Since our Prime Minister likes alliterations, he may well have to respond to the question; come on now, what will it take to make (in India)? As a fan of the East, he can draw lessons from many of Asia’s successful countries that perfected the model of becoming factories to the world. India has bucked the odds and made a leap to a tertiary (services) economy without transitioning through a secondary (manufacturing) one. The mandarins in Delhi have hitherto believed that this services revolution will be sufficient to produce the productive jobs required to lift India into middle-income status. The services segment is made up of not only the specialized information technology sector but also a large and low-tech subsistence set of businesses. A re-routing through the manufacturing sector will be required to formalize employment and benefits for these low-tech workers and to lift productivity.

India will, of course, have to follow her own path, not copy others. Some ideas have been discussed piece-meal so far. Here is a more complete list of what it will take.

Macro-economic and Policy Stability: In the public debate so far, surprisingly little has been said about economic and policy stability as a prerequisite for make in India investment. The first and most important condition in order to make in India is to have a low inflation regime where policies are predictable and consistent. High inflation reduces two ingredients of a successful make in India campaign; capital accumulation and the rate of change in productivity. The first task in ensuring a low inflation environment is to eliminate the primary deficit. This deficit is the difference between the total revenue and total expenditure of the government with debt payments netted out of the calculation. India must begin to deliver upon both a primary and fiscal deficit target as measures of fiscal consolidation in its annual budget. The elimination of the primary deficit and a reduction in the fiscal deficit (to say 2.5% of GDP) will ensure that we live within our means each year, do not increase the stock of debt and crowd out less capital from the productive economy.

Beyond inflation, make in India investors will look for policy stability with respect to trade, duties (both import and export) and taxation. Retrospective changes and abrogation of contracts will be the cardinal sin. Skilful management of the economy during periods of “macro-shocks" will be necessary to assure investors about return on their capital.

Supply of Human Capital: Most job seekers recognize that degrees and certificates are not enough to get them jobs. Many require a “finishing school" for vocational training and skilling that lifts their formal qualifications to the status of being employable. In this context, the proposed changes to the apprenticeship act are welcome and long overdue. Apprentices in India can earn while learning and learn while doing. Simplicity of compliance, and changes that make labour law more effective for employee and employer alike are a requirement for a make-in-India movement. Reforms have just begun and must be sustained.

In order not to choke the skilling pipeline, India must become more effective in delivering primary education. Actions over the last decade culminating in the Right to Education Act (RTE) have ensured that an overwhelming majority of children are now enrolled in school. The focus must now shift to curricular outcomes, and age and stage related performance measures. No country has become a successful maker for the world without substantial and effective spending on primary education.

Infrastructure: To make in India and to take everywhere you need power, logistics and transportation. Both power availability (quantity) and power consistency (quality) are woefully inadequate in India. 60% of India’s electricity is dependent on coal and 75% on India’s coal supply is for electricity. The government needs to accelerate the re-auction of the coal blocks recently annulled by the Supreme Court. In addition, it needs to focus on investments to mine coal from India’s vast but untapped reserves. This will require opening up the coal sector to competition by breaking up Coal India and by inviting private firms into the sector. At the same time, a major fix, in terms of competition is required for power distribution. Unless distribution companies become viable and strong, coal cannot be priced right. If coal is not priced right, the stalemate will continue.

Public Spending in Targeted research and development (R&D): There is much argument over whether a make-in-India approach will require a managed rupee, targeted industrial policy, specific industrial subsidies, low deposit rates and a ceiling on borrowing rates. While other countries have used these approaches, the only requirement may be for public support to targeted areas of research and development. Almost all of East Asia supports R&D in targeted areas (telecommunications in South Korea, semi-conductors in Taiwan, biotechnology in Singapore).

When capital—financial, human and technology—can come together and when inputs to make and ship the product are available consistently, then we will be ready. Come, make in India.

P.S. “You have to dream before your dream can come true", said Abdul Kalam.

Narayan Ramachandran is chairman, InKlude Labs.

Comments are welcome at narayan@livemint.com. To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

Close