One of Modi’s pet industrial policy projects has been “Make in India”, which entailed the substitution of imported manufactured products with domestically produced ones, for both the domestic and the international market. It was some sort of a push for an export-oriented growth, perhaps at a sectoral level. It is inspired by what the Chinese have achieved over the past three to four decades. Has the policy delivered in terms of India gaining in the exports market vis-à-vis the rest of the world?

At a very broad level, the Modi government falls short of its predecessor, UPA-II, with the current receipts (from the export of goods and services) declining (as a share of GDP), after having consistently increased through the three governments preceding it.

There is a similar fall in foreign investment (portfolio and direct), contrary to all the hype around the capital inflows during this government and India’s rise in the international ranking of ease of doing business.

What has surely increased during Modi’s term is the magnitude of foreign exchange reserves. However, the absolute amount does not tell you much. A better yardstick for gauging foreign reserves is how many months of cushion it can provide for the current level of imports, with no change in the status quo, so that a sudden international shock will not make the economy vulnerable in terms of choking the importables.

We find that even here, there is nothing exceptional about Modi’s government, since the import coverage under him is lower than even the NDA government and much lower than UPA-I.

Current Receipts/GDP, Foreign Investment/GDP and Import Cover (in months). Source: RBI, 'Handbook of Statistics on the Indian Economy' (accessed December 2018)

I believe that there are multiple reasons for why Make in India has not delivered, at least in terms of creating international markets. One, it relies heavily on the Public-Private Partnerships (PPP) model instead of a State-led development model, even though the PPPs spectacularly failed to deliver under the UPA. The failure of this model leads to failed infrastructure development, a condition critical for a policy take-off of this magnitude.

Apart from this, the financial model of PPP carries with it the potential to destabilise the capital base of the public-sector banks, thereby limiting credit to non-infra sectors. Rising non-performing assets of the public-sector banks, particularly in the infrastructural sector both during the UPA and the Modi government, is just one indicator of the failed PPP model. As far as infrastructural development by the government is concerned, the report card of the Modi government speaks for itself.

The status of implementation of such projects shows that the share of the Central-sector projects stalled/delayed stands at an average of 100 per cent for the atomic energy sector, 50 per cent for civil aviation, and 45 per cent for the coal sector.

Compare this to the figure of the oft-lampooned policy-paralysed UPA-II, where the respective figures were lower at 71 per cent, 45 per cent, and 44 per cent.

Two, this strategy is, by its very nature, in conflict with a domestic demand-driven approach. This is because it requires a continuous decline in the cost of production, a significant proportion of which is the wage cost, to outcompete the rivals.

Two ways in which you can keep the relative wage costs down is by depressing the wages and/or increasing the productivity of labour relative to the competitors. Both involve a fall in the share of wages in the economy (as has been the case with the Chinese, or other such experiments). This squeezes the domestic demand in the economy in the long run, either through a fall in income (wage fall) or unemployment (through labour displacing technological expansion).

Three, even if we assume that growth is delivered, it will be inequitable for the working masses in general.

Modi equates the interests of the corporates, who surely benefit from such a strategy, with the majority of the population.

Four, the other part of the cost – raw materials – requires that the corporates be given a free hand in terms of exploiting the natural resources, which has resulted in massive corporate scams. The extent of environmental degradation domestically, coupled with the exploitation of the resource-rich-but-politically-weak countries abroad should surely be a matter of concern, even for the export enthusiasts.

Last, but not the least, this growth, if delivered, would still be beholden to the importing nations. If, for some reason, they hit a roadblock in terms of providing a market, as is happening today, it will have a cascading effect on the export-oriented sectors, which would have lost the fallback options in the very process.

India has failed to create an international niche market as promised under the Make in India campaign. It has also lost its position as a destination for portfolio capital. As a result of a net outflow in recent times, the rupee has come under severe strain. Modi had promised to “bring the pride back” to the Indian rupee. Instead, the currency is now valued at its lowest ever in Indian history.

The Indian rupee had a great fall. Source: RBI, 'Handbook of Statistics on the Indian Economy' (accessed December 2018)

One could perhaps argue that the increased net outflow of capital from India has more to do with the increasing returns in the home countries where this capital had initially come from. So it is more a pull factor from the global North than a push factor from India that has resulted in this outflow. But then Modi’s promise was that the Indian economy would create pull factors of its own.

To add insult to injury, the fall in the value of the rupee, which lowers the dollar price of Indian goods in the international market, has not improved its exports prospects. This is because the purchasing power of international buyers influences the volume of trade between countries, more than the price of an exporting country’s commodity.

Excerpted with permission from A Quantum Leap in the Wrong Direction, edited by Rohit Azad, Shouvik Chakraborty, Srinivas Ramani, Dipa Sinha, Orient BlackSwan