Industrialisation and development

Livemint has an excellent long-read story about how industrial growth has transformed Krishnagiri district in Tamil Nadu, one of the state's most backward districts. This is a great example of how transformative development happens with industrialisation and productive job creation. In the space of three years, the manufacturing investments in the region have created tens of thousands of jobs. Since most of these jobs employ women, it has also transformed the society and gender relations in one of the state's worst gender-imbalanced districts. 

This is a very good summary of the transformative effects of industrialisation

Krishnagiri is among Tamil Nadu’s most underdeveloped districts and ranks poorly on almost all social parameters, especially those pertaining to women. It has a sex ratio of 929 women to 1,000 men, much lower than the state average of 996. This is because sex determination and abortions are rampant. Girls are rarely educated beyond the 10th standard and female literacy is at just 57%. Child marriage is common, and so are teenage pregnancies. Infant mortality, at 12 per 1,000 births, is much higher than the state average of 8.2. There is a deep-rooted belief that men are superior... “Women have no respect or say in the family as they are seen as a liability," explains K.M. Sarayu, the collector of Krishnagiri district. Successive governments have tried their best to improve the condition of women, with limited success...

In the last three years, thanks to a spate of investments by Ola Electric, shoemaker Fairway Enterprises, precision component manufacturer Tata Electronics and many others, the lives of 40,000 girls in Krishnagiri and its neighbouring districts have been transformed... “In the last few years, investments worth ₹20,840 crore have been made in the district. These investments have created a lot of jobs specifically for women," says V. Vishnu, managing director and chief executive officer (CEO) of Guidance, Tamil Nadu’s single-window investment promotion arm. Ola employs 2,500 women at its plant, called Futurefactory. Its assembly line is entirely staffed by women, who produce as many as 40,000 e-scooters a month. Next door, Fairway Enterprises has 6,000 women workers producing shoes for global customers. Some 70km away, Tata Electronics, which makes components for handset makers such as Apple, employs about 14,000 workers, again mostly women, state government officials say…

“The recent investments and the jobs they are offering are creating a significant tailwind for government efforts and accelerating the change," says T.R.B. Rajaa, minister for industries, investment promotion and commerce in the Dravida Munnetra Kazhagam (DMK) government... Enrolment of girls into a college or a polytechnic has surged 89% in 2022-23 from the previous year. The average age of marriage has risen from 14 years to 21 years in the last two years. Child marriage may not have stopped but it has dropped sharply… “Dropouts from school are almost zero this year and enrolment into higher education (colleges/diploma) has risen 89%," says Maheswari, the district’s chief educational officer… The families now respect women—their newfound financial independence has given them a say in family affairs and over their own lives. It is only a matter of time, experts say, before the sex ratio, per capita income and other social parameters of the district improve. “Krishnagiri’s destiny is all set to change because of industrialization," says Sarayu… As more jobs chase fewer girls, their stock is rising. To retain the girls, the companies offer a free ‘doorstep pick up and drop’ service, free food, good pay, daycare facilities, a career growth path, options to study while working, and so on. The exposure the girls receive is also teaching them to dream big…

Today, the jobs created by the influx of investments far outnumber the women available to take on such roles in Krishnagiri district. And so, a desperate industry is casting the net wider. “Earlier, companies looked for graduates or diploma holders. Now, they are okay taking in someone who has passed the 10th standard and training them," says S. Deenadayalan, a human resources consultant who works in the district and identifies talent for employers. Considering the future demand for jobs and the need to employ girls from faraway districts, the government is setting up large industrial hostels. On its part, industry is working closely with local polytechnics and engineering colleges to dovetail the curriculum to suit their needs.

Contrast this rapid, deep, and broad-based transformation with the slow-drawn and diffuse palliative effects of the government’s welfare and social mobilisation efforts

The foremost responsibility of K. Vijayalakshmi, the district social welfare officer, is to prevent child marriages, and that often leaves her exasperated. “We monitor the girls very closely at school. Even if they are absent for a few days, we visit their homes to check on them," she explains. But the parents are smart. They find ways to hoodwink us and get them married. The threat of a first information report (FIR) and even the arrest of parents has had very little impact. Ramesh Kumar, deputy director—health, Krishnagiri, is in a similar predicament. Despite the government’s best efforts, the sex ratio of the district has failed to improve significantly. “Even educated parents want a male child," he says. They go out of their way to determine the sex of the foetus and terminate the pregnancy if it is a girl. There are mobile scanning vans and most scanning happens in mangroves or in nearby forests. “Even a daily wage labourer spends as much as ₹40,000 to scan and terminate a pregnancy," he adds. That leads to other problems. Most often, the pregnancy is terminated illegally and that causes health issues later on—the maternal mortality rate is high.

The article has some stories of how the whole fortunes of families have been transformed by a woman from the household getting a job in one of these factories. These jobs typically provide Rs 12,000 -15,000 per month, and come with benefits like transportation, meals, daycare facility, basic health care etc. They also provide job security and are a reasonably assured long-term income source. Enterprising women also have career progression opportunities - from factory worker to supervisor to manager to officer worker etc. The economic and social empowerment and income security associated with such jobs are unmatched.

This example is a sobering reminder to both the free-market enthusiasts and those who extoll the virtues of field experiments and evidence-based policymaking about the trajectories of development and economic growth. To the former, it’s a reminder that industrialisation does not happen without active engagement by the government. To the latter, it’s about prioritising economic growth by purusing the well-trodden paths of structural transformation, instead of being caught up with micro-development interventions and fancy micro-innovations.

It’s hard to think of any other structural transformation and economic growth pathway that can have as dramatic an impact as manufacturing. Government jobs (teachers, nurses, armed forces etc), services outsourcing, and non-farm self-employment (for example, triggered by the likes of e-commerce firms - equivalent to Alibaba’s Rural Taobaos) are three other potential structural transformation pathways for rural areas that can create productive jobs. But none of them carry the potential for such replicable, large-scale, broad-based, and productive growth with transformative social impacts as manufacturing.

It’s harder still to think of how such industrialisation could happen without the active role of the government. This role goes beyond macro-level engagement through enabling policies and creation of infrastructure facilities, to solve the co-ordination problems and attract the initial set of firms to invest in the area. This necessarily involves an industrial policy that picks places and winners. It’s also here that things generally go astray in the face of political economy factors, and bureaucratic apathy and inefficiencies, and vested interests emerge.

In theory, India’s pathway to productive and sustainable growth would involve prioritising the full development of perhaps 75-100 such local clusters of varying levels and intensity of industrialisation (Krishnagiri may be an example of very high-intensity manufacturing). At the minimum, ease of doing business enablers that both make it easy to start and run a business and also ensure competitiveness should be complemented with infrastructure investments. All this should, in turn, be supplemented with active industrial policy - business facilitation, land allocation, fiscal incentives, and input subsidies. As I have written in earlier posts, the challenge may be to do this most cost-effectively (read, with the least fiscal cost).

However, such cluster locations may have certain endogenous features. The area must have labour supply with the requisite skills. It helps if it also has some industrial base to build on. It helped Krishnagiri that neighbouring Hosur has been an industrial hub since the early eighties with several core engineering firms having factories there.

But the handicap of the absence of a prior industrial base can be overcome through a combination of aggressive courting of anchor investor(s) and generous subsidies. The Kia automobile manufacturing facility in Penukonda mandal of Ananthapur district in Andhra Pradesh is a great example of near-virgin development. It’ll be interesting to see the trajectory of development of this area in the years ahead. There’s nothing inevitable about the region’s development even after the establishment of the large Kia facility. The government will have to remain actively engaged to attract future investments and coordinate local industrial growth. There is no magic of markets that will solve all these problems, even with a large anchor investor.

In any case, identifying and creating the conditions in such areas to make them industrial clusters should be one of the most important priorities of state and local governments. None of these requirements are discussed or can be explained by economic orthodoxy or theoretical models.

In this context, in a recent interview, Dani Rodrik had some sage advice on the practice of industrial policy:

Successful industrial policy typically operates in what a sociologist would call an “embedded” manner: the policymaking process is coordinated around information moving between the private sector, policy entrepreneurs and other local stakeholders. You need to base policy on input, information, iteration and learning. You have to practise industrial policy in a way where the government is constantly interacting with the private sector to understand where the opportunities are. Otherwise, it suffers from a lack of information… it requires a certain amount of government discipline… The kind of discipline that’s required is the discipline of monitoring, figuring out whether what you’re doing is working, and being able to move away from mistakes when things aren’t working. Successful industrial policy is not about picking winners, it’s about letting the losers go. Some of the worst cases of industrial policy are when you keep putting good money after bad.

This makes structural transformation by creating and nurturing industrial clusters a highly iterative and bespoke process. The point he makes about government discipline is very important. Its deficiency is what leads to capture by vested interests. All this means that there’s a need for high-quality, top-level, long-drawn engagement at the cluster level itself. This demands leadership from both the political and bureaucratic executives.