Is ‘Make in India’ a marketinggimmick or reality? Introduction In the Independence Dayspeech on 15 August 2014 PM Shri Narendra Modi said, “let’s resolve to steerthe country to one destination. We have it in us to move in that direction. Come,make in India, ?Come, manufacture in India. Sell in any country of the worldbut manufacture here.” With job creation, skill enhancement and attracting foreigninvestment as its aim, this campaign has taken 25 growth sectors under its purviewnamely: automobiles, chemicals, IT, pharmaceuticals,textiles, ports, aviation, leather, tourism and hospitality, wellness,railways, auto components, design manufacturing, renewable energy, mining,bio-technology, pharmaceuticals and electronics among others. Research MethodologyThis paper is an outcome of descriptive research based onsecondary data sources. For collecting information, articles from leadingnewspapers, research papers, Make in India official website and some otherauthentic sources were referred to and were subsequently analysed to addressthe objectives of present study.
Here cross sectional analysiswas done to investigate the progress of Make in India initiative. In a cross sectional analysis, all themeasurements for a sample are obtained at a single point of time, althoughrecruitment may take place across a longer period of time. In the study above,data between the time period September 2014 to December 2017 was collected for analysis.
Some of the reasons for using cross-sectional analysis overlongitudinal analysis were-· Here,the data collection strategy was broader in scope (involved more than onesector or a small group) and the direction of the study was mixed, where bothexposure and outcome were measured together and that’s why we used crosssectional analysis instead of longitudinal analysis where direction should beprospective or retrospective.· In crosssectional studies only one group is used, data is collected only once andmultiple outcomes can be studied but in longitudinal analysis, outcomes andexposures are collected at multiple follow-up times and it generally yieldsmultiple or repeated measurements on each subject. Therefore, cross-sectionalstudy is cheap and inexpensive and thus used in this case.· Cross-sectional studies can be done morequickly than longitudinal studies. That’s why cross-sectional analysis wasconducted in order to first establish whether there were links or associationsbetween certain variables or not (here aimed at exploring the link betweenprogress of the campaign and characteristics of policies).
Subsequentlylongitudinal study could have been set up to study cause and effect. Why ‘Make in India’ was launched?The various pressing issues thatprompted the launch of this initiative are:India needs more jobs for its young people. Nearly 120mn will enter thelabour force over the decade to 2024, as India enjoys, or perhaps endures, anunprecedented demographic bulge. The share of themanufacturing sector in total employment in India remained almost unchangedaround 11% from 1987-88 until 2004-05 and increased modestly thereafter as perthe National Sample Survey.Modest increments in agricultural output are associated with negligibleincreases in employment.
The informal or unorganized services sector isan employer of the last resort, but levels of income are low and quality ofjobs is poor. Thus growth of manufacturing sector is important.In fact, industrialisation is imperative .For this India must breakthrough thephenomenon of Premature deindustrialisation which is damaging many emergingeconomies. Countries like Britain and the US became manufacturingpowers before they grew rich and China has followed much the same path. DaniRodrik, a Harvard economist, thinks manufacturing in Asia and Africa stalledbefore it got going, with India perhaps the most obvious example. Manydeveloping countries have seen the relative economic weight of manufacturingdecline.
In India, manufacturing has been declining as ashare of output over recent years. New technology is often blamed fordeindustrialisation in the west but Mr Rodrik says that, in the emerging world,trade and globalisation play a part too. He argues that countries like Indiahave been hit by a “double whammy”: they opened up only to be hit by a wave ofcheap manufacturing imports.
This leaves many workers stuck between jobs in theinformal economy with a far smaller number in advanced services, such as IT.”Deindustrialisation has long been a concern in rich nations,” Mr Rodrik wrotelast year, “but it should be a much bigger problem for developing countries.”The emphasis on manufacturing in India at this juncture represents a cognizanceof the problem. The New Manufacturing policy’s vision is to create 100 millionadditional jobs by 2022 in manufacturing sector.
Job creation will fight poverty andhelp divert people from agriculture, which has a low capacity to sustain theirlivelihood. Modi (2016)Share of manufacturing sector in India’sGDP over the past 20 years has remained dismal, crushing the hopes of aneconomy based on manufacturing led growth .It increased slowlyfrom 15.9% in 1987-88 to 17.3% in 1995-96, diminished thereafter to a low of12.9% in 2013-14 as per the CSO National Accounts Statistics, which is farbelow China and other Asian economies.
Worse, it has been declining of late,with exports also falling because of the global slowdown. India needs to restartits economy and thus could hardly have picked a trickier time to start anexport-led manufacturing drive. The New Manufacturing policy aims atincreasing manufacturing sector’s share in GDP to 25% by 2022.The government’s push for manufacturing comes at a time when many bigcompanies are seeking an alternative to China as costs and risks there rise. India needs to improve its businessclimate in order to take advantage of this shift and benefit from the likelyshedding of millions of jobsby China. It was also an apt response to a crucial situation which formulated whenthe much-hyped emerging markets bubble had burst, and India’s growth rate fellto its lowest level in a decade (2013). The promise of the BRICS nations fadedand India was tagged as one of the so-called ‘Fragile Five’.
Global investors debatedwhether the world’s largest democracy was a risk or an opportunity. India wason the edge of severe economic collapse.Another possible reason for Make in India could be to prevent shift ofeconomic activity outside the country. Some Indian service industries andmanufacturing base was migrating abroad which was evident from slip in India’sBOT in business and financial services from a surplus five years ago than and atrend of outbound FDI of 65 cents for every dollar of Inbound FDI in Indianmanufacturing in five years till march 2012 which was an outcome of weakinfrastructure, red tape and corruption. Also, makeover of India into a manufacturing hub will helpdevelop, strengthen and modernize the Indianinfrastructure. Such advancement will revive the health of other sectors suchas service, agriculture, hospitality, medical, tourism, etc. Also it would link India into global supply chains, boosting exports, helping toreduce the current-account deficit along with minimizingsome of the trade frictions we have with other countries.
Measurestaken to facilitate ‘Make in India’ initiative’Makein India’ initiative aims to provide a friendly environment to the businesscommunity so that they can devote their effort, resources, and energy inproductive work. Several measures have been taken for easeof doing business by both central and state government and several measures arestill underway.Measurestaken by central government: Measures completed· Unified online portal (Shram Suvidha) for Registrationof Labour Identification Number (LIN), submission of returns, grievanceredressal, combined returns under 8 labour laws.· Online portals for Employees State InsuranceCorporation (ESIC) and Employees Provident Fund Organization (EPFO) forreal-time registration, a single-window online portal, documents reduced from 7to 3 for exports and imports, option to obtain company name and DIN at the timeof incorporation.· Simplified forms for Industrial Licence, IndustrialEntrepreneurs Memorandum. Many defence sector dual-use products no longerrequire licences. Validity of security clearance from Ministry of Home Affairsextended to 3 years, extended validity for implementing industrial licencesetc.· Skilldevelopment programme: “Make in India” boosts manufacturing trade and economy.
Over 10,000 training centers opened within 2 years. It Creates job market forover 10 million people. · Roping inforeign direct investment:”the policy in defence sector has been liberalized and FDI cap has been raised from26% to 49%. 100% FDI is allowed in defence sector for modern and state of theart technology on case to case basis.
100% FDI under automatic route has beenpermitted in construction, operation and maintenance in rail infrastructureprojects,”.· Target specific approach: A workshop titled “Makein India – Sectorial perspective & initiatives” was conducted on 29thDecember, 2014 under which an action plan for 1 year and 3 years has beenprepared to boost investments in 25 sectors.· Investor facilitation cell: An 8 member investorfacilitation cell (IFC) dedicated for the Make in India campaign was formed inSeptember 2014 with an objective to assist investors in seeking regulatoryapprovals, hand-holding services through the pre-investment phase, executionand after-care support.· The InvestIndia agency, whose mission is investment promotion and facilitation, is the’back-end’ of the ‘Make in India’ initiative. It has been set up as a jointventure between the Federation of Indian Chambers of Commerce and Industry (FICCI,51% stake), the Department of Industrial Policy and Promotion within theMinistry of Commerce and Industry (DIPP, 35% stake), and the 28 stategovernments (0.5% stake each).
· The number of taxes will be reduced and makingpayments will be simplified through Goods and Services Tax (GST).· Labour laws reforms: the ministry has taken stepsfor drafting four Labour Codes on Wages; Industrial Relations; Social Securityand Welfare; and Safety and Working Conditions respectively, by simplifying,amalgamating and rationalizing the relevant provisions of the central labourlaws. These reforms will help in catalyzing the creation of employmentopportunities in the country without diluting basic aspects of safety, securityand health of workers.· The Make in India week in Mumbai, whichconcluded on 18th February 2016, offereda platform to investors, governments, countries, CEOs, consultants, diplomatsand companies to come together and discuss business. Itresulted in investment commitments worth Rs.15.2 trillion across various Indian states, ofthis, about 30% of the investments fall under the foreign direct investment(FDI) category, told by Amitabh Kant, secretary, department of industrialpolicy and promotion (DIPP). Chief minister Devendra Fadnavis said that Maharashtra has signed 2,594 memoranda of understanding (MoUs) worth over Rs.
8 trillion. These MoUs would create more than 3 million jobs in Maharashtra. “The spectrum of these investment proposals is so large that it covers sectors from real estate to tourism to skill development to agro food processing to animal husbandry. The regions where the investors are putting their money will open up more sectors and spur more investment,” Fadnavis said.Measuresunderway:· Eliminate requirement of minimum paid-up capitaland common seal, Integrate processes for obtaining PAN, TAN, ESIC and EPFOregistration with incorporation of company and Single-window clearance forimport and export. Finance Minister Arun Jaitley announced several proposals in the Union Budget 2016-17 to help start-ups innovate, generate employment and be key partners in the Make in India programme, he proposed to back them through 100 per cent deduction of profits for three out of five years for start-ups set up during April 2016 to March 2019. He said Minimum Alternate Tax will apply in such cases. He also proposed modification in Customs and Excise duty structure to incentivise domestic value addition and push the MII campaign.
This was done to bring down costs and improve competitiveness of the domestic industry.Measures taken by stategovernmentsSeveralmeasures have been taken by state governments like online consent system forPollution Control Board (Gujarat), Unified process with single ID for VAT andProfessional Tax registration, Number of procedures and time for getting anelectricity connection reduced (Maharashtra), Real-time allotment of TIN -Taxpayer Identification Number, Online application portal for residential andindustrial building permits(Delhi). Challenges in the road of making India a manufacturing hubIndia may be glad thatit is surpassing China as the world’s fastest growing major economy and thefact that rising wages across the Himalayas bring prospects for Make in Indiato pitch in local factories. However, the scenario is more complex than that.Foreign companies complain about India’s poor infrastructure, shaky roads, congested ports,unreliable power supply. If authorities facilitate the requirements ofthe national programmes of 100 “Smart Cities” and “Industrial Corridors”, infrastructurewill improve. As Information Technology is also a part of Infrastructure, internetconnectivity with LAN, WAN with high speed data transfer is also the need ofthe hour. Also, the rural infrastructure is required to be given impetus toensure sustainable rural economic development.
Golden quadrilateral, DMIC(Delhi Metro Industrial Corridor) for roadways, linked river for waterways,express highways, vibrant sea-ports etc. are required since manufacturing wouldrequire free flow of raw materials and finished goods. India has been very stringent when it comes to procedural mechanisms and regulatoryclearances.
For the issue of unnecessary laws and regulations and makingstringent bureaucratic processes easier, shorter, transparent and responsive aswell as accountable proceedings, it has emphasized the concept of “singleonline portal” Landacquisition is also a challengeable issue as the existing laws have made theacquisition of land more complex and costly. These laws create hurdles ininvestment into preferred sectors like manufacturing, construction,infrastructure and mining. The difficult balancing act between providingsufficient rights and safeguards to landowners and easing land acquisitionprocedures has been introduced through the announcement of the PresidentialOrdinance.Anotherchallengeable issue is the restrictive labour laws of India.
Both the federal and state governments will have to implement labour reformswhich will ease these laws. Reforms which will help labour rights, humanresource management, and worker and management relationship with proper safetynorms and efficient transport facilities are the need of the hour. But reforms require a majorityin both houses of Parliament; the governing coalition (NDA) has a majority inthe Lok Sabha (lower house) while it is in the minority in the Rajya Sabha(upper house). The government has adopted temporary executive ordinances onland acquisition, FDI in the insurance sector andcoal-mining licences, but it will need to come to agreement with the oppositionto make them permanent.
Goods and Services Tax (GST) is another key indirect tax reform that would go along way in promoting the “Make in India” vision. This reform will incentiviseIndian manufacturing by simplifying the current complex indirect tax structure.A report byconsulting firm E&Y said in 2012 that India lags far behind other nationsin imparting skills training to its workers. Not too much has changed sincethen. While engineering colleges proliferate, the same cannot be said ofindustry-specific technical skills for shop floors. A major effort has gotunderway under the National Skill Development Corporation (NSDC), but thisneeds time to develop. The government’s Economic Survey said last year that theskilled workforce in India is counted at a mere 2%, while the NSDC estimated aneed for 120 million skilled people in the non-farm sector– which would make it10% of the population at current levels.
Lack of vocational educationfacilities and lack of training facilities are a key part of India’s industriallandscape. Skill development is also imperative in order to ensure creation ofworld class products under the scheme. The government is sensitiveto this issue and has thus created a new Skill Development Department under afull-fledged cabinet minister. While India is home to R&Dfacilities for many global companies, Indian companies have been slow to adoptit. India’s industry has grown over the past six decades either throughpublic sector companies or through domestic industries enjoying access to amarket protected by customs duties.
Thus government must ensure that huge investments in R&D and imports of high tech equipments is madein order to ensure long term competitiveness of Indian industry.One can start manufacturing in India,but will they create jobs that last? India’s public sector companies put up byPrime Minister Jawahar lal Nehru in the 1950s were sheltered in protectionistpolicies. In the new scheme of things, can India look for human employment on alarge scale when robots may take over manufacture worldwide and still staycompetitive? Vivek Wadhwa, Stanford University fellow who is at the forefrontof alerting the world on the robotic threat, told the BBC recently that it wasnow “indisputable” that a new kind of industrial revolution was in the offing –one that won’t require many humans. “In a decade or two you’ll find that robotsand artificial intelligence can do almost every job that human beings do. Weare headed into a jobless future,” he says. Scary? Just think of Google’sself-driving cars – and the fact that your smartphone is now good enough to bean ECG machine on the basis of an app.
(Small consolation: some jobs may be hadin making robots. Tata Motors is perfecting one, expected in under two months.It was showcased, somewhat ironically, at the Make In India event).
Also, Made in china campaign of Chinawas launched on the same day as India, seeking to retain its manufacturingcompetence. The two campaigns will be persistently compared and thus India should constantly keep up its strength so as to outpace China’sdomination in the manufacturing sector.Besides the ones mentioned above, thereare ample of other challenges towards making India a global manufacturing hub.However, focussing on these issues and taking adequate measures can turn the”Make in India” vision into a dream come true. Criticismsfaced by ‘Make in India’ initiativeNDA government’s Make inIndia campaign till early October 2015 had attracted INR 2000 Crore worthinvestment proposals.
Despite this, the campaign has found its critics.The topmost of thesecriticisms is levelled against the serving government. A number of technologybased companies have not been moved by the campaign launch and have professedto continue getting their components manufactured by China.
ProfessorRavi Aron, a U.S.-based expert in manufacturing, said India was ill-suited fora Chinese-style export boom, because it lacked the infrastructure and theskills for its exports to compete internationally. “It should not be called’Make in India’ but ‘Make In Spite of India’,” said Aron, of Johns HopkinsUniversity, advising the Indian government to scale back its ambitions andfocus on its growing domestic market.The biggest criticism came from Reserve Bank of India (RBI) former governorRaghuram Rajan who alternatively suggested “make for India”, holding that astrategy focused on the external market is unlikely to work for India as it didfor Asian economies in the current global economic scenario. He suggested thecountry should produce for the internal market as external demand is likely toremain muted for several years.
Rajan recommended that the government shouldfocus on creating an environment where all sorts of enterprises can flourish,and then leave entrepreneurs to choose what they want to do. “Instead ofsubsidising inputs to specific industries because they are deemed important orlabour-intensive, a strategy that has not really paid off for us over theyears, let us figure out the public goods each sector needs, and strive toprovide them,” he said in a speech in December 2014.DMK leader M K Stalinsaid, the country is moving away from a mixed to a capitalist economy withcorporate honchos appearing set to get a “bonanza of sorts” and thepoor a “pittance”. “It appears that the path towards capitalisteconomy is being refurbished, switching from a mixed economy under the Modigovernment. ConclusionRating agency Standard& Poor’s (S&P) has revised the outlook on India to “Stable” from”Negative”, while keeping the “BBB–” rating unchanged.
One of the significantreasons for the upward revision according to S&P was that “the newgovernment has both the willingness and capacity to implement reforms necessaryto restore some of India’s lost growth potential”. Also, ratings agency Moody’s has said that net foreign direct investment (FDI)inflows have hit an all-time high in early 2016, highlighting the success of’Make in India’ initiative. It said that the FDI inflows have more thanfinanced the current account deficit (CAD) for the first time since 2004.
Also,India now ranks 130 in the ease of doing business, moving up 12 places from theyear 2015 according to World Bank report. All these signify a positive impactof the scheme.For the campaign toattain success, studies suggest avoiding artificial props, curbing inflationand fiscal deficits, ensuring a realistic exchange rate, and letting the marketdecide which sectors should flourish. The strategic and dynamic aspects demandsfor several priority areas such as, Defence,Electronics hardware, Healthcare, Construction and Agro industries. Theresponsibility must be shared among the centre and state through decentralizedand coordinated efforts.
Where the whole world istransitioning in the light of innovation, the key to survival lies in beingflexible and adaptive to changes, or as they say, survival of the fittest. It needs to be recognized that theabove is a journey and success cannot be achieved overnight.Thus is ‘Make in India’ amarketing gimmick or not, we will try to find the answer to this question inthe next couple of years.