The manufacture of Indian manufacturing - after Mangalyaan

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With public transport in shambles compared to the standards of peer nations in all of East Asia, a massive investment holds the key to establish manufacturing of scale in India in a major way. Delhi Metro Railways project implementation has already proved that India does have the capability to roll out plans ahead of schedule, without budget overruns and yet have a responsive end product, a transport system, that creates a tangible difference in the lives of millions of people in Delhi and rest of National Capital Region (NCR). Now with the plans to roll out similar mass rapid metro rail projects in Hyderabad, Pune, Lucknow, Kanpur, Kochi, Jaipur, Patna, Guwahati and several other cities gives India the opportunity to manufacture the manufacturing industry in India by scale, capacity and assembly line speed.

Several leading bankers and international finance consultancies have published reports about India's cringing needs for a massive infrastructure overhaul. As per Goldman Sachs (Global Economics Paper No: 187), India needs an investment of US$ 1.7 trillion in the next decade to keep pace with its growing population and global commerce trappings, which it must adhere to be relevant internationally and stable domestically. What happened in the preparations of Delhi Commonwealth Games 2010 (BBC World - Auditor slams CWG preparations and Comptroller and Accountant General's report), is a sample case of how money is siphoned off and remains unaccounted ever. Having said that, public transport system did get a major boost in Delhi so the city could be showcased to foreign visitors, and in doing so a legacy system was created and got imprinted in the minds of not just city dwellers but the entire nation. Ask anyone in Delhi and they will not stop singing paeans of the Delhi Metro Railways system, which indeed was the focal infrastructure project accelerated with an eye on the Commonwealth Games in 2010.

Now with Delhi's Metro Railways completing phase III in 2016 and then entering phase IV that's targeted to complete in 2021 (taking the total length of the rail tracks to almost 500 km), the focus should move to local manufacturing of rolling stock. Currently, the metro rail system uses a mix of rolling stock sourced from international makers (Delhi Metro, Insights) such as Hyundai, Mitsubishi and Bombardier, but indigenously designed and built machinery can dramatically alter the picture in every scope. Expansion of lines in 2016 will massively increase the need of rolling stock, which coupled with metro railway projects in Mumbai, Jaipur, Bengaluru and Kolkata (already operational or near completion), necessitate much needed supply of suburban railway machinery. A single-site just-in-time assembly-line (Tata Nano inspired) maker-supplier model envisages a super-factory that can be world class and speedily turn around orders.

India's incredibly competitive admission exams for management schools and technology universities has resulted in a league of prestigious institutions (and its resultant students) who must be engaged by the government to fructify this huge railway rolling stock super-factory infrastructure. Below are some stunning examples of success and case studies in India where projects have been completed with precision and feat:

• Reliance Jamnagar mega refinery - http://www.bechtel.com/jamnagar_refinery_expansion.html
• Karcham Wangtoo Hydroelectric Plant - http://voith.com/en/Hand_out_India_Karcham_2013_Print.pdf
• Mangalyaan - the Indian Mars Orbiter Mission

These projects testify that things can happen and that too with mindbogglingly efficient ways. 

The upcoming planned suburban metro railway projects in big cities across India present the ideal opportunity for central government, which remains the biggest shareholder in these projects, to spur manufacturing and cut on widening negative balance of trade in India. One of the ways it could be done is:

• create a special purpose incorporated institution that implements the execution of all suburban rail mass transit projects.
• participate with existing national bodies such as: Indian Railways (Ministry of Railways), Delhi Metro Rail Corporation (DMRC) and premier educational and research institutions with specialization in mechanical engineering and allied fields (to design metro railways rolling stock). DMRC can provide successful case studies of how it could be such a success in Delhi. Indian Railways has its own share of credit for successfully rolling out railways in high altitude Himalayan state of Jammu & Kashmir. 
• involve large Indian corporate houses that have a focus on transport equipment and automotive machinery.
• acquire large contiguous land with acquiescence of farmers. India does not have much empty land because small farmers hold most of the landmass as fragmented holdings. The farmers must be given some shareholding of this super-factory and other similar emoluments. 
• every upcoming suburban mass transit system in the country must purchase rolling stock from this super-factory. This must happen because of the massive economies of scale, local production and easier logistics.
• involve large financial institutions such as domestic provident/pension funds, domestic banks and international sovereign funds. The participation of these institutions will guarantee high degree of oversight and transparency along with formidable monetary muscle.

This mega factory on going successfully operational will be the test bed of higher automotive technology research to implement international systems customized per local necessities. It will provide significant economic relief by reducing foreign exchange spendings and a great employment cycle to the multimillion educated youth population. All that remains to be seen is how soon the Indian government, which has started to create the right noises (MAKE IN INDIA campaign), actuates this intent into materiality. 

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A Decade of Incessant Indecision

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2004 General Elections in India were a watershed in the political and economic dimension of national policy. Being a developing country that is classified in World Bank's notation as a lower-middle-income economy, we have always had an enormous growth potency that always remains untapped and undirected. In it's term the Vajpayee government unleashed a series of high volume centrally directed investment programs such as Golden Quadrilateral, East-West & North-South (Kashmir to Kanyakumari and Saurashtra to Silchar) Highway Corridor, Sagar Mala (for ports, shipping and inland water transport sectors), National River Interlinking and National Power Grid (joining existing power grids to form a national grid). Most of these projects were expected to complete by or around 2015 and fundamentally aimed at rebooting the infrastructure. But towards the end of the 2003, Vajpayee government was looking overconfident and complacent, and was further emboldened by the assembly election results in that year. Unexpectedly when Vajpayee government was voted out in the 2004 General Elections, Manmohan Singh became the unwilling Prime Minister, in terms of economic policy and direction nothing was expected to change. However, as we see today, based on data that has been extrapolated from reliable sources and our practical living experience, a lot changed.

I will not be talking about the volume of loss to the exchequer from sundry scams or crony dealing, because they are subject to varying levels of interpretation. In case of 2G spectrum allocation alone, there are several speculative figures available, from Kapil Sibal's famous "Zero Loss" to CAG's own four different estimated loss figures calculated by as many criteria.  

Presumptive Loss to Exchequer as per CAG report

I will rather elaborate the micro and macro economic parameters which the Manmohan Singh government, under the direction of Sonia Gandhi led National Advisory Council (NAC), has repeatedly talked about that illustrate India's economic renewal. These were called "Reforms with a Human Face" and have included the now famous and inept MNREGA and Food Security Bill. Perusing several data sources from IMF and World Bank, however, nothing seems to have changed. It appears that we are once again back to the Hindu rate of growth, a disparaging term used between 50's till 70's to describe India's economic growth figures.

While our overall literacy rate as increased to approximately 75% with some margin of error as of 2011 census, it still lags behind China which achieved over 90% literacy in the year 1990. We will have to wait until the latest census report to see the progress made this decade. Other data is more clear demonstrating the weak movement and direction under Manmohan Singh who himself was guided by NAC.

Sanitation, which is a critical barometer of national health, is horribly bad and this index had absolutely no change except for Jairam Ramesh's comparison of toilets with places of worship.

Sanitation Statistics vis-a-vis some other Asian Countries

This data from World Bank only demonstrates lack of vision, indecision and denial of fallibility. When Vietnam could provide sanitation to almost 75% of its population in 2012 from just over 50% in 2000, India could barely move to over 35% in 2012 from 25% in 2000. 

Inflation is one barometer which highlights a household's burden and this hits particularly harder to the people in the very bottom of the economic pyramid.

Consumer price inflation

Here again India looks to be performing worst among the study group of China, India, Vietnam and Thailand, eventually Vietnam manages to tie with India by the closing of 2012. No matter how much money was pumped in to keep the populist agenda floating, the common household was still burdened due to increasing prices. Even if Oil prices increasing internationally is considered as a trigger to increase of consumer essential goods, still then why are only the lower income group Indian households the hardest hit? There is something that China, Thailand and Vietnam are doing differently.

A factor that quite comprehensively depends on consumer prices is the household savings which consequently decides the National savings.

National Savings as a percentage of GDP

Perusing this data sourced from International Monetary Fund's public repository, one can easily see that something goes drastically wrong after 2004 when India's national savings start plateauing and post 2007 they actually drop to around 30% of GDP, while China's figures were over 30% even in 1980. By keeping populism a bay, selling of profit making public sector units and reducing interest rates Vajpayee actually improved economic foundations both in infrastructure and financial capital which is why the sharpest slope in the graph above is between 2000 and 2004.

Although we have India now becoming world's third largest economy in terms of purchasing power parity, but the real term measure of this fiscal enhancement can only be calculated by the amount of money in everyone's hands. The per capita productivity and value creation is extremely shameful vis-a-vis China, Thailand and Vietnam. 

GDP per capita

The above graph from IMF shows India's weak trudging in increasing value and percolating economic benefits down the economic pyramid. What is surprising, India and China had almost similar productivity as measured in per capita GDP generated almost upto 1991 which is when China starts to pick up and from 2002 the gradient only grows spectacularly steeper.

However the most serious issues that is making Indian imports ever costlier is the weakening of Indian Rupee. 

Current Account Balance

India is the only country among our study group of China, India, Thailand and Vietnam that has almost consistently been near below zero in its national current account balance (CAB) performace. The above graph from IMF shows us that post 2004, India's CAB has spiralled uncontrollably downwards touching $100 Billion in 2012. Most of Manmohan Singh government's finance whiz-kids and spokespersons have repeatedly blamed the burgeoning oil prices and international capital volatility, but this has incessantly hampered India alone.

Manmohan Singh government has consistently defended it's performance record by referring MNREGA and other flagship programs, but how much have they impacted the entire population cross-section will only be answered long from now. Much like Nehru's big dams, iron works and other public spendings in the 1950's only came out as slow moving debt laden juggernauts only in the 1980's, the true economic legacy of Manmohan Singh and NAC's populist schemes will show up sometime later in the nation's economic life. And once again we might see the similar slugfest of blamegame as happened in Commonwealth Games mismanagement or 2G spectrum auctioning or the latest in slew, Coal block allocation.

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