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Thu, Sep 25 2014. 03 39 PM IST

Graphics: Ajay Negi/Mint

Since taking office in May, Narendra Modi government haslaid much emphasis on manufacturing, whose share ofeconomic output has stagnated for decades at around 15%.Photo: Mint

The Make In India opportunity in five chartsWhile India lags in manufacturing competitiveness, it has the potential and opportunity to catch up with other nations

1. India has almost missed the manufacturing bus

India has failed to ride the manufacturing wave that helped so manycountries in Asia emerge out of mass poverty. Prime MinisterNarendra Modi’s exhortation to companies to “make in India” is oneindication that he wants to replicate the Asian manufacturing successstories in India. One popular depiction is of China as the factory of theworld while India is viewed as the global back office. The reasons forthis are complex. Yet, the harsh fact is that India has failed to buildenough factories to provide jobs for the millions who are leaving farms.

2. There is an opportunity to get back in the game

Economic history tells us that industrialization follows an inverted U-pattern. Very poor countries dependent on farming do not have muchmanufacturing. The share of factory output begins to grow as

countries develop. Manufacturing later cedes space to modern services in affluent societies. The share of manufacturing in economic outputbegins to accelerate when the average income of a country in terms of purchasing power parity is around $5,000. It peaks when the averageincome is $10,000. According to World Bank data for 2013, India has an average income of $5,410 that is close to the level whenmanufacturing takes off while China has an average income level of $11,904 when manufacturing is expected to peak as a proportion of anyeconomy.

3. Future success will depend on strategic clarity

A 2012 study by McKinsey Global Institute shows that globalmanufacturing is not monolithic. There are five variants: globalinnovations used for local products such as cars, regional processing

industries such as food, manufacturing activities such as petroleum refining that use energy or commodities intensively, global technologyinnovations such as electronics and labour-intensive production for exports such as textiles. A country as large as India may have to straddleseveral of these categories if it is to build a diversified industrial base that will give the country strategic depth in terms of geopolitics.

4. The nature of the global supply chain matters

Many Asian countries have progressed by linking to the massive supplychains that connect the global economy. Three economists, Greg Lindenof the University of California, Jason Dedrick of Syracuse University and

Kenneth Kraemer of the University of California, studied the economics of the iconic iPod to illustrate how value is shared in the complexmanufacturing process. The lower value work is done in Asia while the more innovative stuff is done in the US. The Narendra Modigovernment will have to figure out where India can be positioned in similar supply chains.

5. Excessive regulation still hobbles manufacturing

India is one of the most unfriendly places to do business: policyuncertainty, poor infrastructure, rigid labour laws and the “Inspector Raj”are just some of the common complaints. Powerful companies with therequisite political contacts can sail through these rough waters but the

small entrepreneur is often at his wits’ end. There is already speculation that the Modi government will try to make India a less tough place todo business. Here is a look at what starting a new business entails in India.