Is there a potential quick win available from liberalizing the textile and apparel sector?
Milton Friedman wrote decades ago about the costs of protecting Indian handloom weavers (certain products, like saris, can't legally be made on mechanized looms) and yet these and other restrictive practices are still in place.
India's apparel exports are lower by value than Bangladesh's even though India has eight times the population, so clearly something needs to change.
Well, truth be told, end goal of any Indian politician is to save his seat. How to boost the low end manufacturing like textiles, footwears or toys ?? India has stringent labor laws which significantly limits the scale and productivity. Land acquisition is difficult and costly because how come a "greedy businessman" can be allowed to build factories on unproductive farm lands. On one hand, politicians are handing out free electricity to masses for votes, meanwhile businesses are charged massive electricity bills. Power costs for businesses are far higher than other Asian counterparts like Bangladesh or ASEAN. Ultimate goal is the toxic appeasement at the cost of Growth. Last year, central govt tried to implement the farm laws which could've liberalize the Agricultural sector partially. They failed in doing so. India is a cesspit where the illiterate rabble gets to decide the leader. Yet the people in west think that "democratic" and "free" India is necessary to counter China.
Wow what an Interview !!! Really opened my eye to the cons of India . I think I was stuck in Echo chambers about India's Greatness . Some things that I really wish you had asked about India was headwinds related to climate change , monsoon dependency , white skin insecurity , and bad geography and natural resource crunch that are persistent affecting India's Rise!!
BTW I think the Big Taiwan strategy is a great idea. Even if you got started in just one state - Uttar Pradesh is like ten times the population of Taiwan.
It is ten times more diverse and ten times more fractious as well. It's far more likely that an Indian Foxconn getting investment and knowledge to succeed than an Indian subsidiary. This 'Indigenizing' trend is on hyperdrive there. My people are lovable idiots jilted by the past and we've read too many random books that makes us quite the schizophrenic anti-West/pro-West lot.
The interview has virtually no discussion about the elephant in the room, agriculture and farmers. India is perhaps unique in history in that the vast mass of the agrarian workforce (large farmers, tenants and laborers), the *entire* rural society got the right to vote well before urbanization. And for 75 years, this electorate has been telling its leaders, 'we value stability over growth'.
With this context, it is not hard to see why low cost manufacturing, which basically depends on vulnerable labor displaced from agriculture has struggled to take off in India. It also explains why the non-elites in India agitate over everything from affirmative action to economic policies, but have been lukewarm to education. For the agrarian classes that make up the bulk of the population, education is a useful investment only it propels a son (recently daughter as well) straight into the stratosphere of a government or a corporate job.
This also ties in with what will be India's principal contribution to geopolitics. The export of food. India, despite its relatively small farm sizes, low levels of technology, poor supply chains and refusal to monetize bovines is among the largest exporters of food in the world. Barring catastrophic climate change, this role will only grow in the coming decades.
Hmm. The US gave the vote to everyone when it was still heavily rural and agrarian too. The US does encourage individualism and entrepreneurship with open frontiers, and little regard for history and very little endogamous jatis, however (the ones that exist tend to break down). Though India may go down the same route.
When universal suffrage was introduced in India (1950), the country was 95% rural. The country is 65% rural even today. The US was 50% urban by the mid 1910s, before even women got the right to vote. It was 75% urban when African Americans got the right to vote.
Also, I cant think of a time in US history when the majority of lawmakers have been agriculturalists. In India, even today, 40% of MPs are agriculturalists. Agricultural income has never been taxed in the Republic of India, there is also no inheritance tax for farm land. I am doubtful there was ever a time in the US when farm income wasnt taxed.
The societies are definitely quite different when it comes to the extent of individualism, as well as the aspects of life where individualism is emphasized. But I doubt that can explain the nearly 40x difference in per capita income.
A lot of lawmakers were landowners/farmers in the early American Republic. Washington, Jefferson, Madison; many of the important politicians from the South.
The US had an industrial revolution much farther in the past (though about the same time since the country's founding). That would place India about 170 years after the US?
A little over a century after founding is when the US really started becoming an industrial/political/military power on the global stage. And I predict India will be at roughly the same time after founding as well. In fact, the latter half of the 21st century will be dominated by the rivalry between a descending China and ascending India.
Just skip the Civil War part, though. You don't want that.
Yeah I think you hit on a great point. While it's true exporting food is important, it's not what brings prosperity to citizens. That's why agricultural reform is so important, and why it's so frustrating that the three farm laws were repealed last year. The Modi government knew they had to address the severe inefficiencies and stagnation in agriculture before focusing on manufacturing, yet their whole agenda was stymied by special interest groups who basically held Delhi hostage for a year. Not that the farming legislation was perfect, but it was better than nothing. Now the worry is that, if Modi couldn't reform agriculture with his supermajority, no one can.
Thanks Ishaan. As you correctly point out, food (especially staples like rice and wheat) is not an especially lucrative export. But let me point out that much like software, exporting staple grains was never an economic or strategic priority for the Indian government. It just turned out this way, forced mostly by domestic pressures and international conditions.
Ideally, India could try and export higher value crops like fruits, herbs and vegetables. But there are challenges in supply chain, infrastructure and trade barriers.
Excellent interview. You really brought out a great overview of the Indian economy. I remain puzzled, though, as to why low-skill-absorbing manufacturing cannot take off like it has done in (culturally similar) Bangladesh. AS says "path dependence" but that just begs the question. Also, as Cesar Hidalgo research has shown, manufacturing's success in development may be due the ease with which it spreads to similar products (drones and watches overlap with smartphones in parts and assembly skills). I think software, even though its classified as a "service" not manufacturing, has similarly "thick" adjacencies in the product space. India may well be the key test to see if this works - if its development spreads and generates secondary, lower-skilled, employment.
Yes, but that seems fixable. AS suggests that states are competing with each other in populist policies so why not on this front too? Indeed, there *are* a few states where manufacturing is happening (eg, Tamil Nadu, Gujarat, and Maharashtra). Presumably they have found a way around the restrictive laws. Why is that not spreading?
Elites have to care about the hoi polloi getting better (or rather, manufacturing) jobs. Are those places more socialist/Communist? I believe Bangladesh has less caste/jati divisions, right? What about the various Indian states?
The only two communist states are Bengal and Kerala. Both don't have large scale manufacturing. Bangladesh does not have caste system I am aware of so that definitely helps.
I'm curious how the disease burden in India impacts development, curious if anyone has quantified it. I know the government pursues a few basic measures for mosquito control-- would love to see Indian research teams leading the way on moonshots for mosquito eradication or clean water or pollution control. (Maybe they are? Would love to read more if so.)
I recently arrived in Chennai and was just thinking I'd like to read a general overview of India's economic history. Then this showed up in my inbox. What are the chances!
Digital india is making everything exponential. People who don't understand tech underestimate it a lot. India will have 500 unicorns soon and they will penetrate into every possible industry they can. This will also create a huge manufacturing sector. Clean energy is the biggest area US can help india with. Reduction of oil import bill will be fundamental for india.
Superb interview: great questions in scope & span that allowed Arvind to paint a rich canvas of Indian economic development these last 3-4 decades, peppered with some truly insightful well-reasoned arguments
Likith, his impact has been more social and political than economic. All of his policies are roughly continuations of his predecessors, just look at the budgets. He tried to be different with the farm laws and we all know how that ended.
IMO, one reason foreign media likes to talk about Modi is because he is the first Indian leader they can actually place and make sense of. Right since Mohandas Gandhi to Manmohan Singh our choices have confounded outsiders.
Thank you for this interview, Noah. It's terrific.
Arvind is so great!
Is there a potential quick win available from liberalizing the textile and apparel sector?
Milton Friedman wrote decades ago about the costs of protecting Indian handloom weavers (certain products, like saris, can't legally be made on mechanized looms) and yet these and other restrictive practices are still in place.
India's apparel exports are lower by value than Bangladesh's even though India has eight times the population, so clearly something needs to change.
Well, truth be told, end goal of any Indian politician is to save his seat. How to boost the low end manufacturing like textiles, footwears or toys ?? India has stringent labor laws which significantly limits the scale and productivity. Land acquisition is difficult and costly because how come a "greedy businessman" can be allowed to build factories on unproductive farm lands. On one hand, politicians are handing out free electricity to masses for votes, meanwhile businesses are charged massive electricity bills. Power costs for businesses are far higher than other Asian counterparts like Bangladesh or ASEAN. Ultimate goal is the toxic appeasement at the cost of Growth. Last year, central govt tried to implement the farm laws which could've liberalize the Agricultural sector partially. They failed in doing so. India is a cesspit where the illiterate rabble gets to decide the leader. Yet the people in west think that "democratic" and "free" India is necessary to counter China.
Wow what an Interview !!! Really opened my eye to the cons of India . I think I was stuck in Echo chambers about India's Greatness . Some things that I really wish you had asked about India was headwinds related to climate change , monsoon dependency , white skin insecurity , and bad geography and natural resource crunch that are persistent affecting India's Rise!!
Quality post.
BTW I think the Big Taiwan strategy is a great idea. Even if you got started in just one state - Uttar Pradesh is like ten times the population of Taiwan.
It is ten times more diverse and ten times more fractious as well. It's far more likely that an Indian Foxconn getting investment and knowledge to succeed than an Indian subsidiary. This 'Indigenizing' trend is on hyperdrive there. My people are lovable idiots jilted by the past and we've read too many random books that makes us quite the schizophrenic anti-West/pro-West lot.
The interview has virtually no discussion about the elephant in the room, agriculture and farmers. India is perhaps unique in history in that the vast mass of the agrarian workforce (large farmers, tenants and laborers), the *entire* rural society got the right to vote well before urbanization. And for 75 years, this electorate has been telling its leaders, 'we value stability over growth'.
With this context, it is not hard to see why low cost manufacturing, which basically depends on vulnerable labor displaced from agriculture has struggled to take off in India. It also explains why the non-elites in India agitate over everything from affirmative action to economic policies, but have been lukewarm to education. For the agrarian classes that make up the bulk of the population, education is a useful investment only it propels a son (recently daughter as well) straight into the stratosphere of a government or a corporate job.
This also ties in with what will be India's principal contribution to geopolitics. The export of food. India, despite its relatively small farm sizes, low levels of technology, poor supply chains and refusal to monetize bovines is among the largest exporters of food in the world. Barring catastrophic climate change, this role will only grow in the coming decades.
Hmm. The US gave the vote to everyone when it was still heavily rural and agrarian too. The US does encourage individualism and entrepreneurship with open frontiers, and little regard for history and very little endogamous jatis, however (the ones that exist tend to break down). Though India may go down the same route.
When universal suffrage was introduced in India (1950), the country was 95% rural. The country is 65% rural even today. The US was 50% urban by the mid 1910s, before even women got the right to vote. It was 75% urban when African Americans got the right to vote.
Also, I cant think of a time in US history when the majority of lawmakers have been agriculturalists. In India, even today, 40% of MPs are agriculturalists. Agricultural income has never been taxed in the Republic of India, there is also no inheritance tax for farm land. I am doubtful there was ever a time in the US when farm income wasnt taxed.
The societies are definitely quite different when it comes to the extent of individualism, as well as the aspects of life where individualism is emphasized. But I doubt that can explain the nearly 40x difference in per capita income.
A lot of lawmakers were landowners/farmers in the early American Republic. Washington, Jefferson, Madison; many of the important politicians from the South.
The US had an industrial revolution much farther in the past (though about the same time since the country's founding). That would place India about 170 years after the US?
A little over a century after founding is when the US really started becoming an industrial/political/military power on the global stage. And I predict India will be at roughly the same time after founding as well. In fact, the latter half of the 21st century will be dominated by the rivalry between a descending China and ascending India.
Just skip the Civil War part, though. You don't want that.
Yeah I think you hit on a great point. While it's true exporting food is important, it's not what brings prosperity to citizens. That's why agricultural reform is so important, and why it's so frustrating that the three farm laws were repealed last year. The Modi government knew they had to address the severe inefficiencies and stagnation in agriculture before focusing on manufacturing, yet their whole agenda was stymied by special interest groups who basically held Delhi hostage for a year. Not that the farming legislation was perfect, but it was better than nothing. Now the worry is that, if Modi couldn't reform agriculture with his supermajority, no one can.
Thanks Ishaan. As you correctly point out, food (especially staples like rice and wheat) is not an especially lucrative export. But let me point out that much like software, exporting staple grains was never an economic or strategic priority for the Indian government. It just turned out this way, forced mostly by domestic pressures and international conditions.
Ideally, India could try and export higher value crops like fruits, herbs and vegetables. But there are challenges in supply chain, infrastructure and trade barriers.
Excellent interview. You really brought out a great overview of the Indian economy. I remain puzzled, though, as to why low-skill-absorbing manufacturing cannot take off like it has done in (culturally similar) Bangladesh. AS says "path dependence" but that just begs the question. Also, as Cesar Hidalgo research has shown, manufacturing's success in development may be due the ease with which it spreads to similar products (drones and watches overlap with smartphones in parts and assembly skills). I think software, even though its classified as a "service" not manufacturing, has similarly "thick" adjacencies in the product space. India may well be the key test to see if this works - if its development spreads and generates secondary, lower-skilled, employment.
It seems that India has a bunch of laws and forces (like labor) that really penalize size. That's the only thing I can think of.
Yes, but that seems fixable. AS suggests that states are competing with each other in populist policies so why not on this front too? Indeed, there *are* a few states where manufacturing is happening (eg, Tamil Nadu, Gujarat, and Maharashtra). Presumably they have found a way around the restrictive laws. Why is that not spreading?
Elites have to care about the hoi polloi getting better (or rather, manufacturing) jobs. Are those places more socialist/Communist? I believe Bangladesh has less caste/jati divisions, right? What about the various Indian states?
The only two communist states are Bengal and Kerala. Both don't have large scale manufacturing. Bangladesh does not have caste system I am aware of so that definitely helps.
West Bengal is not ruled by communists anymore, it's ruled by the Trinamool Congress.
Really fascinating discussion.
I'm curious how the disease burden in India impacts development, curious if anyone has quantified it. I know the government pursues a few basic measures for mosquito control-- would love to see Indian research teams leading the way on moonshots for mosquito eradication or clean water or pollution control. (Maybe they are? Would love to read more if so.)
I recently arrived in Chennai and was just thinking I'd like to read a general overview of India's economic history. Then this showed up in my inbox. What are the chances!
Great post. Reminds me a lot with Indonesia. Very very similar.
Quite an informative summary. 🙏
Digital india is making everything exponential. People who don't understand tech underestimate it a lot. India will have 500 unicorns soon and they will penetrate into every possible industry they can. This will also create a huge manufacturing sector. Clean energy is the biggest area US can help india with. Reduction of oil import bill will be fundamental for india.
reading such marvelous piece of article and that too from one of my most favorite economist , thoroughly enjoyed it.
A truly insightful interview; thank you, Noah
Superb interview: great questions in scope & span that allowed Arvind to paint a rich canvas of Indian economic development these last 3-4 decades, peppered with some truly insightful well-reasoned arguments
Do people have any suggested reading on Modi, the (sign+magnitude) of impact he has had, and expectations of his future in Indian leadership?
Likith, his impact has been more social and political than economic. All of his policies are roughly continuations of his predecessors, just look at the budgets. He tried to be different with the farm laws and we all know how that ended.
IMO, one reason foreign media likes to talk about Modi is because he is the first Indian leader they can actually place and make sense of. Right since Mohandas Gandhi to Manmohan Singh our choices have confounded outsiders.