Seven Decades of Independent India

by Vinod Rai

  NGOs have also been at the forefront of expounding local solutions to protect people’s skills and livelihoods. After Independence, for instance, the government’s push for industrial development led to the neglect of local arts and crafts. To address the crisis, Dastkar, a Delhi-based NGO, was founded in 1981 to promote and revive India’s arts and crafts, and to address the plight of artisans. Dastkar believed that if Indian artisans were not cared for, they would suffer, and the country would lose its rich heritage of local arts and crafts. Today, Dastkar’s fairs (bazaars) are an annual feature with more than 350 groups participating, exhibiting and selling their crafts. Following the success of Dastkar melas, crafts exhibitions are now supported by the Central and state governments. Dilli Haat, designed as a permanent crafts exhibition, is a popular tourist destination, and annual events like the Taj Mahotsav in Agra (Uttar Pradesh) and the Surajkund Mela in Haryana are held all over India.

  NGOs have developed alternative models for delivering services to ensure better reach of public services that are more cost-effective, efficient, and free of corruption. For example, the state-run Public Distribution System (PDS) provides subsidized food products (grains, sugar, cooking oil and other products) to poor people through fair price shops. While well-intentioned, the PDS has been severely and consistently criticized for food wastage, corruption and providing spoiled and substandard produce.11 The MKSS set up its own fair price shops in the state to challenge the widely held view that state-run food bureaucracies are necessarily inefficient and that they should be disbanded and replaced by market-based solutions. The shops operated by MKSS have functioned successfully, without being bogged down by corruption and leakages, and have provided an different model that can be emulated by the government to shape up its own PDS. These initiatives underline the indispensability of NGOs to India’s social development and highlight the critical importance of collaboration between the state and NGOs.

  Persisting Challenges

  Despite appreciable contributions, Indian NGOs continue to face numerous problems. Three in particular, that are interconnected, pose serious challenges.

  The first has to do with the influx of foreign funds. Starting with the mid-eighties and more so after the opening up of the Indian economy in the early nineties, NGOs began to attract financial support from international donor agencies for their research, outreach and interventions. However, over the years, critics argue that while donor support has enabled some cutting-edge research and action, such financial support has bred chronic donor dependence, affecting the work culture and autonomy of NGOs. Although the availability of funds has attracted committed and bright young individuals to work with NGOs, voluntary social activism has been transformed for some into a career-oriented path for development professionals, which has often undermined the need to address the local needs and priorities. It has also led to the neglect of issues, such as family planning, that are not deemed attractive enough to attract donor funds.12 Many grassroots groups working with a rights-based approach, such as ending childhood violence and advancing tribal rights, have also found it difficult to mobilize financial resources.

  Second, financial support from international donor agencies has often been viewed by governments as an enabler for political criticism. This is largely because of a tenuous regulatory framework for NGOs. Indeed, the absence of a well-defined regulatory framework that monitors NGOs in India has contributed to mounting distrust between the state and NGOs.

  Successive governments, for instance, led by different political parties, have failed to delete some of the requirements that make NGOs vulnerable. On the contrary, certain provisions of the FCRA continue to be invoked against NGOs that challenge state actions.13 For example, bank accounts of NGOs protesting against the Kudankulam Nuclear Power Plant were frozen on the grounds that they were using foreign funds to fuel protests and cases were registered under the FCRA.14 This has unfortunately attracted considerable international criticism. India has been pulled up in the international fora by countries like the US and Germany that have criticized the FCRA as ‘arbitrary’ and lacking transparency.15

  Concerned with the arbitrary use of state authority to control them, NGOs and activists have come together (through Voluntary Action Network India [VANI] and other networks of civil society organizations). These activists and NGOs have demanded that FCRA be replaced by consistent and well-defined regulations that are transparent, fair and systematically applied to all recipients of foreign funds, including political parties. The persistence of this ambiguous regulatory framework has led to tensions between NGOs and the state.

  The third problem has to do with the failure to scale-up successful NGO-led interventions across the country. NGO-led initiatives have been successful at the local and state level, but attempts to replicate them on a national scale have failed.16 While the inability to scale up pilots to a pan-Indian level has much to do with financial and network constraints, it highlights the limited capacities of NGOs to influence state policies and programmes. It also points to the limitations of NGOs in effecting positive social change on a large scale.

  Adversarial relations with the state compound this problem. The state possesses resources, executive authority, infrastructure and reach to replicate and scale up nationwide pilot projects initiated by NGOs. However, collaborations between NGOs and the state have been few and far between owing largely to lack of trust on both sides about intentions and actions.

  There are, however, positive examples where such collaborations have improved public policies and delivery of services. For instance, the Population Foundation of India (PFI) has consistently worked alongside governments to spread awareness about government-led healthcare programmes and to ensure better healthcare delivery. The PFI continues to collaborate with the Ministry of Health and Family Welfare in providing technical assistance for scaling up the implementation of Community Action for Health (CAH). A key strategy of the National Health Mission (NHM), CAH adopts a bottom-up approach to ensure that the health needs and rights of the community are fulfilled. Being implemented in eighteen states, CAH covers 202,162 villages in 2129 blocks across 353 districts.17

  Looking Forward

  Clearly there exists both the need and scope for collaboration between the state and NGOs. For this to happen, it is important to review laws and formulate a regulatory framework that will allow NGOs to function independently and efficiently. Doing so will help weed out corrupt and dubious NGOs and ease tensions between the political establishment and NGOs. It will also allow for greater collaboration between both to pursue research and expand opportunities for adaptation of work being done by community-based NGOs. An urgent review of FCRA and other regulations that preserve the political autonomy of NGOs while monitoring their finances is the need of the hour. The Government of India has displayed its intentions to do so. India’s former Union minister and current vice-president, Venkaiah Naidu, has gone on record to say: ‘The registration laws, Foreign Contribution Regulation Act, provisions in the income tax laws—all these need to be periodically reviewed and revised in order to enable the sector to function independently and impartially.’18

  However, transparency in funding cannot be expected of one entity without reciprocity from the other. It is in this context that it becomes imperative for India’s political parties to disclose their finances and open their records to public scrutiny. Public disclosure of inflow and outflow of funds in political parties is likely to check partisan patronage, wherever it exists. Such transparency will also help dispel the belief among some that political parties in the government support NGOs that are ideologically aligned with them and target those that are opposed to them.

  NGOs will need to resolve two other issues relating to resource mobilization. As foreign funding becomes scarce, Indian NGOs will have to rely increasingly on the government, the private sector under corporate social responsibility, and Indian philanthropies. All three potential funders have considerable introspection to do.
Funding from the government should come with no strings attached. NGOs should be able to transparently report not only all financial data but also their successes and failures. The corporate sector needs to rethink its role beyond narrow commercial interests and address issues of genuine national concern. Finally, Indian philanthropists will have to realize that helping the poor can be as rewarding, if not more, than funding temples and religious activities.

  The human resource issue is another matter of concern. Voluntarism, political autonomy and commitment to social justice constituted the ethos of India’s NGO sector soon after Independence. Today, this sense of public service is missing in many professionals. This does not augur well for a nation that has to clear a huge backlog of human poverty and also address many new challenges. Civil society organizations need to play a more active role to instil in young people a greater respect for the Constitution, a better sense of equity and social justice, and a respect for human lives and dignity.

  India faces many human development challenges. Ensuring more effective collaboration between NGOs and the state can certainly accelerate the pace of progress as India ensures greater freedom, equality and justice for all.

  XI

  Indian Industry: Prospects and Challenges

  Rajiv Kumar

  India’s industrial development since Independence has charted its own rather unique path. Industrialization began in the early nineteenth century when the first textile mill was established at Fort Gloster near Calcutta (Kolkata) in 1814, followed by many such mills in Bombay (Mumbai) and Ahmedabad. Industrialization came of age with the commencement of steelmaking by the Tatas in Jamshedpur in 1907. This put India among the early ‘industrializers’ outside Europe and North America. But India’s industrialization was unable to benefit from either this early start or the distinct advantage of catering to a large and growing domestic market and emerging markets in neighbouring Asia.

  Several factors, both external and self-inflicted, led to the ‘arrested development’ of the industrial and manufacturing sector in India. These were in broad chronological order: the colonial administration’s anti-colony bias;1 upheaval and partition of India during Independence; central planning and Soviet-style heavy industrialization;2 dysfunctional regulation over capacity expansion and technology upgradation;3 growth-retarding inverted protectionism (with higher import duties on inputs compared to finished products); and export pessimism.4 These policy-driven shifts and swings have led to underperformance by Indian industry, in terms of its share in the Indian economy, aggregate employment and stagnant share in external markets.

  The liberalization of 1991 generated strong optimism on the much-needed expansion of the manufacturing and industrial sectors. This optimism has been unfortunately disproven. The liberalization led to the take-off of IT and IT-enabled services (ITES) but hardly impacted manufacturing and industry, with their shares in GDP stagnating between 16 to 28 per cent during the post-liberalization period (Appendix 2). The services sector took up the decline in the share of agriculture by raising its share from 45.2 to 53 per cent during this period (Figure 7A) with IT revenues increasing from USD 2 billion in 1994–95 to USD 3.1 billion in 2004–05 and further to USD 119 billion in 2014–15.5

  Apparently, India side-stepped the second phase of the Rostowian development path6 with the secondary sector being replaced by the tertiary sector as the driver of growth and absorber of surplus labour from agriculture. The shift occurred even when India’s per capita incomes were low enough to have generated growth from industry as opposed to services. The contrast is stark compared to China’s manufacturing share in GDP ranging between 32.2 and 30 per cent during 1991–2015. The next section discusses the relative stagnation of the industrial and manufacturing sectors during the twenty-five years following liberalization.

  Successive governments since prime minister Vajpayee’s in 1998 have refused to accept the slow growth in manufacturing. India’s political leadership across party lines have emphasized accelerated manufacturing sector growth as the key for achieving high GDP growth and full employment, facilitating its transition from a low to an upper middle income economy. The emphasis on manufacturing, as pronounced by successive prime ministers, is summarily reflected in the objective of raising the share of manufacturing in GDP from 16 per cent to 25 per cent and employing as many as 100 million workers or approximately 20 per cent of the total workforce. This target is repeated on multiple occasions despite the growing evidence that given the trends in global trade and technology flows, the share of manufacturing in GDP of emerging economies is likely to plateau at a much lower level than those of advanced economies and by China.7

  Figure 7A: Change in Sector Shares in India (1970–2016)

  Figure 7B: Change in Sector Shares in China (1970–2016)

  Source: World Development Indicators Database, World Bank, Ministry of Statistics and Programme Implementation, Government of India, and National Bureau of Statistics of China.

  The critical question facing Indian policymakers is whether it is feasible to achieve the ambitious target for manufacturing given that automation, robotization, digital networking, including ‘Internet of Things’ and advanced machine interface, are reducing labour intensity in and employment potential of the manufacturing and industrial sectors. The consequential ‘re-shoring’ of manufacturing capacities back to advanced economies, which had earlier relocated these industries to emerging economies with lower wage costs, has manifold implications for Indian industry, as discussed later, along with some major emerging trends in industrial automation often referred to as ‘Industry 4.0’.

  The last section in this article argues that emerging trends in automation and re-shoring should not propel Indian policies to become protectionist for shielding Indian manufacturing. This would be a Luddite response destined to fail in meeting the manufacturing sector’s growth and employment generation targets. Such an inward-looking and protectionist strategy would further shrink the Indian manufacturing sector for two strong reasons. First, as a founding member of the World Trade Organization (WTO) and having joined several bilateral and regional free trade agreements, India will be forced to increase tariff and non-tariff barriers to protect its producers from imports. Indeed, a reversal from existing levels of globalization is not feasible and the domestic manufacturing unable to compete with imports will shrivel further.

  Second, in a self-reinforcing manner, complete reliance on domestic demand will not permit adoption of frontline technologies and production processes that generate economies of scale and lower costs, necessary for making Indian manufacturing globally competitive. This would spell the slow but certain demise of the Indian manufacturing industry. The last section provides an alternative policy direction for making Indian manufacturing globally competitive and better equipped for meeting its ambitious objectives.

  Stylized Features of the Indian Manufacturing Sector

  An overview of the manufacturing sector reveals the following:

  The share of manufacturing in GDP has been around 15 per cent since 1965. Notwithstanding an increase to around 19 per cent in 2007, it declined to around 16 per cent in 2015 (Appendix 2).

  The above share is significantly lower than that of China, which while being as high as 40 per cent in 1980, has consistently been around 33 per cent. Again, in contrast to India, manufacturing made up for a lower share of agriculture, as well as the labour displaced by the latter (Appendix 3).

  Sub-sectoral composition of manufacturing output in India has been somewhat lopsided and not in line with other emerging economies.8 Relatively labour-intensive industries like light engineering, garments and leather goods have grown much slower than capital-intensive chemical and petrochemical industries. This has been policy-induced and prevented India from exploiting its comparative or low wages.

  The rather perverse composition of Indian manufacturing is due to dysfunctional government procedures and licencing requirements that critically constrained the grow
th of manufacturing. For instance, in 2016, India was thirty-ninth and 130th in the global competitiveness business environment indices. These rankings, much worse earlier, did not permit expansion of manufacturing. Services with less dependence on licencing and regulations performed much better since 1991.

  The lopsided growth of manufacturing industries prevented India from capturing global markets through labour-intensive exports. The share of Indian manufactured exports in global manufactured exports increased from 0.5 per cent to 1.5 per cent during 1991–2015. In contrast, China’s manufactured exports increased their share from around 2 per cent to more than 18 per cent in 2015 as a result of higher focus on labour-intensive industries.

  The share of manufactured exports in India’s total exports has remained relatively unchanged at around 70 per cent between 1990 and 2015.

  Regionally, manufacturing has remained inequitable despite the liberalization of 1991 and further reforms. Maharashtra, Gujarat, Tamil Nadu and Karnataka account for more than 50 per cent of the manufacturing output since 1970–71. The share of the weakest ten states in manufacturing has increased from 10 per cent in 1970–71 to only 15 per cent in 2014–15.9

  Overall, the industrial sector’s share in total employment increased from 15.4 per cent in 1999 to 24.8 per cent in 2012. But manufacturing’s share in employment over eighteen years (1993 to 2010) remained stagnant at around 11 per cent. India seems to have reached the plateau in the manufacturing sector’s share in employment far earlier in its development journey.