But ‘Brahminical’ mindset of investing only in capital-intensive sectors must go: Arvind Panagariya

India must make it attractive for foreign firms to invest in light manufacturing sectors such as apparel and footwear in order to break what he calls Indian industry’s “Brahminical mindset” of investing in capital-intensive sectors instead of those that can generate more jobs, outgoing vice chairman of the NITI Aayog, Arvind Panagariya has said.

India, he said, is well-positioned to occupy the space being vacated by China in such sectors but its large domestic businesses are reluctant to venture into that space as they prefer sectors such as automobiles, pharmaceuticals, software and petroleum refining.

‘Labour supply rising’

“Mobilising global firms is an effective way of breaking the current vicious cycle in which our entrepreneurs are interested only in capital- and skill-intensive industries. It is a great time because China is beginning to exit. Their wages are very high and ours are, maybe, a third of China,” Dr. Panagariya told The Hindu, adding that India’s wages won’t rise fast as its labour supply is rising while China’s is shrinking.

The Aayog Vice Chairman, who returns to Columbia University after a close to three-year stint in government, said the scope for job creation in these sectors was enormous.

A leading apparel exporter had informed Dr. Panagariya that a ₹35 crore investment in the business yields a ₹100 crore turnover and creates 2,200 high-quality jobs with just six weeks’ training for requisite skills.

“In our large industries, it is usually just one job created with an investment of ₹50 crore-₹65 crore, while such jobs can benefit the larger population. Sometimes, I say, they (India Inc) have a Brahminical attitude and will invest in automobiles, auto parts, software, pharma, petroleum refining, but not in clothing or footwear,” Dr. Panagariya said.

Legacy Issues

The plausible historical reasons for mainstream Indian industry’s reluctance to invest in employment-intensive sectors, he said, were the licence permit raj, reservations for small-scale industries that kept large players out of light manufacturing and the 1980s labour strikes by which a lot of textiles entrepreneurs were impacted.

“We have not been able to shake out of these historical legacies. In a natural way, the future structure of the economy gets a bit driven by the current structure. And our current structure has been determined by almost effectively the old licence permit, small-scale reservation period. That is a problem,” he remarked.

The way to break this mindset, he asserted, was to bring in global firms. “They need not be Chinese but could be Korean, German, Taiwanese or Japanese. If some of those firms are induced to establish operations here, then they bring technology, capital, management and above all, they bring their market lens.”

“They are already exporting, they know the market. All they would do is come here, use our workers and sell into that market which also builds our reputation as a global supplier. That will change the ecosystem. Then our local firms will also get into this,” he said.

The coastal economic zones proposed by the Aayog and being steered by a committee led by its CEO Amitabh Kant could catalyse the advent of such firms.

“China has been exporting $175 billion dollars worth, while we are exporting some $17-18 billion of such products. So for us, on the export side alone there is scope to grow ten-fold,” the Niti Aayog vice chairman said.