When I visited Delhi and Ludhiana in November, 2013, I found that these cities resembled major cities of China in the late 1990s. Commonly these cities had construction booms with the mushrooming of modern shops, supermarkets, high-rise apartments, and hotels, as well as serious air pollution and traffic jams. Considering that China launched its economic reform in 1979 and India in 1991, India seems to be behind China by 10 to 15 years.
One major difference in the development pattern between these two countries is that while China relied on the development of manufacturing industries, India depended on the development of the ICT industry. I have serious doubts, however, on the sustainability of the current path of economic development in India, which is being transformed from an agrarian economy to the ICT industry-led economy without experiencing industrialization. The reason is simple: the ICT industry provides lucrative employment opportunities mainly to the educated labor force, thereby widening the income gap between the rich and the poor, who are generally uneducated. Obviously, India needs the development of manufacturing sectors, which provide ample employment opportunities for the poor, for the socially sustainable development of the economy.
It is truly an opportune time for India to undertake industrialization. First, because of the increasing wage rates, China is losing its comparative advantage in light manufacturing industries. This implies that the production centers of such industries will move from China to other countries, including some countries in Southeast and South Asia, including India. Second, increasingly Japanese manufacturing firms are seeking new production bases outside China. Needless to say, India can learn advanced technology and management know-how enormously from Japanese manufacturing firms, which have significantly contributed to the miraculous economic development in East Asia. On the other hand, Japanese firms can gain immensely by initiating production in India, where markets are huge and expanding, both competent and cheap labor forces are available, and the language barrier is low. In the Suzuki-Maruti factory in Delhi, only ten Japanese staff work with 5,000 Indian workers, attesting to the possibility of creating productive work places in India with a small number of Japanese staff.
There are three major obstacles to industrialization in India. First, infrastructure for industrial development is underdeveloped. I have visited the Gandhi Nagar ready-made garment cluster in Delhi several times, which is one of the largest garment clusters in the world. However, all the workshops are tiny and stagnant, and the quality of the products is not high enough for export to developed countries. In my view, however, this cluster has huge growth potential but simply suffers from the lack of well-developed roads and other infrastructure. Its congestion reminded me of the famous congestion in major train stations in Tokyo during rush hour. If industrial parks with well-developed infrastructure are constructed for promising garment firms, this cluster will certainly take off. I understand that there are large numbers of stagnant industrial clusters in India with the potential for growth.
Second, unnecessary regulations on the operation of small and medium-sized enterprises should be lifted. As many Indians recognize, India grows at night, when the government sleeps. We must let markets determine employment, salaries, and work conditions, with minimum interventions from above. An economy in which small enterprises do not have the ambition to grow large due to escalated regulations will never grow successfully. It is worth recalling that many of the current giant firms in Japan, including Toyota, Honda, Sony, and Panasonic, started as tiny family enterprises. China’s development is not far different from Japan’s in this respect.
Lastly, and most importantly, the Indian government must recognize the importance of “learning from abroad.” Japan has developed successfully because it has been learning substantially from the West for the last one and half centuries. Similarly, China has been learning so much from Japan during its miraculous growth period since the end of the 1970s. Interestingly, the Bangladesh economy has been growing rapidly by learning from abroad and foreign firms. There is now no question that the key to successful development in Asia is “leaning from abroad. “Kishore Mahbubani rightly points out that if Japan had failed to develop, Asia would now be like sub-Saharan Africa. It is also worth emphasizing that the IT industry in India has successfully grown by learning from Silicon Valley. India should clearly recognize this if it is interested in achieving the inclusive and sustainable growth of the economy.
One aspect I respect regarding China is that its political leaders often visit factories to understand the issues on the ground. Following the China model, I strongly recommend that policy-makers in India visit factories to learn what is needed and what is not needed in the production sites.
I also strongly recommend that both business and political leaders in India and Japan meet and discuss what the most beneficial collaborations are between India and Japan. Undoubtedly, this can be a critical step towards a truly strong partnership between these two great nations. Prime Minister Abe’s forthcoming visit to India can be most fruitful if it triggers new collaborative efforts between India and Japan.