India is largely an agrarian economy. More than 50% of its population is dependent on the agricultural sector for its livelihood and survival, though the returns are very low. The service sector, on the other hand, employs very few of the Indian labour force and its return nearly 60% of the Indian GDP. This is highly unfavourable for the Indian economy. To change this current trend, it is necessary to enhance the manufacturing sector. This can greatly boost India’s economic growth and solve the current unemployment crisis. The Make in India is a major step towards this direction.
What is Make in India?
- It is a national initiative launched in 2014 by the Government of India.
- Its ultimate aim is to transform India into a global design and manufacturing hub.
- This initiative facilitates investments, skill development, encourages innovation, protect intellectual property rights to achieve this objective.
- Under this initiative, both the Centre and the state governments are striving to attract investments from across the world to strengthen India’s manufacturing sector.
- Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion is the nodal agency for the implementation of this initiative.
- This initiative holds a highly significant position in India’s pursuit of economic growth.
Can India become a global manufacturing hub?
The following are India’s strengths to become the global manufacturing hub:
- India is one of the fastest-growing economies in the world.
- It is likely to be listed among the top 3 manufacturing destinations by 2020.
- India’s workforce is among the youngest in the world with an average age of 29 years. According to the Ministry of Labour and Employment, India has the largest workforce population of about 470 million.
- India is a major destination for a cheap labour force.
- Also, it has the second-highest population in the world only after China. Therefore it has a strong domestic consumer base.
What are the objectives of this initiative?
- It has subsumed targets listed out in the National Manufacturing Policy of 2012 like increasing the share of manufacturing from 16% to 25% of the GDP by 2020 (earlier target was 2022) and creation of employment opportunity for 100 million people by 2022.
- Its objective also includes improving India’s rank on the Ease of Doing Business Index that is released by the World Bank as a part of its Doing Business Report.
- To do so, the government is repealing redundant laws and regulations, simplifying bureaucratic procedures and enhancing transparency, responsiveness and accountability in the government services.
- To also aims to attract foreign investment and develop the already existing industry base in India and surpass China.
- It also intends to promote export-led growth.
What are the sectors covered under this initiative?
- Make in India strives to create jobs and skill enhancement in the following 25 sectors:
- IT and BPM
- Defence manufacturing
- Electrical machinery
- Electronic system
- Food processing
- Textiles and garments
- Ports and shipping
- Media and entertainment
- Wellness and healthcare
- Oil and gas
- Tourism and hospitality
- Automobile components
- Renewable energy
- Roads and highways
- Thermal power
What are the outcomes of this initiative since its launch?
- For the sectors like Railways, Defence, Insurance and Medical Devices have opened up for higher levels of FDI.
- Investor Facilitation Cell (IFC) was created in 2014 to assist investors while seeking regulatory approvals, assistance during the pre-investment phase, execution and after-care support.
- Its website provides details about live projects such as industrial corridors and gives information on policies in areas of FDI, intellectual property rights and other related initiatives by the Indian government.
- Under the Make in India initiative, the following industrial corridors are proposed to be created:
- Delhi-Mumbai Industrial Corridor
- Chennai-Bengaluru Industrial Corridor (first defence industrial corridor is proposed to be developed along this corridor)
- Visakhapatnam-Chennai Industrial Corridor
- Bengaluru-Mumbai Economic Corridor
- Amritsar-Kolkata Industrial Corridor
- Steps are being taken to improve the ease of doing business such as Shram Suvidha Portal, eBiz portal (single window access to 11 central government services related to starting a business), etc.
- Since its launch, the FDI inflow has increased significantly. According to DIPP, it stood as $60 billion and $62 billion in 2016-17 and 2017-18 respectively.
- However, the FDIs in the manufacturing sector is weakening. It came down to $7 billion in 2017-18 as compared to $9.6 billion in 2014-15.
- FDI in the service sector, on the other hand, is $23.5 billion – more than three times higher than the manufacturing sector.
- This shows India’s traditional strong points are thriving.
- India’s share on global exports of manufactured products remains around 2%, which is less than China’s 18% share.
What are the challenges?
- Investment from shell companies: The major part of the FDI inflow is neither from foreign nor direct. Rather, it comes from Mauritius-based shell companies that are suspected to be investing black money from India.
- Productivity: India’s manufacturing sector’s productivity is low and the skills of the labour force are insufficient. According to McKinsey’s report, the Indian workers in the manufacturing sector are, on average, almost four to five times less productive than their counterparts in Thailand and China.
- Small industries: The size of the industrial units is small. Therefore, it cannot attain the desired economies of scale. It also cannot invest in modern equipment and develop supply chains.
- Complicated labour laws: One of the major reasons behind the small companies is due to the complicated labour regulations for units with more than 100 employees. The government’s approval is required under the Industrial Disputes Act of 1947 before the industry can lay off the employees. Additionally, the Contract Labour Act, 1970 requires the government’s and the employee’s approval for simple changes in an employee’s description or duties.
- Electricity: The cost of electricity is almost the same in India and China. However, the outages are far higher in India.
- Transportation: The average speed in China is about 100 km/hour. In India, it is about 60 km/hour. Also, the Indian railways are overloaded and the Indian ports have outperformed by a lot of Asian nations.
- Bureaucracy: India’s bureaucratic procedures and corruption within the government makes India far less attractive for investors.
- Though India has made progress in the World Bank’s Ease of Doing Business Index (EDB index), it is only ranked 77 among th190 nations.
- Although EDB rank has improved, the Make in India initiative has not succeeded in increasing the size of the manufacturing sector relative to the domestic output.
- India ranks 78 out of 180 countries in Transparency International’s Corruption Perception Index.
- Land acquisition to build a plant is very difficult. India has come down to 10 places in the World Economic Forum’s latest annual Global Competitiveness Index.
- Prior steps were not taken to improve India’s labour laws and land acquisition laws before attracting foreign investments in India through the Make in India initiative.
- Capital Outflow is a major challenge for Make in India’s initiative. The net outflow of capital has increased as the rupee value has dropped from 54 a dollar in 2013 to more than 70 a dollar in 2019. The economic slowdown and oil prices are also contributing to this major challenge.
What is the government doing about it?
- The FDI norms have been revised to make India more attractive for the investors. This is necessary to enhance the competition with Southeast Asian nations and export growth.
- Export-oriented growth is being prioritized.
- The corporate tax has been reduced to increase foreign investment.
- The US-China dispute has given India a renewed opportunity to attract the foreign investments that are fleeing from protectionist measures by these nations.
- India is taking steps to enhance diplomatic ties with the nations that are likely to enhance investments in India.
- However, this too is proving to be a difficult feat for India due to the current challenges. According to the Japanese financial firm Noura’s report, only 3 of the 56 companies that have decided to relocate from China have moved to India.
What can be the way forward?
- It is evident that India is not gaining the full potential of the Make in India initiative.
- Government measures are currently seeing very limited results out of the steps taken by it to deal with the current challenges faced by the Indian economy.
- The core issues that are plaguing the Indian economy need to be resolved before intending to make India a global manufacturing hub.
- For instance, India is facing an unemployment crisis.
- To solve this, the government can take steps to make full use of the potential of India’s young labour force.
- This can be done by enhancing their skills, training, education and providing them with better health care. It doing so, the productivity of the labour force can be achieved.
- Labour laws and land acquisition must be reformed so that there is an increase in the inflow of the investments and establishment of manufacturing industries.
- Prioritizing the MSME sectors can greatly enhance India’s GDP from the manufacturing sector.
- Bureaucratic procedures must be simplified in a way that ensures transparency and accountability.
- Assisting smaller industries to set up a supply chain within India.
- Prioritizing the shift to renewable energy sources for electricity can boost the manufacturing industry’s productivity.
- Assisting startups through financial support, training, etc. can boost India’s manufacturing sector.
- Innovation must be encouraged and research and development must be supported by the government.
- Improving connectivity even in the isolated and difficult terrains in India is possible only if the government takes the step to achieve it. It can not only improve India’s manufacturing sector but also solve the problem of insurgency and other illegal activities in the nation.
- In short, the government must ensure that there is a favourable environment for the growth of industries within the Indian economy.
Make in India has the potential to make India a $5 trillion economy. If measures are not taken by the Indian government to improve the FDI inflow and creating a favourable environment for the manufacturing sector, it may only be a distant dream.
Critical analyse the reasons for Make in India initiative not attaining the intended results (250 words).