India: How The “Local For Local” Model Can Boost Growth

By John Richardson

IT is just silly, the idea that India can become an export-based heavy manufacturing powerhouse to rival China. Here are four very good reasons why this cannot happen:

1. China, despite its rising labour costs in its eastern provinces, has vast supply chain advantages and far superior infrastructure which keeps getting better and better.
2. There isn’t even room for all of China’s manufactured goods in global export markets because of the impact on the West of ageing populations.
3. Thirteen of the world’s 20 most-polluted cities are already in the Indian subcontinent, which is of course already contributing to the 645,000 premature deaths every year from poor air quality. You can therefore argue that the last thing India needs is more factories that produce even more toxic fumes.
4. And if you are with the overwhelming majority of scientists who think that climate change is human-made, India can ill afford to pump-out lots more carbon emissions. As The Economist writes: Climate change could do grave harm to India. Some two-thirds of its agriculture depends on the monsoon, which may become less reliable as a result of global warming. Some Himalayan glaciers are retreating, sending less water to rivers that feed hundreds of millions of people downstream. A quarter of Indians live near coasts that are vulnerable to sea-level rises. Many countries suffer one or more of these problems. Few have all of them. So while Indians need growth, they cannot ignore the consequences of it.

So how can India generate the economic growth necessary to create the 10-12 million new jobs it needs every year for all of its young people? It is by going for a “local for local” manufacturing and services model which will provide basic needs in sustainable and affordable ways.

At the moment, for instance, as The Economist again points out, India imports one-fifth of its coal and four-fifths of its oil. And yet it has plenty of access to that enormous energy generator in the sky. Boosting solar capacity would thus give the government money to spend on other, more valuable things than energy imports. Installing 100 gigawatts of solar would also create 1 million short term jobs, according to the Council on Energy, Environment and Water, a Delhi-based think tank.

Here is another advantage of solar and wind energy: In Karnataka state, electricity generated from both these sources is cheaper than electricity based on imported coal.

Helping to reduce India’s electricity shortages in this way would also help cut the number of deaths from people burning wood and dung in their homes. This results in 500,000 premature deaths each year.

If India replaced all of its incandescent light bulbs with LED ones, it would save 6,000 gigawatts of power a year – equivalent to the total electricity generating of Nigeria.

Here is a thought on this last point: LED light bulbs are obviously more expensive than incandescent ones, but the Indian government could spend money on developing its own low-cost LED light bulb industry. This would also create lots of jobs in LED manufacturing plants. And where would the money come from? Perhaps from installing more renewable energy that cuts India’s oil and coal import bills.

Then imagine how many local jobs, and how much local wealth, will be created if India focuses on building up local manufacturing and services to satisfy other basic needs, such as the 100 million toilets it wants to install. That’s a lot more demand for polyvinyl chloride that can and should be made by local companies, and it means a lot more jobs in plastic processing factories.

India, as The Economist also adds, has the “second mover” advantage of building its infrastructure after China, so it can learn from China’s mistakes and generate extra growth in the process. It could, for example, develop its own army of experts, and army of connected industries, to develop the ultimate “smart city” with efficient transportation systems and non-wasteful buildings.

Back to the basic stuff, though, of just providing India’s very-poor people with decent electricity supply, fresh-water supply and sanitation.India has 230 million living on $1.90 a day or less—the World Bank’s definition of extreme poverty. Give 100 million people sufficient access to these three basic needs over the next decade and they are sure to start earning more than $1.90 a day. That is a huge amount of extra economic growth.

I think that this “local for local” manufacturing and services model will become the only option for India and many other developing countries as it becomes more and more apparent to everyone that the export-focused growth model has run its course.

What does this mean for the global chemicals industry? This is a theme I will look at in detail in later posts. But in short here, this new growth model will radically change both the quantities and the nature of chemicals and polymers that developing countries decide to import.