32

Economic Survey 2014-15

Source: RBI.

Diversify implies that there must be greater

competition within the banking system, including
liberal licensing of more banks and different types
of banks. There must also be greater competition
from capital, especially bond, markets. Facilitating
that will require exiting from asset side repression,
namely the phasing down of the SLRs which would
also help develop bond markets.
Disinter implies that exit procedures must
become more efficient. Debt Recovery Tribunals
are over-burdened and under-resourced, leading
to tardy resolution. The ownership structure and
efficacy of Asset Restructuring Companies, in
which banks themselves have significant stakes of
banks, creates misaligned incentives. The
Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest
(SARFAESI) Act seems to be implemented most
vigorously against the smallest borrowers and
MSEs. Mechanisms for distributing pain efficiently
amongst promoters, creditors, consumers, and
taxpayers without creating moral hazard incentives
for imprudent lending by banks are necessary. One
important lesson is that the clean-up is as important
as the run-up.
25

1.10 MANUFACTURING, SERVICES AND THE

CHALLENGES OF MAKE IN INDIA
Transformational sectors could be in
registered manufacturing or services. Raising
economy-wide skills must complement efforts
to improve the conditions for manufacturing.
The Prime Minister has made the revival of Indian
manufacturing a top priority, reflected in his Make
in India campaign and slogan. The objective is as
laudable as the challenges it faces are daunting
because Indian manufacturing has been stagnant
at low levels, especially when compared with the
East Asian successes25.
Two questions arise. Is manufacturing the sector
that Make in India focus on? What instruments
should be deployed to realize the objective?
Consider each in turn.
New academic work suggests that there is a
complementary way of thinking about
transformational sectors in and for development.
Growth theory suggests that transformational
sectors should be assessed in light of their
underlying characteristics and not just in terms of

The recent upward revisions to the level of manufacturing share in GDP are to some extent statistical rather than
real. Moreover, even the revised data do not change the pattern of trend decline in this share. What has
happened is the statistical opposite of the technological change which Jagdish Bhagwati [Splintering and
Disembodiment of Services and Developing Nations, 1984, The World Economy, 7(2)] referred to as splintering
services from goods.