Industrialisation: Lessons from India’s model

Ultimate Lead Gen

Nigeria must begin to mimic worthy examples to exit the high poverty rate and become an industrialised nation.
One of the many countries that have challenged Nigeria’s industrial model is India.
Shortly after colonial rule, the Indian government followed a non-industrial model where it believed that the economic activities of what and how to produce should be determined by the state.

The East Asian economy, between 1947 and 1964, under the leadership of Jawaharlal Nehru, the then prime minister, practised a bureaucratic centralised government that made licensing requirements stringent, accompanied by a gamut of procedures that required private investments to go through tight clearance by several disparate and uncoordinated ministries.
With the claim of supporting local production of goods and services, the Indian government at that the time subjected almost all trade and capital imports to quantitative restrictions in the form of import licenses. This unhealthy policy was supplemented by tariffs at rates that were among the highest in the developing world.

Apart from high tariffs and unnecessary import restrictions, the government also subsidised produce from the nationalised firms, directed investment funds to them, and also controlled both land use and prices.
This over-restrictive and often self-defeating nature of the regulatory framework became evident by the late 1960s and early 1970s. Comprehensive planning was increasingly criticised as planned targets were not met and many plans were not even implemented. The lack of success in some dimensions led to a new and more restrictive set of regulations. One example is the attempt to reserve sectors for small industries and to restrict the growth of large firms.

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The effect of these policies was liquidity squeeze, high unemployment, multinational poverty and weak economic growth. Not too long after, the country had the most number of poor living, with over 321 million of its populace living below the poverty trap in 1974, according to World Bank data.

Beginning in the early 1980s, a mild trend towards deregulation started. Economic reforms were introduced and it started to liberalise trade, industrial and financial policies. Subsidies, tax concessions, and the depreciation of the currency improved four of 13 export incentives. These measures helped GDP growth to accelerate to over five percent per year during the 1980s, compared to 3.5 per cent during the 1970s. This reduced poverty more rapidly.
However, India’s most fundamental structural problems were only partially addressed. Tariffs continued to be among the highest in the world, and quantitative restrictions remained pervasive. Moreover, a significant government influence continued in the allocation of credit to firms and discouragement of foreign investment. Relatively inefficient public enterprises, controlling nearly 20 percent of GDP, remained a challenge to economic growth and employment generation.

The government expanded anti-poverty schemes, especially rural employment schemes, but only a small fraction of the rising subsidies reached the poor. Competition between political parties drove subsidies up at every election. The resulting fiscal deficits (8.4 percent of GDP in 1985) contributed to a rising current account deficit. India’s foreign exchange reserves were virtually exhausted by mid-1991 when a new government headed by Narasimha Rao came to power.
In 1991, the government flagged off economic policy reforms in the business, manufacturing and financial services industries, targeted at boosting economic growth.

The reform was encapsulated in a model referred to as Liberalisation, Privatisation and Globalisation (LPG). The major aim of the LPG model was to slacken government regulations hurting the growth of investment in the country, transferring of state-owned assets and position the country for consolidation among various economies of the world.
By July 1991, market-based reforms expanded the role of the private sector and investment. The government committed itself to promoting a competitive economy that would be open to trade and foreign investment.

Measures were introduced to reduce the government’s influence on corporate investment decisions. Much of the industrial-licensing system was dismantled, and areas once closed to the private sector were opened up. These included electricity generation, areas of the oil industry, heavy industry, air transport, roads and some telecommunications. Foreign investment was suddenly welcomed.
Greater global integration was encouraged with a significant reduction in the use of import licenses and tariffs (down to 150 per cent from 400 per cent), elimination of subsidies for exports, and the introduction of a foreign exchange market.

Since April 1992, there has been no need to obtain any license or permit to carry out import-export trade. As of April 1, 1993, trade was completely free, barring only a small list of imports and exports that were either regulated or banned. The World Trade Organisation (WTO) estimated an average import tariff of 71 per cent in 1993, which has been reduced to 40 percent in 1995.
With successive additional monetary reforms, the rupee, since 1995, can nearly be considered a fully convertible currency at market rates. India now has a much more open economy.

With these reforms, the Indian economy grew the overall amount of overseas investment to $5.3 billion from a microscopic $132 million in four years and today, the country is ranked the second-highest destination for investment in the world, according to data from the United Nation Continental Trade and Development (UNCTAD).
While there are few similarities and relationships between India and Nigeria, in terms of development, the two countries are far apart.
India earned $37.4 billion from export of textiles and cotton in 2017. Textile and clothing exports between April and September 2019 stood at $18.56 billion.

In 2000, the India government came up with the National Textile Policy (NTP), targeted at manufacturing textiles for global export.
The policy was also aimed at injecting competition through the liberalisation of stringent controls and encouragement of Foreign Direct Investment in the sector.
The Ministry of Agriculture and the Ministry of Textiles were given responsibilities to ensure that cotton and textiles exported reached global standards.
Multiple taxes were removed and incentives were given to investors. Less than two decades after the policy, the industry has made a lot of impacts already on the economy.
The country’s textiles industry is estimated at $108 billion, contributing five per cent to Gross Domestic Product (GDP) and 14 per cent to overall Index of Industrial Production (IIP), according to India Brand Equity Foundation.

Nigeria ranks 116 with 48.3 points on the Global Competitiveness Index and 131st on the World Bank’s 2020 Doing Business Index. Although this is an upward shift by 15 places from its previous position of 146, it is yet to match up with India which ranks 68th with 61.4 points on World Economic Forum(WEF)’s Global Manufacturing Index. In the World Bank’s 2020 Doing Business Index report, the country moved up 14 places to the 63rd position from the 77th position it held the previous year.
On the WEF’S manufacturing index report, India was ranked 25th in growing innovation capacity.
The Indian government launched the ‘Make in India’ initiative in 2014 to encourage companies to manufacture their products in India and it was strictly adhered to.

In addition to this, the government provided an enabling business environment attractive to local and foreign investors in a bid to convert India into a global manufacturing hub
India’s economy is thriving on a single-digit rate of 6.75 percent which improves loan accessibility for manufacturers and business owners, while Nigeria operates a double-digit monetary policy rate of 13.5 percent.
Report from India Brand Equity Foundation (IBEF) states that the manufacturing sector of India has the potential to reach $1 trillion by 2025 and India is expected to rank amongst the top three growth economies and manufacturing destinations of the world by the year 2020. Poverty has not ended in India completely, but it has been able to lift 37 million people out of poverty hole.

After 1991, however, the licensing of India’s pharmaceutical industries was abolished and movement of international capital was liberalised, according to Shikha Chauhan and Indra Giri of Project Guru.
Following liberalisation and support in the form of incentives, 70 percent of India’s demand for bulk medicines was fulfilled by Indian pharmaceutical companies.
Due to an adoption of new technologies and modern scientific approach, the Indian pharmaceutical sector was ranked 3rd rank in the world in terms of volume and 14th in terms of value.

A PriceWaterhouseCooper’s(PWC) report estimated that the value of the sector would reach $74 billion by 2020. Nigeria can pick lessons from this on how development and industrialization work.

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