The China model of growth won’t work in India

  • Hindustan Times
  • Updated: Apr 23, 2014 23:10 IST

Buddenbrooks: The Decline of a Family, Thomas Mann’s novel about multiple generations, holds out important lessons in contemporary policy making, particularly for a middle-income country such as India where labour supply, and aspirations, have outstripped skills and opportunities. The Nobel prize-winning book shows how ambitions change over generations. The first generation spends a lifetime seeking to earn money, buying means of comfort and secure a better future for their children.

The second generation, brought up in relative affluence, aspires to climb up the social ladder. By the time the third generation comes along, social prestige and opulence have become a given. India today is a veritable medley of all the three generations as depicted by Mann. For policy makers, the real challenge, indeed, is matching the vast majority of those who earn their keep from the farms but whose children aspire to earn money and social honour.

The BJP’s 3D view — demography, democracy, and demand — is an encapsulation of India’s current problems. The solutions, however, are far more complex than a catchy alliteration. Demand — for goods and services — is a function of money and income. Greater income will prompt people to spend more. Companies, thus, will be encouraged to add more capacity lines and hire more to feed into the growing demand, leading to a revival of the so-called ‘manufacturing’ sector.

There is, however, a qualification in this line of argument. A large plant that employs few but produces on a massive scale cannot necessarily lead to greater income. China-style mega industrial zones are important to reap benefits of scale, technology and temper down prices. But for India, any plan to convert the country into a manufacturing hub would necessarily have to factor in the millions of hopefuls who join the work force every year.

This cannot happen unless there is specific focus on small and medium firms. These factories are central to absorbing job aspirants, removing them from unproductive farm work, skilling them and future generations, adequately for them to graduate to the bigger corporations. Only such enterprises, however small these may be, located in rural areas, can fulfil a cycle of rising aspirations and growing income. It is for the government to create the right conditions for small industry-led manufacturing revival and to enable skills, money and meet people’s legitimate ambitions to achieve relative financial and social status.

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