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Industrial economy of the Subcontinent in perspective

| Updated: March 07, 2020 22:37:14

Industrial economy of the Subcontinent in perspective

Make in India is failing to roar. Pakistan's industrial economy is virtually stagnant. And Bangladesh's export-oriented readymade garment (RMG), which dominates industrial economy, has been showing sign of stress. Despite some recent growth history, industrial economy of the Subcontinent has failed to grow as a significant global industrial force. But in 1750, present India, Bangladesh and Pakistan combinedly had a share of 25 per cent of global industrial output, which came down to 2.0 per cent in 1900. At present, this contribution is still insignificant-with little over 3.0 per cent share of global manufacturing outputs. Being blessed with huge labour force, large domestic market, availability of natural resources, and reasonably good supply of science and engineering graduates, why has the Subcontinent been failing to get back its past glory? Despite having the question about quality of education, some of the science and engineering graduates of India, Bangladesh and Pakistan have been doing very well in advanced countries. Some of them are even at the helm of globally well-known technology firms. Underlying the depressing picture of industrial economy of the Subcontinent, what is the role of policy? Is there a weakness in strategic thinking in these countries' development scheme?

Till 1947, the British rule kept the role of the Subcontinent as raw material supplier to feed the industrial economy of Europe and buyers of their finished products. Along with tax differential, they also followed harsh measures like chopping the thumbs of Muslin weavers of Dhaka to disincentivise the local industrial activities. Basically, the role of the Indians was to work as farmers and miners to produce raw materials for the British industry to process manufactured outputs. To facilitate it, railway network was established in India, and factories were established in the United Kingdom. Upon getting preferential access to raw materials supplied by India, the British industrial economy kept flourishing. To address the labour shortage, British industry also focused on labour saving production machinery. With the proceeds of raw materials, Indians also became customers of British industry. As a result, during the colonial period, the Subcontinent did not get the chance to advance in technology and improve production techniques.   

In 1947, the Subcontinent was divided into two different countries, which was followed by another split in 1971. After independence, India followed the policy of import substitution. Policy offered protection and incentives to replicate imported industrial products. But this policy did not provide incentives to keep redesigning and improving them. On the other hand, Indian scientists pursued basic research with the hope to fuel industrial economy through scientific discoveries. But policy did not bridge the gap between the progress of scientific research and the necessity of industrial innovations. As a result, Indian industry kept failing to maintain pace with the global trend. While firms of the Western world and Japan remained busy in advancing their technology supporting the improvement of products and processes to produce, and innovating new ones, Indian companies kept producing the same products. This journey eventually ended up as the failure of developing globally competitive industrial economy, which compelled India to reduce protection and allow the entry of global firms to India. Through this journey, although India acquired the capability to replicate, it failed to achieve the ability of technology advancement, redesigning and innovating for higher quality at reduced cost.

Bangladesh and Pakistan too followed the policy of import substitution, to a lesser extent though. Bangladesh also followed the policy of manufacturing of jute products, which was disrupted by the emergence of substitution. Policy of import substitution through import of capital machinery and design of industrial products showed certain growth of industrial economy in these countries. Globalisation and technology progression also brought some export-oriented service and manufacturing jobs in these countries. But their policies did not provide incentives to ideas and creativity to improve production method, update product design and innovate new products. As a result, their progress after independence was not as fruitful as it should have been.

At the dawn of the 21st century, labour and raw matarial-based value addition of these countries to the global value chain is highly under stress. On one hand, globally, increased automation is reducing labour content in virtually all industrial products, and on the other, automation is also increasing the quality and reducing wastage, consequently cost. Moreover, the emergence of new technology core is posing disruptive threat to labour-based value addition in certain critical industries. For example, electric vehicle requiring less than half the labour in comparison to gasoline vehicle is posing threat to the jobs of India's 37 million automobile workers. Similarly, Bangladesh presently requires less than one-third labour force than was required in 1980s to produce the same volume of RMGs. The recent success of high-tech device assembling through imported capital machinery and components is also under serious threat to China's re-innovation strategy.  To make the situation worse, increasing automation is also posing serious threat for back-shoring. As result, whatever progress the Indian's Subcontinent made since 1947 in building industrial economy appears to be under the threat of premature deindustrialisation.  

In this given situation, what should be the strategy of these countries to cope with the unfolding threat of premature deindustrialisation, and to leverage new opportunities? The obvious answer is that they should provide incentive for talents and creativity to pursue innovation. But the competence needed for managing the journey of taking ideas to market appears to be highly unclear to policy makers, investors, entrepreneurs and managers in these countries. Over the last 70 years, the culture of making money by following risk-free path has become the habit in these countries. High tax differential for import substitution has encouraged local firms to acquire the capacity of assembling high-tech products. But this labour-based value addition is not sufficient enough to be competitive in the global market. Focus should be on encouraging risk taking and efficient management for adding increased value through ideas. To leverage this approach, the challenge is to create an incentive structure that encourages competition to profit from talents and creative ideas for offering better quality goods and services at lower cost through local value addition out of intellectual assets. At this age of globalisation, rapid technology transformation and the temptation of leapfrogging, it's time to focus on a clear vision, strategy, and policy in developing idea-based industrial economy, as opposed one reliant on conventional labour, raw material, and imported capital machinery.  

M Rokonuzzaman PhD is an academic and researcher on technology, innovation and policy.


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