Delbridge at Sky Studios,
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