Make In India Perfect Recipe For Growth
Modi’s clarion call to manufacture in India is a lofty vision. However, for a government which is not bogged down by the burden of dealing with coalition partners, this dream can be realised with some critical reforms that would make manufacturing sustainable and rational
Indians will remember Prime Minister Narendra Modi maiden speech from the ramparts of Red Fort for two reasons. First, he gave an open invitation to overseas investors to “Come, Make in India. Sell anywhere but make them in India,” he said, pointing out that “we have got skill, talent, discipline and determination to do something.’’ Second, he sold the ‘Made in India’ idea to Indian youth. With these twin calls ,one to investors from abroad and the other to young Indians, Modi set in motion the policy course for the BJP-led NDA Government at the Centre.
Modi’s clarion call to manufacture in India is a lofty vision. However, for a government which is not bogged down by the burden of dealing with coalition partners, this dream can be realised with some critical reforms that would make manufacturing sustainable and rational.
The ‘Make in India’ campaign is aimed at making India a manufacturing hub, and the government is pulling out all the stops for ensuring a smooth sailing for investors. Narendra Modi’s ‘Make in India’ vision might prove to be a little difficult to realise as India’s manufacturing sector continues to be plagued by a number of ills. He will have to closely monitor all regulatory processes to make them simple and reduce the burden of compliance.
Modi has graciously rolled out the red carpet, inviting MNCs to consider India not just as a market but as a manufacturing hub. With demographics on our side, and every third person with a graduate degree looking out for a job, manufacturing in India is not a bad idea at all and instead, is the need of the hour.
The Second Coming
Modi’s ‘Make in India’ campaign is not the first time that India has tried to boost its manufacturing prowess. In 2004, the Confederation of Indian Industry (CII) and McKinsey had produced a report titled, “Made in India: The Next Big Manufacturing Export Story.” As per the report, “Manufacturing exports from India have not taken off even though India has several advantages, including engineering skills (process, product, quality and capital), a growing domestic market, a raw material base and a large pool of skilled labor.… India has the potential to increase manufacturing exports from $40 billion in 2002 to $300 billion by 2015.”
In 2004, the government set up the National Manufacturing Competitiveness Council (NMCC). In 2006, the NMCC came out with a national strategy for manufacturing. The objective was to raise the share of manufacturing in GDP from 17% to 30%-35% by 2015. The council dubbed 2006-2015 as the “decade of manufacturing in India.” In 2012, McKinsey wrote: “If India’s manufacturing sector realized its full potential, it could generate 25% to 30% of GDP by 2025.” In May 2011, the department of commerce finalized a strategic paper on doubling India’s exports from $246 billion to $500 billion in the next three years (2011-2012 to 2013-2014). Merchandise exports needed to grow at 26.7% to achieve this target. For the record, the manufacturing sector saw a decline of 1.4% in August 2014.
The figures have not changed materially; only the target year has moved from 2015 to 2025. A more recent FICCI report dated August 2013 notes: “In the current scenario, to expect manufacturing to grow at 14% as targeted on a long-term basis may not be feasible.
The Challenges Ahead
On September 25th, PM Modi called together hundreds of diplomats, business leaders, journalists, ministers and others to a swanky hall in Delhi to launch his ‘Make in India’ campaign. The event was broadcast live across India and to diplomatic missions abroad. His clear objective is to make the country a global manufacturing hub.
However this programme will face some serious challenges from China. India’s ‘Make in India’ campaign will be constantly compared with China’s ‘Made in China’ campaign. China too launched its campaign at the same day as India, seeking to retain its world number one manufacturing prowess. India will have to constantly keep up its strength so as to outpace China’s supremacy in the manufacturing sector, which will be no easy task. India’s manufacturing sector accounts for only 16% of GDP, while China is already receiving one third of its GDP from manufacturing. The share of Indian manufacturing in the worldwide markets is also pitiable at 1.4%, while China has already zoomed to 13% plus from a level of 2.9% just two decades ago.
India will have to encourage high-tech imports and invest in research and development (R&D) to ensure that the ‘Make in India’ programme gives an edge-to-edge competition to the Chinese. The government will have to provide platforms for such research and development.
India is ranked 132nd out of 185 economies in the Doing Business 2013 report prepared by the World Bank, with countries like Uganda, Kazakhstan and Cyprus ranking above us. India’s restrictions on foreign equity ownership are greater than the average of the countries covered by the Investing Across Sectors indicators in the South Asia region and of the BRIC (Brazil, Russian Federation, India, and China) countries. India imposes restrictions on foreign equity ownership in many sectors, such as railway freight transportation and forestry. With the exception of certain activities specified by law, foreign ownership in the agriculture sector is also not allowed. These restrictions need to be eased for making India better place for doing business.
The role of India’s small and medium-sized industries in making the country cannot be ignored. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural and backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. The government has to chart out plans to give special sops and privileges to these sectors.
The biggest hurdle for the programme is the ‘Three Ls’ (laws, land and labour). Modi will have to move quickly to remove these ‘L’ hurdles. He will also have to set up a monitoring team that will relentlessly track progress and see that the “Make in India” initiative works smoothly. But at the end of the day, the pace at which he implements reforms will determine Mr. Modi’s success. (AD)
Saffronites See Red
The Swadeshi Jagran Manch, which is an affiliate of the RSS, has strongly opposed Narendra Modi’s ‘Make in India’ campaign. The Manch has urged the PM to amend the programme to ‘Made by India’, cautioning him against repeating the “past mistakes”.
Ajay Kumar, the Organising Secretary of Kashi region, said, “the way East India Company cunningly flourished its business in India, we must learn from our past historical mistakes and our government should ensure not to repeat the same mistakes once again…” The Manch has advocated replacing the slogan with ‘Made by India’ and suggested that the products must be manufactured by local companies and then exported worldwide by Indian nationals.
For the RSS, the key to reviving India mirrors the movement to kick out the British a century ago. Only this time, foreign companies selling everything from insurance to genetically modified (GM) seeds are the colonizers. Modi must now resist calls to open the economy to the likes of Wal-Mart, Monsanto and American International.
The RSS poses what may be the biggest hurdle for Modi to overcome in following through on pledges to open up Asia’s third-largest economy. Modi must balance the need to secure the RSS’s help to stay in power with pressures from pro-business supporters to spur investment and revive growth. For Modi, it’s very much going to be a dance between politics and economics.
During the campaign, Modi’s message of development, which led to India’s biggest electoral win in three decades, masked internal dissent among BJP allies on how much to open the economy. The party had pledged in its campaign manifesto to allow foreign direct investment (FDI) to create jobs in sectors apart from multibrand retail. Since taking office, Modi blocked a breakthrough deal at the World Trade Organization (WTO), refrained from allowing foreign companies to take majority stakes in the defence sector and retained a retroactive tax law that has entangled Vodafone Group in a $2.4 billion dispute. The recent party restructuring saw Ram Madhav, an RSS spokesman, moved to the BJP as one of eight general secretaries, joining another RSS worker and a former leader of Swadeshi Jagran Manch. A pracharak used the more scathing sweatshop metaphor. “Swadeshi for us doesn’t mean Indian labour under foreign ownership. By harping on making India the next manufacturing hub, you seem to be actually reducing Indians to cheap labourers employed by rich inter-national corporations. (AD)
The ‘Make in India’ campaign seems to have come at perfect time. Many giant foreign companies have already expressed their interest in setting up manufacturing facility in India. However, industrialists across the country took Modi’s words with a pinch of salt as ground realities present a completely different and difficult picture of industrial production in the country. A business executive at the launch said he had to get 167 approvals to put up a new manufacturing plant in Pune.
The world today is moving on a pace faster than it ever was. Life has become a lot simpler with technology. Unfortunately, India has been lagging behind in coping with such technology, but it is never too late. Managing a country as vast as India is quite a task, but by taking baby steps, these issues can be resolved with a strong government.
Modi is on a spree of reforms with his chronological agenda. He is on a full swing to throttle the infrastructure highway with the aim of boosting India’s future. Lots of major infrastructure related projects have been postponed for various procedural complications. This is one of the reasons why India has lagged behind for past ten to fifteen years in this sector, compared with other Asian counterparts like Bangladesh, Taiwan, Singapore, Malaysia, which are far ahead of us. In India, 75% of IT graduates, 55% in manufacturing, 55% in healthcare and 50% in banking and insurance are deemed ‘unemployable’ as pointed out in a report produced by FICCI and Ernst and Young, called Higher Education in India: Vision 2030.There are gross anomalies that have crept in our mode of imparting education. The government should start analysing the quality of education soon and industry interface needs to be built in schools and colleges so that students are apprised about the current trends and requirements in the job they hope to take up right from the beginning of their courses. There is an urgent need for skills development as far too many of India’s youngsters are poorly prepared for globally competitive work.
In October 2014, the government simplified a handful of labour rules and reduced factory inspections. The government now plans to repeal 287 outdated laws, most of which date back to the British colonial era, in the upcoming winter session of Parliament.
Other measures since the BJP came to power include the easing of procedural and foreign investment regulations in the manufacture of defence equipment and a liberalisation of norms for investment in railway infrastructure. Furthermore, the administration has extended the validity of industrial licences and has introduced (hopefully) faster and more transparent online mechanisms for project approval.
All this looks and sounds attractive. So, too, do a flash new website that Mr. Modi inaugurated, a new symbol—a lion made up of cog-wheels—and some new brochures that set out how India is a bit more welcoming to manufacturers.
By Anil Dhir