Myths of our making

The fourth mystification was around manufacturing. India sensed rightly that it may not need to follow a conventional path in terms of manufacturing. But this plausible insight induced an extraordinary hubris, where we simply forgot to ask fundamental questions like: Can the rate of service exports keep up with the import bill if the demand for manufactured goods explodes? In short, will you always be at risk of running a current account deficit if you do not have a diversified manufacturing base? Second, what are the opportunity costs of not leveraging growing domestic demand to give domestic manufacturing a boost? To be fair, a manufacturing policy has been high on the discussion agenda. But most of what passes off as policy is old wishful thinking: it confuses manufacturing policy for a real estate policy. If only we set up enclaves here and there, problems will be solved. The nuances that go into thinking about the nature and character of our productivity growth are largely absent. This point is important because the fact is that industrial growth is sluggish. Even in areas where we should have more momentum, like textiles and automobiles, our advantage is slipping away. It would be catastrophic if the services dogma continues to undergird the de-industrialisation of India.

Restoring vibrancy to the economy will not be just a matter of top-down reforms. It will require a contagion of energy across many different sectors. Political paralysis can stymie that energy. But so can the stories we tell ourselves. Managing an economy, particularly an open one, is less like figuring out a theory, more like managing a chess board. Unfortunately, at the moment, we are playing chess with our hands tied on more than half the squares. We keep looking for the knight, when whole armies are being decimated.

... contd.

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