Putting India’s Economy In Motion
Make in India campaign is a great opportunity for the government to position India as a manufacturing powerhouse able to match China’s dominance in the international arena. The chance to create employment for over 10 million people and encourage foreign direct investment (FDI) will be the Prime Minister’s main concern
It is a fact that India’s demographic advantage still remains underutilised despite a boom in the service sector. The policy-makers have realised that only a labour-intensive manufacturing sector can generate more employment and increase the overall income levels, which in turn can set the wheels of business cycle in motion towards robust economic growth. In a pitch to make India a manufacturing hub from the ramparts of Red Fort on Independence Day, Prime Minister Narendra Modi announced, Make in India, a programme that aims to boost investments and encourage innovation by creating world-class manufacturing infrastructure and making it easier to do business in transparent and credit-friendly environs. In the next few months, the government will roll out the Make in India campaign state by state, following a hub and spoke model (the hub being Delhi). Each state would be accorded a sector that it has earned its spurs in. For instance, automobiles could well be the focus sector in Tamil Nadu (home to factories of Ashok Leyland, Ford, Nissan and Hyundai, amongst others) or Haryana (Hero MotoCorp, Honda Motorcycle & Scooter India and Maruti Suzuki). Also, roadshows are being planned in 12 industrial towns, including Coimbatore, Pune and Indore. Here, the focus would be to woo small and medium enter-prises (SMEs). The lion symbol, which Modi himself chose for its tenacity and courage, is also being developed for language markets in India and abroad. The symbol will remain the same, but local fonts—both Indian and foreign languages—would be used for the words Make in India.
Within the 24 hours of Indian Prime Minister Narendra Modi’s announcement of the governments new, pro-manufacturing “Make in India” policy, the nation also boasted a successful mission to Mars and a credit rating that had been raised from “negative” to “stable” by Standard & Poor’s. Suddenly, a lot of things seemed to be going India’s way—but for “Make in India,” at least, there are plenty of hurdles ahead.
The campaign, which focuses on the manufacturing sector, is not going to be easy to deliver, despite the enthusiasm that accompanied the launch of the effort’s new logo and website. FDI (foreign direct investment), Modi, told investors, should stand for First Develop India. “India is the only country in the world which offers the unique combination of democracy, demography, and demand,” he said. In the audience were CEOs from abroad—Maruti Suzuki’s Kenichi Ayukawa and Lockheed Martin’s Phil Shaw—and home, including Tata Group chief Cyrus Mistry, Reliance head Mukesh Ambani, Kumar Mangalam Birla of the Aditya Birla Group and IT tycoon Azim Premji.
Highlights Of The Campaign
The National Manufacturing policy is being touted as the first of its kind for the manufacturing sector as it addresses areas of regulation, infrastructure, skill development, technology, availability of finance, exit mechanism and other pertinent factors related to the growth of the sector.
Here are the highlights
1) An increase in manufacturing sector growth to 12-14 per cent per annum over the medium term.
2) An increase in the share of manufacturing in the country’s Gross Domestic Product from 16 per cent to 25 per cent by 2022.
3) To create 100 million additional jobs by 2022 in manufa-cturing sector.
4) Creation of appropriate skill sets among rural migrants and the urban poor for inclusive growth.
5) An increase in domestic value addition and technological depth in manufacturing.
6) Enhancing the global competitiveness of the Indian manufacturing sector.
7) Ensuring sustainability of growth, particularly with regard to national manufacturing.
Modi followed the launch with meetings with other CEOs, such as Mary Barra of General Motors, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook, Satya Nadella of Microsoft and (earlier) Indra Nooyi of PepsiCo.
Modi has not yet initiated many policy changes to improve the business climate in India, although he has assured investors that a red carpet will replace red tape. India is currently ranked 134th in the World Bank’s Ease of Doing Business list. According to government officials, as part of the Make in India initiative, all hurdles related to starting or doing business in India will now be resolved in a maximum of 72 hours. The government has created a panel of experts and representatives from various departments to hear issues related to domestic and global investment. To put that in perspective, Vodafone has been fighting the government in the courts for several years. Walmart is still waiting on the sidelines, having abandoned its partnership with the Bharti Group.
Almost a month after the new policy was announced; the government amended some of the labour laws. The changes pertain to the system of inspection of companies, known as the Inspector Raj. Under the new system, inspectors will no longer be able to visit companies of their choice and stay there for as long as they want. A computerized database system will decide who goes where. There is also a time limit for filing reports. An online Shram Suvidha portal has been unveiled for employers to submit one compliance report for 16 labour laws. “These facilities are what I call minimum government, maximum governance,” Modi said at the launch of the campaign. There were a few other measures, such as portability of provident funds, designed to benefit employees. But the Industrial Disputes Act, which does not allow a company to close down a loss-making unit, remains intact for now.
Hurdles That This Campaign Needs To Address
- Smart Controls: Trading or imports of goods for mass consumption especially in the food, consumer goods, electrical products and light engineering goods needs to be controlled. Control cannot be physical barriers but smart barriers. A smart barrier for food, particularly processed imported food flooding our markets, is to have strong regulations on quality clearances.
- Smart cities and Manufacturing clusters: Smart cities need to be combined with manufacturing clusters in a manner that creates liveable places for a workforce. Manufacturing does not exist in vacuum. It needs an ecosystem of labour markets, liveable spaces, and access to markets.
- Smart Taxation: Manufacturing constitutes just 16 per cent of the GDP but pays more excise duty than services which constitutes 60 per cent of GDP, and pays service taxes. Excise duty exemptions are region-specific or state benefits granted by the Centre. The trouble with an excise tax holiday is that it distorts the manufacturing landscape. Entrepreneurs use the tax benefit region for packaging and shipping and wait for the next region to be granted the benefit for planning their investment. This does not help anybody and has to change.
- Sales tax: Octroi and entry tax are other taxes that a manufacturing unit has to bear. While these will go away when GST is implemented it will take at least 3-5 years for that to happen.
India Inc lauds “Make in India”
As Prime Minister Narendra Modi unveiled his ambitious ‘Make in India’ campaign, with an aim to turn the country into a global manufacturing hub, top corporate leaders and guests lauded the effort.
Reliance Industries Chairman Mukesh Ambani described the launch of Prime Minister Narendra Modi’s ‘Make in India’ campaign as a ‘historic’ day for Indian industry and said his company will create 1.25 lakh new jobs over the next 12-15 months as part of the movement.
“PM Modi dreams and does, working 14 hours a day and motivates a billion Indians to dream and do,” said Mr Ambani, who was among the few corporate honchos to make a speech at the event.
He said the ambitious programme will make India globally competitive and put the country on a fast-growth trajectory. “I firmly believe 8-10 per cent for a long period of time is the right potential for India,” he said. ICICI Bank CEO and MD, Chanda Kochhar said that manufacturers and bankers would like to ensure that whatever gets made in India is the best product available globally, at competitive cost and is sustainable. She further said manufacturing has the potential to add 9 crore jobs in the next ten years but this can only be achieved if India focuses on ease of doing business, sector specific policies and skill development. Tata Group chairman Cyrus Mistry said human capital and a high sustainable consumption growth rate are India’s biggest strengths, which need to be coupled with efficient logistics and improved labour laws if India needs to become a manufacturing hub.
Coinciding with India’s ‘Make in India’ campaign and seeking to retain its own manufacturing prowess, the Chinese government launched a ‘Made in China’ campaign, with a host of tax concessions. The Chinese government would encourage high-tech imports, research and development (R&D) to upgrade ‘Made in China’. Under the new campaign, China will use tax breaks to encourage enterprises to upgrade their equipment and increase R&D efforts to improve the manufacturing industry. Companies that bought new R&D equipment and facilities after January 1 or possess minor fixed assets will have taxes reduced on the basis of value.
Imported high-tech equipment will also enjoy tax deductions in aviation, bio-medicine production, manufacturing of railway and ships, electronics production, including computer and telecommunications, instrument production and those used in making IT products and software, as reported by state-run Xinhua news agency.
The announcement came on a day when the Indian Embassy there, Consulates in Guangzhou, Shanghai and Hong Kong held special investment promotion events to showcase the ‘Make in India’ campaign.
China’s new move aims to prompt technical improvement of companies, especially innovation of small and medium-sized enterprises, which in the past three decades propelled it to become the world’s second-largest economy and made it a powerhouse of the manufacturing industry.
The Chinese government asked its organs to implement the new measures as soon as possible to arm ‘Made in China’ with advanced technology and equipment, encouraging more competitive products with high added value, the report said.
Make in India campaign is a great opportunity for the government to position India as a manufacturing powerhouse able to match China’s dominance in the international arena. The chance to create employment for over 10 million people and encourage foreign direct investment (FDI) will be the Prime Minister’s main concern. The surge in economic growth in the mid-1990s was only achieved after a radical set of reforms were put in place. Policymakers must avoid partisan politics for the sake of swift reforms. Infrastructure, transportation infrastructure in particular, remains India’s Achilles’ heel and is quite frankly inadequate to meet the needs of a young India. Conversely, India requires further FDI to invest in its roads, railway capacity. The benefits of an improved transport connectivity and capacity will bring the workforce closer to the cities, allow seemless movement of goods and people and increase economic efficiency. Infrastructure is a vital component to achieving Modi’s ambitions—be it telecoms, retail, defence & security and transport.
Beyond doubt, India is entering a decade of change and growth, however, the rate of success will be determined by how far this government is willing to implement the reforms it needs to achieve this newly found ambitions.
By Nilabh Krishna