'Make in India' : Has The Lion Moved? - Current Affair Article for UPSC, IAS, Civil Services and State PCS Examinations


'Make in India' : Has The Lion Moved? - Current Affair Article for UPSC, IAS, Civil Services and State PCS Examinations


Why in News?

Giving a push to the 'Make in India' initiative, Defence Acquisition Council (DAC), chaired by Defence Minister Rajnath Singh, recently cleared the deck for procurement of indigenous defence equipment worth Rs 3,300 crore. As 5 years has already passed, since the launch of ‘Make in India’ campaign, its opportune time to analyse the campaign hoisltically.

Introduction

Prime Minister Mr. Narendra Modi had launched the 'Make in India' campaign on the 25th of September, 2014 to put India in the global manufacturing map, help in the inflow of technology, capital and in the process create millions of jobs for the Indian youth. The initiative taken by him has been to promote a culture of trust, transparency among industrialist so as to facilitate the process of doing business in the country.

'Make in India' programme assumes critical importance for India's economic growth. 'Make in India' has subsumed within itself the targets listed out in the National Manufacturing Policy of 2012 such as increasing the share of manufacturing from present 16 percent to 25 percent of gross domestic product (GDP) by 2020 (earlier target was 2022), and create employment for around 100 million people by 2022.

The initiative also aims at improving India's rank on the Ease of Doing Business index (released by World Bank as part of its Doing Business Report) by repealing outdated laws and regulations, simplifying bureaucratic procedures, and enhancing the levels of transparency, responsiveness, and accountability in government services. The Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, is the nodal agency for the implementation of this programme. India's strengths to become a global manufacturing hub:

  • India is one of the fastest growing major economies in the world. It is expected to be listed among the top three 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 around 470 million.
  • The cost of labour in India is relatively lower as compared to other major manufacturing nations.
  • India's huge population provides a strong domestic consumer base.

Why 'Make in India'?

Most developed countries in the world have treaded the classic Agriculture- Manufacturing-Services path. The East Asian economies, South Korea and the Chinese example are a testament to the importance of the manufacturing sector in catapulting a country to a fast growth mode. However, India is one of those few countries which has, to an extent partially skipped the industrialization phase and has relied heavily on the services sector, both for economic growth and job creation. But as India goes on to become the country with the youngest population by 2022, the question arises, whether the Indian service sector will be capable of absorbing the emerging working-class population, most of it, unskilled and semi-skilled?

The fact that the employment share of services has grown quite modestly in recent years, whereas its contribution to GDP has increased tremendously in comparison, shows the limitations of the service sector in job creation in a country like India, where unskilled labor predominates the labor force. And therein lies the importance of the manufacturing sector.

The manufacturing sector gives a larger opportunity for absorbing the semi-skilled labor, encouraging skill development, and at the same time boosting economic growth and productivity. The aging Chinese population together with its rising labour costs also provide a unique opportunity to India to attract businesses which are looking for investment destinations outside China. Thus, ‘Make in India’ is not just a slogan, it is an imperative need of an expanding economy surrounded by opportunities. If well implemented, it may turn out to be India’s answer to its triple problems of growth, employment and inequality.

Steps taken under 'Make in India'

  • For the first time, key sectors such as railways, defence, insurance and medical devices have been opened up for higher levels of Foreign Direct Investment (FDI).
  • DIPP has identified 25 sectors which will be focused under 'Make in India'. They include automobiles, aviation, chemicals, IT & BPM, pharmaceuticals, construction, defence manufacturing, electrical machinery, food processing, textiles and garments, ports, leather, media and entertainment, wellness, mining, tourism and hospitality, railways, automobile components, renewable energy, biotechnology, space, thermal power, roads and highways, and electronics systems.
  • An Investor Facilitation Cell (IFC) was created in 2014 to assist investors while seeking regulatory approvals, providing hand-holding services during the pre-investment phase, execution, and after-care support.
  • A dedicated make in India website (www.makeinindia.com) provides details about live projects such as industrial corridors and focuses on policies in the areas of FDI, intellectual property rights, and other erlated niitiatives.
  • Five 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 to improve the ease of doing business such as 'Shram Suvidha Portal', 'eBiz portal' (provides single window access to 11 central government services related to starting a bunseiss) tec.

Insights into 'Make in India'

Five years later, taking a look into the result we find that policy has produced contrasting results. Foreign direct investment (FDI) has increased from $16 billion in 2013- 14 to $36 billion in 2015-16. But this remarkable achievement needs to be qualified from two standpoints. First, FDIs have plateaued since 2016 and second, they are not contributing to India’s industrialisation. FDIs in the manufacturing sector, in fact, are on the wane. In 2017-18, they were just above $7 billion , as against $9.6 billion in 2014-15. Services cornered most of the FDIs — $23.5 billion, more than three times that of the manufacturing sector. This is a clear reflection of the the Indian economy’s traditional strong points, where computer services, for instance, are remarkably developed.  But can a country rely on services without developing an industrial base? The response is clearly no and this is why 'Make in India' was initiated.

The idea, then, was to promote export-led growth: Foreign investors were invited to make in India, not necessarily for India. But few investors have been attracted by this prospect, and India’s share in the global exports of manufactured products remains around 2 per cent — China’s is around 18 per cent.

Why has Make in India failed to deliver?

First, a large fraction of the Indian FDI is neither foreign nor direct but comes from Mauritius-based shell companies. Indian tax authorities suspected that most of these investments were “black money” from India, which was routed via Mauritius.

Second, the productivity of Indian factories is low. According to a McKinsey report, “workers in India’s manufacturing sector are almost four and five times less productive, on average, than their counterparts in Thailand and China”. This is not just because of insufficient skills, but also because the size of the industrial units is too small for attaining economies of scale, investing in modern equipment and developing supply chains.

The reasons for companies being small are also dictated by the stringent labour regulations, which are more complicated for plants with more than 100 employees. Government approval is required under the Industrial Disputes Act of 1947 before laying off any employee and the Contract Labour Act of 1970 requires government and employee approval for simple changes in an employee’s job description or duties.

Infrastructure is also a problem area. Although electricity costs are about the same in India and China, power outages are much higher in India. Moreover, transportation takes much more time in India. According to Google Maps, it takes about 12.5 hours to travel the 1,213 km distance between Beijing to Shanghai. A Delhi to Mumbai trip of 1,414 km, via National Highway 48, in contrast, takes about 22 hours. Average speeds in China are about 100 km per hour, while in India, they are about 60 km per hour.

Railways in India have saturated while Indian ports have constantly been outperformed by many Asian countries. The 2018 World Bank’s Global Performance Index ranked India 44th among 160 countries. Singapore was ranked seventh, China 26th and Thailand 32nd. The average ship turnaround time in Singapore was less than a day; in India, it was more than 2 days.

Bureaucratic procedures and corruption continue to make India less attractive for investors. It has made progress in the World Bank’s Ease of Doing Business index, but even then, is ranked 77 among 190 countries. India ranks 78 out of 180 countries in Transparency International’s Corruption Perception Index. To acquire land to build a plant, for instance, remains difficult. India has slipped 10 places in the latest annual Global Competitiveness Index compiled by Geneva-based World Economic Forum (WEF).

Opportunities and Challenges

There was clearly a contradiction in the attempt to attract foreign investors to 'Make in India' before completing the reforms of labour and land acquisition laws. Liberalisation is not the panacea for all that ails the economy, but it is a prerequisite if India intends to follow an export-oriented growth pattern.

A significant move in this direction was made last month with the reduction of the company tax from about 35 to about 25 per cent (at least on paper), a rate comparable with most of India’s neighbours. This reform is also consistent with the government’s effort to compete with South East Asian countries, in particular, to attract FDIs.

This competition has acquired a new dimension in the context of the US-China trade dispute. After the Trump administration increases tariffs on Chinese exports to the US, several companies will shift their plants from China to other Asian countries. Some of them have already done so. According to the Japanese financial firm Nomura, only three of the 56 companies that decided to relocate from China moved to India. Of them, Foxconn is a major player which will be now assembling its top-end iPhones in India. Whether other big multinationals will begin to show interest at manufacturing in India remains to be seen.

But India will have to face another external challenge too as it sees capital fleeing the country. The net outflow of capital has jumped as the rupee has dropped from 54 a dollar in 2013 to more than 70 to a dollar in 2019, at a time when oil is becoming more expensive.

Way Forward

Our country has democratic style of governance and hence it becomes much more crucial to ensure holistic development of the society. Unlike China we cannot go ahead with an iron fist, we need to be sensible while going for land acquisitions and ensure that the final yield of a project supersedes the loss to the land looser or the environment. Having a suitable and uniform land acquisition policy and creating a land bank according to the fertility of soil nature will help reduce a lot of problems.

Many a times industry personnel are not ready to go to remote places; connecting these remote barren lands and providing the suitable infrastructure for industry becomes the responsibility of the government.

While there is no doubt that promoting Indian manufacturing is the way forward for the economy, one often ponders how the government is going to tackle these sensitive issues. Certain archaic laws need to be changed, but the worker class needs to be made a part of this change. They should not be left out while framing the laws that are going to affect them the most.

According to Arvind Subramanian, the former Chief Economic Adviser India needs to grow at the rate of 8 % for the next twenty years to provide jobs for the entire population. This is not a small task and requires far sightedness from the current and subsequent governments. To ensure long term growths and build a nation which is sustainable as well as self-reliant, India needs to take strong measures. “Make in India” is one of the correct initiatives which must succeed in order to promote India as an investment destination and to establish India as a global hub for manufacturing, design and innovation.

General Studies Paper- III

  • Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
  • Topic: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

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