HOW TO MAKE INDIA A PRODUCT NATION

Over the past year, the phrase “India as a product nation” has leapfrogged into public discourse, appearing in manifestoes of political parties, and emerging as a policy priority for the government. To be a product nation, the economic ecosystem must shift from a focus on providing services that are relatively low value-added to making longer-term investments in brand building and product development.

- NEELKANTH MISHRA

This transition is critical for India to retain strategic autonomy in a world with fast-changing geopolitics, by increasing the country’s control on critical technologies. It will also help avoid the “middle-income trap” that many emerging markets get caught in on the way to prosperity.

Countries like Taiwan, South Korea and Spain have become developed countries over a few decades by dominating a handful of sectors like semiconductors, electronics, biotechnology and automotive manufacturing. For their smaller populations three to five sectors sufficed. Given its size, India would need to establish leadership in at least 15–20 sectors.

In most such industries profit pools tend to be concentrated in the top few companies or countries. This is because over the past few decades, the importance of intangible assets has grown substantially. Many of the most-valuable companies today, like Apple, Microsoft or Nvidia, do not own factories. Neither do the most valuable biotechnology or pharmaceutical firms.

Their value comes from the brands and intellectual property they own. TSMC and Samsung do run factories, but it is through high-end technology that they capture a disproportionate share of industry profits. In each high-technology industry, only three to five firms account for most of the industry profits. While tangible assets like factories have natural limitations on output, intangible assets do not. Successful companies therefore generate large surpluses, which when reinvested into new product development, trigger a virtuous cycle, driving consolidation.