Make in India: Illusion or A Dream Come True Project?

Vishal Garg

Research Scholar, LM School of Management, Thapar University, Patiala

&

Assistant Professor, Department of Management, JMIT, Radaur

contactvishalgarg@gmail.com, +91-9354654542

 

Abstract: -

Manufacturing sector is the backbone of any economy as it fuels growth, productivity, employment, and strengthens other sectors of the economy. “Make in India” is better recognized as an international manufacturing campaign slogan coined by Prime Minister Mr. Narender Modi to nurture India as one of the favourite and competitive destination for foreign manufacturers. Make in India is the government's flagship campaign intended to boost the domestic manufacturing industry and attract foreign investors to invest into the Indian economy. By 2025, India's manufacturing sector is expected to generate over 100 million new domestic jobs and contribute 25% of national GDP compared to ~15% currently. However, for India to grow at 9–10% over the next 3 decades, India should be a part of the global supply chain and produce for both domestic as well as international markets. 'Make in India' and domestic manufacturing are also the central plank of India's 2015-16 Union Budget with focus on job creation through revival of growth and investment. Concept of liberalization of foreign investments will enable companies to raise long term capital at competitive prices and immensely boost the dual agenda of 'Invest in India' and 'Make in India' – thereby making India a global manufacturing hub of excellence. ‘Make in India’ campaign has energized all the stakeholders and it is most likely to give surprising results that will prove all the critics wrong. This article provides a critique of the ‘Make in India’ program and looks at the road ahead in terms of addressing some of the challenges to ensure its success.

Keywords: -

Make in India, Skill Development, Issues and Challenges, Infrastructure, Ease of Doing Business, Foreign Direct Investigation, Manufacturing, Growth, Unemployment, GDP, National Income, etc...

Introduction: -

Reinforcing the vision to develop India into a global and world class manufacturing giant, the Government of India last year i.e. in 2014 unveiled a national program of Make in India with an aim to facilitate investments, foster innovation and build world class manufacturing infrastructure in all parts of the nation. A strong political mandate and an urgent need of so called push for reforms, Reserve Bank of India (RBI) commencing its rate easing cycle, benign global commodity prices along with gradually improving global growth have created a favourable setting for India’s manufacturing sector. The envisaged creation of smart cities and investment corridors, allowing higher FDI in sectors such as defence and railways, actions to foster project execution including faster approvals and clearances, appeasing investor sentiment, correcting inverted duty structures amongst others, have been some of the encouraging efforts that the Government has undertaken over the last 10 months. These efforts need to be supplemented with proper implementation hereon along with overhauling some of the fundamental factors such as labour laws, poor infrastructure, and tax policies that have held back India’s manufacturing potential. It is very surprising to note that the share of manufacturing has largely remained stagnant averaging around 15.5% of GDP over the last 35 years, which is shown below. Looking into this factor seriously the government of India came out with the thought of increasing this share by the Make in India Program.

Chart 1: - Share of various sectors in Indian Economy

Source: - World Bank Database, Yes Bank Limited.

The share of Indian Manufacturing sector is much below than the other nations of the world and it is considered as the one of the most hindering factor for the success of Indian Economy. There
are lots of opportunities to be tapped as far as Indian manufacturing sector is concerned. India is still struggling for a manufacturing led export growth to take root. Of India’s export basket, 62% comprise of manufacturing exports (as of 2013) which is the lowest among most Asian economies (China 94%, Japan 88%, Philippines 77%, Singapore 70% and Thailand 74%). Major objective of Make in India Program focuses on 25 sectors. The sectors are Automobiles, textiles and Garments, Biotechnology, Wellness, Defence, Manufacturing, Ports, Food Processing, Mining, Media and Entertainment, IT and BPM, Pharmaceuticals, Renewable Energy, Roads and Highways, Railways, Thermal Power, Oil and Gas, Space, Leather, Construction, Aviation, automobile components, chemicals and Electronic System.

In the words of Honourable PM Narender Modi, the FDI does not merely mean “Foreign Direct Investment”, but it should be considered as “First Develop India” concept as well. It is asserted that India should not only be viewed as a market but it should be considered as a holistic opportunity for making India a global economic giant.

The logo of “Make in India” depicts a “Lion” which refers to “King of Forest”. In the same way, India can become “King in Manufacturing Sector” by converting herself to a self-reliant and self-sufficient country and to give the Indian economy a global recognition. It is easier to dismiss any initiative of high magnitude such as 'Make in India' than introspect, reflect and get going. People have created their own mental blocks strengthened by inertia. Hence they refuse to see a dream with their eyes wide open or listen to messages of hope even when they are awake. Such a conditioning is result of centuries of subjugation, subtle acceptance of supremacy of the West and national self-pity. The idea of 'Make in India' is imbued with a great prospect to help people of India overcome their psychological, social and economic handicaps and take control of shaping their collective destiny by looking at each roadblock in the way as a challenge rather than running away simply because the barrier seems insurmountable and waiting for help from some remote land.

Current Status of Indian Economy: -

The Indian economy has been witnessing positive sentiments during the past few months. The real GDP growth is estimated at 5.5% in the first half of 2014-15 as against 5% in the corresponding period of last year. The macroeconomic indicators have also displayed an encouraging trend in the recent times. During the last 2-3 years, the Indian industry has seen a rough patch, decelerating considerably. The industrial growth fell from 9.2% (average) in 10th five year plan period to 7.2% in the 11th five year plan period and 0.35% in the first two years of 12th five year plan (FY13 & FY14).

                 

Chart 2: - Current status of various sectors in Indian Economy.

Source: - World Bank Database, Yes Bank Limited.

However, with the new government in power, the industrial growth picked up from -0.1% in FY2014to an average growth of 2.7% during the first half of 2014-15. The manufacturing sector in India grew at 0.7% during the period April-October 2014-15 from (-) 0.1% in the corresponding period of 2013-14. The sector grew only 0.2% (average) YoY during the last two years. Though policy has been formulated (New Manufacturing Policy 2011) to enhance its share in GDP from 16% to 25% by 2022, the sector is impacted by multiple factors.

 

 

The main aims of Make in India Campaign: -

Ø  To convert India into most favourable Global Manufacturing Hub.

Ø  To Provide Employment among Indians.

Ø  Boost Economic Growth in all sectors.

Ø  To urge both local and foreign companies to invest in India.

Ø  To transform the economy from the services-driven growth to manufacturing-driven growth.

Ø  To attract foreign companies.

Ø  To set up factories in India and invest in the country's infrastructure.

Ø  To provide a better platform for the entrepreneurs to start their business.

Objectives of Study: -

The study would examine the growth dynamics of the Indian manufacturing sector its performance and the potential it can achieve in the coming times. The specific objectives of the study pertain to:

1. To study the structure and growth of manufacturing sector in India

2. To analyse the growth dynamics of the manufacturing sector in India with regard to its competitiveness

3. To know the operational issues and challenges faced by manufacturing sector

4. To analyse the growth prospects of the manufacturing sector in India with reference to make in India.

5. To suggest some workable measures so as to facilitate the Make in India campaign.

Research Methodology: -

In the present research the descriptive research methodology is used. The present study is based on secondary data. Basically, the required information has been derived from various books, Articles from Newspapers, Magazines and Journals, from the various related web-sites which deal directly or indirectly with the topics related to FDI an Indian retail sector. After searching the important web-sites, relevant information was down loaded and analyzed to address the objectives of present study.

Limitations of the study: -

1. The study is based on published data and information. No primary data is being collected.
2.   Every care has been taken to entice qualitative and correct data; still secondary data have collected for the purposes other than problem at hand.

3. The objectives, nature and methods used to collect secondary data may not be appropriate to the present situation.

4. Secondary data may be lacking in accuracy, or they may not be completely current or dependable.
5.  Time constraint remained the major limitation in the study

6.  The biasness can always be there.

7. Before using secondary data, it is important to evaluate them on above mentioned factors. So, it consumes the same time as the primary data.

 

Key Challenges being faced by Indian Economy: -

1. Inflation

Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 8-10%. This causes inflation and is also a major factor reducing living standards of the poor who are sensitive to food prices. The Reserve Bank of India have made reducing inflation a top priority and have been willing to raise interest rates, but cost push inflation is more difficult to solve and it may cause a fall in growth as they try to reduce inflation.

2. Poor educational standards

Although India has benefited from a high percentage of English speakers, there are still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate. This limits economic development and a more skilled workforce.

3. Poor Infrastructure

Many Indians lack basic amenities lack access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruit rots before it reach the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy.

4. Balance of Payments deterioration.

Although India has built up large amounts of foreign currency reserves the high rates of economic growth have been at the cost of a persistent current account deficit. In late 2012, the current account reached a peak of 6% of GDP. Since then there has been an improvement in the current account. But, the Indian economy has seen imports growth faster than exports. This means India needs to attract capital flows to finance the deficit.

5. High levels of private debt

Buoyed by a property boom the amount of lending in India has grown by 30% in the past year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased.

It is hoped that economic growth would help drag the Indian poor above the poverty line. However, so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s rural poor are yet to receive any tangible benefit from the India’s economic growth.. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor.

7. Large Budget Deficit

India has one of the largest budget deficits in the developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year, it still allows little scope for increasing investment in public services like health and education.

8. Rigid labour Laws

As an example Firms employing more than 100 people cannot fire workers without government permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws.

9. Inefficient agriculture

Agriculture produces 17.4% of economic output but, over 51% of the work force is employed in agriculture. This is the most inefficient sector of the economy and reform has proved slow.

10. Slowdown in growth

2013-14 has seen a slowdown in the rate of economic growth to 4-5%. Real GDP per capita growth is even lower. This is a cause for concern as India needs a high growth rate to see rising living standards, lower unemployment and encouraging investment. India has fallen behind China, which is a comparable developing economy


Chart 3 – India’s performance across various pillars of competitiveness

Source: - World Economic Forum 2015 Year

 


Strengths of India’s Manufacturing Sector

a)      Cheap abundant labour gives India a natural comparative advantage in low-value added labour intensive manufacturing goods. The proportion of working-age population in India is likely to increase from around 58% in 2001 to more than 64% by 2021.

b)      India fairs as the most competitive economy: - India is considered as the most competitive economy in terms of both average monthly wages and minimum monthly wages as compared to its Asian peers. Cheap semi-skilled and unskilled labour intensive products give India a natural competitive advantage.

c)      Adequate availability of raw material inputs: - India has rich availability of raw materials inputs such as cotton, coal and iron ore. India has the world’s 5th  largest coal reserves, India is the fourth largest iron ore producer accounting for 5% of global production, and is likely to overtake China as the largest cotton producer.

d)     Rising wages in China is creating room for India: - Average Chinese wages have grown 14.2%YoY from 2000 to 2013. Average wage in China is more than three times of India, and about double the wage in other Asian manufacturing hubs.

Chart 4: - Wage rates in Various Asian Countries

Source: - World Bank Database, Yes Bank Limited.

 

e)      Recognition of India’s neo-middle class: India’s domestic consumer market is the most rapidly growing consumer market in Asia. The new aspiring Indian middle class is expected to touch 267 mn over the next 5 years as per National Council of Applied Economic Research (NCAER).

f)       Rise of consumerism and disposable income: - With consumerism and disposable incomes on the rise, retail sector has experienced rapid growth in the past decade with many global players entering the Indian market.

g)      China is losing advantage as a low cost manufacturing destination: - Demographic dividend is expected to cap labour force growth in China as population ages; hence creating room for India in the global markets to export labour intensive products like clothing, textiles, footwear, furniture, plastic products, bags and toys.

h)     Indian manufacturing growth outshining peers in the BRICs: - Current trends suggest that growth in the manufacturing sector in India is outpacing that of peers in the BRICs. Data for 2014 reveals that the index for the Indian manufacturing sector has been higher than those for other BRIC nations, thereby indicating a faster pace of expansion for the sector in India.

PROMISING SECTORS OF INDIAN ECONOMY

Agro and food processing industry

Auto components & automotive industry

Drugs & pharmaceuticals

Engineering

FMCG industry

Gems and jewellery

Infrastructure

Leather and leather products

Services sector

Textile and readymade garments

Power Sector

Telecom Sector

Space and Satellite

Media Sector

 

Key Recommendations to Government of India “Make in India” Campaign

a)      Tax Reforms:- The execution of Goods and Service Tax (GST) is expected to improve profitability of the manufacturing sector by providing full-input tax credit at each stage of the supply chain and henceforth reducing the cost of production. It is estimated that overall cost of indigenous manufacture will reduce by 10% to 15% on replacement of existing multiple tax regime with GST.

b)      Simplification of Labour Laws and focus on Skill Development: - This will provide relief to a large number of companies to realign their businesses. Because of the old norms, even though the promoters wanted to exit loss making businesses or lay off workers due to tough market conditions, the lengthy process to get permission only added to their woes.

c)      Promotion of sector-specific training for manufacturing: - Initiatives to inform prospective employers about skill development courses and to encourage them to recruit
from skill institutes and investments by employers for imparting job-specific skills to the employees to cater to sectors such as textiles, food processing and defence.

d)     Enabling collateral free, small-ticket bank loans: - With regard to funding, Government Subsidies have a legitimate place in the scheme of things, but the best way to
create an efficient ecosystem is to enable collateral free, small-ticket bank loans that cater exclusively to skill development.

e)      Encouragement of entrepreneurship: - Government funds through grants and seed funding programs such as Technopreneur Promotion Program, Technology Development Board should be used properly.

f)       Monitoring of Public Private Partnership (PPP) projects: - To Encourage private investment in the infrastructure sector the government should reduce public direct spending and must be channelized to other priority areas

g)      Improve Ease of Doing Business and focus on ‘Sunrise sectors: Smarter regulations towards ‘Ease of Doing Business in high-growth multiplier sectors (such as Affordable Housing, Tourism) must become the focus, this will not only provide the better job opportunities but also in building better infrastructure facilities.

h)     Set-up a National Resource Policy: - India needs a simple and transparent policy for natural resources. A clear outline of auctioning natural resources via a revenue-sharing model can be a win-win situation for Government, industry as well as the people.

i)        Creating a National Infrastructure Planning process: - India must define a 6 stage application process for projects - Pre-application stage, Acceptance stage, Pre examination stage, Examination stage, Decision stage and Post-decision stage; along with clearly defining maximum permissible time limit for each stage.

Conclusion: -

'Make in India' has caught the imagination of people all over the world. However, the idea has earned the attention of a good number of critics as well who like to dismiss it as a slogan which will lose charm just as water bubble. However, a deeper analysis of the matter conveys a different story. Historically, many seemingly impossible targets have been achieved out of massive appeal of slogans triggering unimaginable action. No wonder, 'Make in India' call has energized all the stakeholders and it is most likely to give surprising results that will prove all the critics wrong. There is reason for such optimism. Political intent as reflected in the 'Make in India' slogan has matching commitment of the government in terms of policy framework, resources and infrastructure.

Concomitant thrusts on developing quality mind-set, expanding digital footprints and developing skills and employability indicate seriousness of the government in building a holistic ecosystem for success of 'Make in India' programme. While the country is not well-placed in terms becoming a leader in capital-intensive industries, there is tremendous scope of being a pioneer in skill-intensive sectors especially when we are on the verge of reaping demographic dividends as a result of concerted efforts of the government, industry associations and international agencies. Integrating informational and communication technologies, quality and advanced skills will turn the fortunes of the country beyond our imagination.

 

References: -

1)      Aiyar, S. A. (2014, December 14). 'Make in India' can't be a policy, only an outcome. Times of India.

2)      Financial Express. (2014, November 29). Data drive: Global lessons for India's manufacturing. Financial Express.

3)      Hasan R., Mitra, D. & Sundaram, A. (2012). What explains the high capital intensity of Indian manufacturing? Indian Growth and Development Review, Vol 6, Issue 2.

4)      Mathur, S. (2015, April 13). Make in India: Maximising manufacturing competence. Business Standard.

5)      Mint. (2014, December 12). Make for India better approach than Make in India: Raghuram Rajan. Mint.

6)      Rajan, R. (2015). Make in India, largely for India. Indian Journal of Industrial Relations, Vol. 50, No. 3, pp. 361-372

7)      Dr. M. Kabir Hassan, The impact of globalization on the developing countries, Journal of Economic Cooperation Among Islamic Countries, 19, 1-2 (1998) 71-135

8)      Indian Entrepreneurs in Import Substitution – Need of the Hour for Indian Economy, Mrs. Kamna Dhawan, AISECT University Journal Vol. II/Issue IV Sep. 2013. ISSN: 2278-4187.

9)      R. Bhattacharyya, (2012). The Opportunities and Challenges of FDI in Retail in India, IOSR Journal of Humanities and Social Science, 5(5), pp. 99 – 109

10)  Skill development for the youth-A Global Quest, Siddharth Chatturvedhi, AISECT University Journal Vol. II/Issue IV Sep. 2013. ISSN: 2278-4187.

11)  http://zeenews.india.com/business/news/economy/narendra-modis-make-in-india-campaign-five-challenges_109098

12)  http://firstbiz.firstpost.com/economy/make-in-india-live-fdi-means-first-develop-india-says-pm-modi-101584.html

13)  http://www.hindustantimes.com/india-news/all-about-modi-s-make-in-india-campaign/article1-1268103.aspx

14)  http://businesstoday.intoday.in/story/narendra-modi-make-in-india-campaign-september-25-global-businesscommunity/1/210482.htmls

15)  A. Bhattacharya, A. Bruce and A. Mukharjee, “Make In India: Turning Vision Into Reality, CII Report, November 2014

16)  www.weforum.org/events/national-strategy-day-india

17)  www3.weforum.org/docs/WEF_IN15_Meeting_Overview.pdf

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