Twinning Make in India with Make for India
Shantanu Basu
The recent meltdown of global oil and natural gas industries has not been extensively or
intensively debated for its political, military and economic opportunities for India save for
savings on import of POL. In 2014, Saudi Arabia’s marginal cost of producing a new barrel
of oil was a measly $5 against its global spot price of around $ 120, i.e. a profit of $117 per
barrel. Thus, for every 100,000 barrels, the Saudis were making $11.70 million. With their
production at 2013 being 9.70 million barrels/day, the Saudis were making profits of $ 1.12
billion per day in 2014! In other words, in a year, on an average, they made $ 414.25 billion
dollars in a year. Similarly, on production of 2.80 million barrels/day @ $ 5.90/barrel, the
UAE made profits of about $ 120 billion/annum. Likewise, Kuwait @ $4.40 and Oman @
$5.30, Bahrain @ $ 8.40, Qatar @ $ 15 and Russia (onshore) @ $18, among many others,
made giant windfall gains. In contrast, the marginal production cost of a barrel of shale oil in
the US was $ 73 while offshore was $ 53/barrel. Canadian oil from sand cost $ 90/barrel.
Interestingly, India’s cost was most competitive @ 6.90/barrel. Incidentally, the World
Bank’s Pink Sheet shows that on its base year of 2010 (=100), global energy costs by Dec.
205 declined to 64.90, i.e. a decline of over a third making oil cheaper than it was in 2010!
What do all these mumbo-jumbo figures tell us of the encompassing morass the global
economy is currently in?
The West Asian oil economies will easily last out at least another 7-8 years even if oil prices
decline to a highly probable $ 20/barrel. With Western sanctions now lifted on Iran, this
nation could add another at least half million barrels/day to global availability, pushing prices
closer to the $20 mark/barrel. If the US dollar strengthens, as it is doing now, gain in capital
value of the oil producers’ mostly dollar-denominated investments (including sovereign
investment funds) may partly offset Chinese withdrawals from the US banking system. Only
if the dollar sinks again, then the 7-8 years may decline to 5-7 years. Yet oil producers’
investments, much of it in real estate and major US firms, would create a vested interest for
the Americans to hang on to these funds to avoid economic adversity and consequential
hardship. However, the lifting of freeze on Iranian assets in the West worth reported to be
about $ 100 billion may somewhat mitigate American withdrawal apprehensions.
Shale/sand oil and gas producers, US and Canada, may be faced with large-scale crashing of
prospecting firms that US/Canadian banks have loaned for capital investment. For instance,
in Jan. 2016, BHP Billiton, a mining-heavy FTSE 100 company, announced it expected a
$7.2 billion write-down on the value of its US shale assets. For a logical corollary, BHP lost
40% of its market value last year. Likewise, BP confirmed that its global cutbacks would see
20% of its North Sea employees losing their jobs. Qatar’s recent offer to India to waive Rs.
12000 crore minimum billion charges and low unit consumption charges on its vast PNG
reserves would make Qatari PNG cheaper than US/Canadian shale gas even after factoring
declining shipping costs. This would also challenge the Russian near-monopoly of gas
supplies to Western Europe, notably Germany. Fast-tracking an imminent interest rate hike
alone may retain oil and Chinese funds in the US. Massive increase in solar energy
commissioning in the US and large POL consumers like India would enhance the downward
pressure on prices of shale/sand oil and raise the attraction for retaining Chinese and oil funds
all the more. The cumulative effect of all these may stress US banks that have not yet fully
recovered from the housing bubble of 2008-09 and scandals. Hence, there would every

incentive for the US Fed to raise interest rates that would attract funds presently invested in
uncertain emerging economies like India.
Declining demand from China and sinking oil and gas prices have fueled a severe crisis in the
commodities market and, by implication, financing banks. The World Bank’s recent Pink
Sheet shows the index (base year 2010) for metals and minerals declined from 90.8 in 2013
to 66.9 in 2015, precious metals from 115.1 to 90.6, fertilizers from 113.7 to 95.4, food from
115.6 to 90.8 and other non-timber raw materials from 87.6 to 69.4 Australian coal recorded
a decline from $84.60/mt in 2013 to $57.50/mt in 2015 (32%). The natural gas index
similarly has declined from its base of 100 in 2010 to 73.3 in Dec., 2015. Similarly, Thai rice
(5%) has declined from $ 505.90/mt in 2013 to $386/mt (24%) in 2015 while US wheat
(HRW) has fallen from $312.20 in 2013 to $ 203.20 in 2015 (35%) and sugar from $0.39 to
$0.30/kg (23%). Likewise, depression has affected metals too. The price of aluminum
declined from $1847 to $1665/mt (10%), copper from $ 7332 to $5510/mt (25%), and iron
ore from $ 135 to $56 (59%) with a record low of $ 41/mt (62%) in Dec., 2015. Precious
metals are not exempt either. Gold declined from $1411/toz to $1160/toz (18%), platinum
from $1487/toz to $ 1053/toz (29%) and silver from 23.80/toz to 15.70/toz (34%). Rubber
(RSSS3) has declined from $1.99/kg to $1.56/kg (22%). For once, imports of both oil and
commodities have suddenly become cheaper than producing at home for many nations,
including India. At the same time, a global downturn in consumer demand would preempt
any large export drive and force public policy to raise domestic consumption by appropriate
tax breaks.
With declining Chinese demand, cargo shipping companies are saddled with idle or below
capacity loads and frequency. Reuters’ reported that spot rates for transporting containers
from Asia to Northern Europe crashed by a stunning 70% in the last three weeks of Nov.
2015 alone. The Baltic Dry Index fell from a high of over 10000 in 2008-09 to just about 500
in Nov, 2015. Likewise, the Shanghai Containerized Freight Index declined from a high of
about 1500 in March 2012 to 484.14 in Dec, 2015. Over a 30-year average, the decline has
been from an index of about 60 in Jul, 2015 to a negative of 32.68 in Nov, 2015. Further,
based upon erroneous beliefs that international trade would rise to a volume level of $137
trillion by Dec. 2015, 917 new bulk carriers have been ordered by major cargo shipping lines.
These have caused a decline in Maersk’s profits by 15-20% below its $4 billion estimate for
2015. Maersk Line’s average freight rates were 19% lower in the third quarter of 2015 versus
the same period a year earlier while it also carried fewer containers than it had expected as
shipments only rose 1.1%.
What are the political, economic and military contours of this emerging new Asian order?
Declining oil revenues will certainly strip the West Asian kingdoms and emirates of their
legitimacy (and their ability to buy off revolt) and most probably sweep them away in a blood
bath that is not uncommon in that part of the world. The resultant chaotic vacuum that would
arise can no longer be filled by Western powers, nearly all in severe economic crisis. It is
unlikely that a previously sanction-affected Shia Iran with its $100 billion bounty would be
willing to take the lead in filling this largely Sunni-populated vacuum by its military prowess,
rather by depressing oil prices further in its neighborhood and aiding instability to install
puppet regimes. The resulting political volatility in the oil-producing world that also oversees
the world’s shipping lanes and threatens key Western allies (like Israel and Japan) may create
a vacuum that India and China would invariably seek to fill.
The Sino-Pak Economic Corridor, Gwadar and Chabahar, new Indian navy bases on the
country’s western littoral and upgraded bases in the Andaman Sea, reclaimed Chinese islands
with large air strips in the South China Sea, Chinese-funded ports in Bangladesh, Myanmar

and Sri Lanka point to an emerging conflict, not just for energy, but also for control of the
jugulars of the West and its key allies. Yet India retains a 3000+ km. western littoral
advantage in proximity to the Straits of Hormuz and Persian Gulf with guaranteed short-
reaction naval access for a blue water navy. It also has a militarily and technologically-
powerful Israel as an active and promising strategic and business embedded ally in West
Asia. All India needs is to prepare itself with a blue-water navy and strong long-range naval
air strike capability for covering the West Asian and East African regions. The Americans
may not have any choice of military partner in these areas, save backing India as its
unintended proxy in West Asia, even as the Chinese threaten to withdraw from the US
banking system and militarily intimidate US allies and economic interests in the Far East and
SE Asia. If the South China Sea is China’s, the Indian Ocean and Andaman Sea must be
Indian! As long as India or China do not interfere with each other’s shipping from either
Western India, Karachi, Gwadar or Chabahar, the two Asian giants may successfully forge a
beneficial relationship, each of their own, based upon mutual respect. Yet conflict is inherent
in this uneasy relationship. India must therefore match China’s recent military reorganization
and fast-track purchases of military hardware.
Yet, for India, this global depression may translate into a unique power-gaining advantage.
Indian companies have forayed into remote corners of Africa and South America from auto
makers to plantations and cellular networks. Manufacturing plants located in commodity
producing nations with low labor costs could produce the raw materials that India requires to
build its infrastructure at much lower costs that could be transported to India’s shores at
equally low, if not lower, rates. Transporting sugar for producing ethanol, casting aluminum
and steel assemblies, steel girders for bridges, bitumen, stone aggregate and plastic coating
for our distressed roads, copper wire, etc. back to India may make sound economic sense. For
instance, Australian coal’s ash content is about 6-7 times lower than that of Indian coal.
Being of Indian manufacturing origin overseas, import duties ought not to apply to such bulk
imports. Large-scale bulk imports would fuel huge employment, lower input costs and sale
prices, control inflation, generate jobs in infrastructure such as a national network of PNG
filling stations, energy, water supply and mega incineration plants, pay for expensive
pollution-control systems, improve our broken roads and bridges, schools and hospitals,
provide savings to fund our broken education and healthcare systems, prefab homes for our
homeless, and develop new upstream skilled and semi-skilled jobs with higher wages, in
India and overseas, and myriad more benefits.
Overseas manufacturing/exploitation would also cast substantially lower pressure on our
energy, sanitation, roads, railways, water, environment (with its cost of enforcement) and
other natural resources, etc. It would also conserve our natural resources and add to our
strategic reserves, notably of oil and strategic metals in the same way West Asian oil, Chilean
copper and Canadian aluminum did for the US for close to a century. With local
manufacturing jobs becoming available, developing and underdeveloped host nations with
high levels of unemployment are unlikely to be averse to commercial farming/manufacture to
feed Indian industry. India could adhere to global pressure on it to curb its environmental
pollution, albeit with a frankly post-colonial payback mindset. Foreign investment in more
profitable upstream assembly/manufacturing with low-cost raw materials would make India a
very attractive destination for foreign investors in search of ever-rising EPS. In sum, the
combined effect of these measures would be a healthy increase in India’s GDP with better
quality of life for its citizens. There is still time for India to enter into this major course
correction, indeed a paradigmatic change – the last window of opportunity before the global
economy starts recovering in another five years or so. The recent Africa Summit in New
Delhi was a baby step in the right direction – Make for India twinning Make in India!

Rare Earth Elements (REE) are used in commercial and military electronics, "green energy
technologies," and other applications. Although REE are located all over the world, most of
the current global supply is sourced from active mines in China. A number of studies
establish that the demand for REE is likely to exceed supply very soon. REEs are used to
make high power magnets for lightweight electric motors and MRI imaging. They are also
used in manufacture of car engines and chemical factories, rechargeable batteries and
generators for wind turbines. It is red phosphors from rare earth elements that made the color
television possible, and by extension, computer screens, laptops and mobile phones. These
elements are also crucial in military technology, such as in missile guidance systems, jet
fighter engines, anti-missile defense, space-based satellites and communication systems.
Demand for electric vehicles is also forecasted to increase in the coming decades as fossil
fuels dwindle and consumers become more environmentally conscious, and rare earths are
essential in the manufacture of electric engines.
China that holds the global monopoly (97%) for REEs is expected to run out of supplies by
2025. The US Congressional Research Service estimates that global demand for REEs would
rise to 210000 tons per annum by 2015. India already has monazite resources from which it
extracts thorium. While India accounts for a minuscule 2.7% of the global REE production, it
has a further 2.80 mt reserves of REEs, against China’s 55 mt. Barriers to entry are high,
notwithstanding the unpredictable quality of deposits before drilling, and the difficulties
involved in assessing returns given the different supply and demand conditions that apply to
each individual metal. New mines require very large capital investments and long
development times. Environmental concerns bring further costs and delays, particularly
because most mining operations also produce large quantities of radioactive material, mostly
thorium.
Yet such barriers have not deterred a $ 62.40 billion discovery of REEs in Kenya and
Tanzania in 2013. The International Finance Corporation is investing $60 million into a new
UK-based company, Delonex Energy, as part of a $600 million equity line to be provided by
the investors of the company to be used for oil and gas exploration in the East African region.
Base Resources Limited, an Australia-based company is expected to start mining titanium in
Kwale and has put the total project cost at $300 million. REE mines are already operational
in Malawi, Zambia, Mozambique, Namibia, Burundi, Angola, Botswana and Madagascar,
Kyrgyzstan and Brazil. Japan has reached agreements for exploration rights in Lai Chau
province in Vietnam. Large REE deposits are also expected in Central Asia. Evidently,
business returns are manifold more than the risks and costs involved.
India has several State-owned and, now, private mining companies in the copper, zinc,
bauxite, and iron ore, coal, oil and uranium sectors as also 200-year old mapping and survey
organizations. Over the years many Indian companies have expanded into Africa and the
South China Sea and possess desert, mountain and offshore exploration capabilities too. Were
their domestic equipment, exploration expertise and cash surpluses to be partly diverted to
exploring and exploiting rare earths and metals in Africa and Central Asia, this would lay the
foundation for a National Strategic Earths & Metals Reserve, piggybacking on the goodwill
and contact the recent India-Africa Summit has created. These extractions, processed abroad,
could be imported back into India, converted to finished products like magnets and re-
exported at a premium. Rapid turnaround of such materials with just-in-time management
would partly offset costs of storage and disposal of hazardous waste and avert obsolescence.
The same would hold true for all other metals as stated earlier in this article. These measures
would be a win-win situation for India and hedge against future fluctuations in prices apart
from providing better wages and improving the areas in which new
assembling/manufacturing plants would come up.

It follows that the Union Budget for 2016-17 must reflect these geopolitical and economic
realities. In 2014-15, state and central governments spent Rs. 18.48 lakh crore for
development purposes. Even if 5% of this amount, say a lakh crore Rupees, were earmarked
for overseas mining/plantation/manufacturing, this would underwrite capital subsidy for bank
lending in the range of Rs. 8-10 lakh crore per annum by public and private sectors. This
percentage would rise by at least another 20-25% if one were to factor grand corruption and
petty pilferage from nearly all development schemes and rent-facilitating licensing
procedures and lower delivery cost by the private sector, making possible institutional
lending of Rs. 20-30 lakh crore per annum to the this sector, inclusive of appropriate
insurance cover to cover the high costs and risks of exploration/exploitation of natural
resources. Supplementing the private sector and tax breaks, etc. are many other sources of
financing that may come forward with offers to invest were this business model to take off
with a modicum of success. Examples are bilateral and multilateral aid institutions,
infrastructure debt and R&D funds and venture capital, etc. Moreover, there are huge savings
on capital account in state budgets every year. In 2012-13 and 2013-14, ten states alone
accounted for savings of Rs. 31631 crore while the Govt. of India saved a whopping Rs. 4.27
lakh crore in 2012-13. Adding to government revenues are mining leases, telecom spectrum
auction proceeds (about Rs. 43000 crore in 2014-15), huge savings in POL imports not
balanced by reduction in taxes thereon and ad hoc demands raised by the Union Finance
Minister in end-2014 and subsequent cesses. A modest 10% cut in spending on revenue
account could add several thousand crore Rupees more per annum. These amounts would rise
if expenses on Indian aid programs like ITEC were factored. Cash reserves available with
several CPSUs and large private corporations could add substantially to the Make for India
overseas thrust. Our overseas operations could also generate larger foreign exchange profits if
direct supplies of raw or semi-manufactured materials were made to Western suppliers that
would immensely benefit from lower input costs in a depressed global economy.
Yet, it is not as if unlocking funds for such ambitious ventures will suffice. Antediluvian
government budget and expenditure rules, endless inter-Ministerial wrangling, unending
chains of rent-seeking command and control and a mathematical, often mindless, government
audit, must be overcome if the vast unlocked funds are to be properly utilized. For this
purpose, it would be useful to establish independently administered Funds dedicated to
plantation, mining, manufacturing, assembly, skill development, shipping, insurance, R&D,
etc. Government participation would be limited to a quarter or third of the corpus of each
Fund with the balance contributed by the public and private sectors. Each Fund would be
administered by a Board of Governors in direct proportion to financial contribution and with
captive set of rules outside the dated and grossly inefficient government framework and
without supervision by any Union Ministry/Dept. and entirely staffed by professionals drawn
from the public and private sectors. Audit would be conducted by auditors appointed by the
Board and a copy of their report advertised in the mass media and on the Internet. These
Funds would also be deemed to be public authorities under the RTI Act, 2005. In like
manner, captive funds could be created for R&D in Alternative Fuels, developing new
Pharmaceuticals and Chemicals, Industrial Innovation, University and School Education,
Health Care, motor vehicle and building technologies, Legal Services, etc. The value addition
by such Funds would impart cutting-edge domestic technology to Indian industry, replicating
which overseas, at a fraction of similar technology, may be a veritable gold mine for India.
Administering governance by dedicated Funds would not only drastically reduce the
gargantuan armies of civil servants, make for much greater accountability in governance,
reduce rent-seeking chains, limit decision-making in a sector to a manageable Board and
make available many more financial resources for governance rather than on government.

Yet, India’s Foreign Ministry would need to be substantially expanded. Indian Missions in
target nations ought to be provided a captive host country facilitation and technical and
product quality-monitoring wing, each staffed by seconded industry professionals each with a
Minister-level IFS officer, all on five-year tenures to head both these wings. Simultaneously,
the Economic Diplomacy Wing of India’s Foreign Ministry should be staffed by industry
domain professionals at the middle level with a JS level officer for each region reporting to
the Secretary (Economic Diplomacy). In fact, why not spin this Wing into a separate Ministry
by amalgamating elements of the Ministries of Commerce, DIPP, Agriculture, Railways, etc.
into it to spearhead India’s overseas drive?
What India needs is a shift in its development paradigm and in its colonial financial and
political mindsets. The opportunities that current events have presented to India on a platter
demand a mix of public and private enterprise, stepping outside of the colonial government
framework, and determined realpolitik teamed with dynamic policy matched by urgent
implementation, all of which is entirely achievable without any enabling legislation. India
needs to move up in the global value-addition chain to generate greater wealth for its
expectant population. Funds are not in short supply as is frequently made out to be. What is
needed is the political will to succeed. Make for India must be Make in India’s twin and not
exclusive in their joint potential to create unparalleled wealth for India.
The author is a senior public policy analyst and commentator