Rahul Jacob: Manufacturing is crying out for a reality check
China’s success has wowed the world even as its factory trends catch on globally. It’s ironic that so much policy attention is being paid to manufacturing while this sector’s job generation drops thanks to robot adoption.
In a world of wildly exaggerated claims for artificial intelligence (AI), the paradox is that the mythology which leads governments to favour manufacturing over services often seems like a global religion.
US commerce secretary Howard Lutnick was quoted a few months ago fantasizing that “the army of millions and millions of human beings screwing in little, little screws to make iPhones" would soon move back to the US. Hardly a fortnight goes by without New Delhi and indeed governments overseas announcing some new incentive for manufacturing. In India’s case, this is usually via the production-linked incentive (PLI) scheme.
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China led the way a decade ago and provoked a similarly mercantilist pushback from the West. Kicking off its ‘Made in China’ scheme for the manufacturing domination of a swathe of high-tech sectors, Beijing declared “the history of the rise and fall of nations has repeatedly proved that without a strong manufacturing industry, there will be no country and no nation."
Beijing’s melodramatic declaration underlined what is best described as manufacturing machismo, evident also in the Donald Trump administration’s obsession with trade deficits faced by the US in manufactured goods.
For all of China’s success in electric batteries and vehicles, the European Union Chamber of Commerce in China last week pointed out that in electric vehicles, for instance, only three of 112 manufacturers are making a profit. Perhaps only communist accounting principles would allow such distortions.
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At a time when Beijing is seeking to boost its domestic economy because of uncertainty over trade with the US, the risk is that Beijing’s issuances of new bonds will be used for servicing debt rather than boosting consumption or starting new production.
Already, massive over-production means that China’s deflation in producer prices has got entrenched. And its strategy of dumping goods in foreign markets is being ratcheted up to a new level. This week, BCA Economic Research in Jakarta observed of Indonesia’s 22% increase in imports in April that this “surge originated from Singapore (+48% year-on-year) and China (+54% year-on-year), indicating either potential trans-shipment activity or dumping of excess inventory."
The supreme irony is that we live in an era in which manufacturing produces fewer and fewer jobs in factories because of the increasing use of robots. China has been among the world leaders in making robots and using them.
Fifteen years ago, I used to joke that I was the ‘factories correspondent’ for the Financial Times because so much of my work in Guangdong involved visits to factories, which accounted for a dominant share of global production in industries such as light bulbs, knitwear and smartphone accessories. Even then, amid a push by the provincial government to raise factory wages by double-digit levels in Guangdong, I was surprised to see Hong Kong firms using robots in industries such as garment manufacturing.
On a visit to a Ford plant in India at Sanand, Gujarat, a few years later, I saw far fewer workers on the factory floor than I expected and plenty of robots.
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The most recent figures from the International Federation of Robotics released in November 2024 show that South Korea leads the way with 1,012 robots per 10,000 employees. China is third with 470 robots for every 10,000 workers.
An obsession with manufacturing jobs is thus myopic because automation is a principal leitmotif of new factories. “We are now in a tech race over the software and machines that will power manufacturing, more than the manufacturing itself," Joe Leahy, China bureau chief for the Financial Times and co-author of a recent article on ‘Made in China,’ told me. Electric vehicle plants, he observes, look like “power stations" because there are so few humans on site.
India does not figure in the world’s top 20 nations for robot density. Yet, at the same time, as Raghuram Rajan has pointed out, we are a global player in making software for the design of semiconductor chips.
A peculiarity of New Delhi’s obsession with manufacturing over several decades is that it trumpets successes in capital intensive manufacturing while treating labour-intensive industries, such as garments and tourism that produce thousands of jobs, as stepchildren. Garments deserve priority in free trade agreements. So too does visa-free access to India for tourists from rich countries.
Also Read: India can leap from cost competitiveness to innovation-led manufacturing
Another oddity is that India’s success in attracting global capability centres rarely dominates headlines or policy discussions. It routinely shows up in our export data: service exports jumped a staggering 45% year-on-year in the fourth quarter and boosted our GDP for that quarter, as announced last week.
Also in the news is that our ‘Make in India’ scheme for solar modules is running well behind schedule. Moneycontrol reported that solar module capacities are running at a fifth of what the PLI scheme envisioned would be onstream by April 2026.
Part of the problem is that visas for Chinese advisors and technicians have proved problematic. If Beijing is content to subsidize our solar panels, we should let it. We seem dependent on China in this industry in any case and our bilateral trade deficit is at record levels anyway. Even amid the fog of manufacturing myopia, it ought to be obvious that India has a comparative advantage in sunshine.
The author is a Mint columnist and a former Financial Times foreign correspondent.
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