Founded in 2016, Ceteris Paribus is A student-led economics and finance publication at Davidson College.

Make in India: Costs and Benefits

by Stratton Schock

 

On the 25th of September, 2014, Prime Minister Narendra Modi of India put forward an initiative called “Make in India”. It encourages FDI input and gives many companies a significant impetus to use India as a production base. For example, the group of policies give tax breaks to domestic manufacturers and allow 100% FDI in numerous sectors. Environmental regulations have also been loosened. Moreover, the policies in the Make in India initiative serve to promote job creation through national manufacturing. In this paper I intend to examine this initiative with an emphasis on the costs of pollution and the necessity for job creation in the manufacturing sector. The pros and cons of this initiative will be analyzed in order to illustrate the initiative’s collective effect on India’s economy.

The policy has arrived at a tumultuous time. India is growing at around 7.4% YoY, which sounds impressive, but is much lower than ideal. And despite a relatively low PPP of 0.3, poverty still runs rampant through the nation. This, coupled with an unemployment rate of 8.6% and a vast majority of the country (91.2%) living below $4 per day, means that there is a desperate need to create well-paying jobs. As a result, there has been an enormous domestic push to for the government to provide incentives to create manufacturing/high paying jobs. Furthermore, the push has not just been from inside India. Although India might seem far away to many Westerners, it is steadily becoming the world’s workforce. The west will need India to provide many of the necessities and luxuries that other manufacturing nations have produced in the past. Without India, the future is uncertain and with the world becoming more globalized every day, leaving India in its current economic state is certainly not ideal, even unacceptable.

Despite these problems and myriad others, Modi’s plan is not welcomed by all. Historically, nations like China, the United States, and Great Britain have all evolved through an industrial revolution, which is something that Modi’s plan is pushing India toward. However, excluding the possibility that a traditional industrial revolution may be impossible in a modern and globalized economy due to forces outside the scope of this paper, it is empirically clear that these industrial revolutions have had a huge effect on both the environment and on people’s health. India is already showing many of these effects. Out of the top 20 most polluted cities in the world, India has 13. Air pollution alone is predicted to cut down the life-expectancy of 660 million people in India by 3.2 years for a combined loss of almost 2.1 billion years. This dwarfs the average life decrease by other big polluters like China or the U.S. The negative statistics continue, ranging from ludicrous water pollution numbers, to a serious decrease in endangered animal populations. Admittedly, China does still lead the world in carbon emissions, but at least they are trying to reduce their pollution levels. Since 2000, Beijing has reduced its air pollution by over 40%, whereas Delhi (currently the most polluted city in the world), has increased theirs by more than 20%. The pollution in India has become and is continuing to be a serious problem.

You can read the rest of Strat's paper here.

 

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