Modi’s ‘make in India’ industrial reform policy and East Asian flying-geese paradigm

The ongoing “Made-in-India” campaign aims at manufacturing revival in India, which resembles structural reform and growth policies adopted by Asian newly industrializing economies (NIEs) and China in the context of “flying-geese model” ‒ a catching-up cycle model highlighting step-by-step changes in the country’s specialization pattern and enhanced global competitiveness, in line with economic growth. In comparison, Made-in-India applies heterogeneous measures, simultaneously to labor- and capital-intensive industries, high-tech manufacturers and modern IT services. This study tackles controversies surrounding doubts of future success of India’s export-orientation; trade-offs between productivity improvement and “redistribution-oriented” promotion; and the complementary role of IT services for structural modernization and economic growth.

This study includes critical assessments of development stage theory, its expansions and empirical applications, and comparisons of India’s recent growth dynamics of industrial production and its specialization with those of selected Asian countries. This empirical part considers ultimate changes in each country’s industrial production — also caused by economic and political factors — adopting some selected statistical methods. These methods are a shift-share analysis, calculation of industrial growth index, and calculation of degrees of specialization and concentration. For this purpose United Nations Industrial Development Organization (UNIDO) data from 2000-2014 on real manufacturing value added are applied.

India labor-intensive ‘food, beverage and textiles’ industries have been dominant, while a very few high-tech branches (‘motor vehicles’ and ‘electrical machinery’) have recently grown rapidly. Economic growth has been strongly led by “skilled-labor-intensive” IT services. India’s less-targeted policy addressing simultaneously various industries in different development stages is attributed to this weak, unbalanced industrial structure. Yet this practice conserves existing labor-intensive industrial dominance and impedes rapid structural change: such “poverty reduction”-oriented labor-industry promotions and creation of less-qualified jobs hinder improvement of overall productivity and the nation’s competitiveness.

Compared to NIEs and China’s experiences with export-led growth strategies, a strong foreign-market orientation appears less effective, if economies of major potential importers of Indian industrial products (Japan, EU and U.S.) continue to remain weak. India’s industrial exports will face fierce competition from Vietnam and Indonesia. Presently India’s software services enjoy comparative advantage on the global market, due to lower wages compared to their Western counterparts. Promotion of India’s sophisticated software-application and other IT services appears desirable. Yet the flying-geese approach doubts whether the service sector alone can generate a country’s continuous long-term growth: instead, it emphasizes the importance of “development interdependence” between modern IT services and (domestic) high-tech industries for sustainable “endogenous” growth.