The ‘Make in India’ programme aims to turn India into a manufacturing, design, and innovation hub in order to get big investments. This initiative is undoubtedly an inspiring initiative, which has reduced the risk factors of investing in India for many foreign companies. The Indian government has set an ambitious target of enhancing the manufacturing output contribution to 25% of GDP by 2025 along with creating 90 million domestic jobs. The availability of skilled labour, a business friendly environment, good infrastructure and low manufacturing cost are some conditions required for the success of the Make in India campaign.
With emerging youth population, India has the capability of becoming a super economy. But the biggest hindrance is the labour laws and reforms in the country. The Global Rights Index (2016), published annually by the International Trade Union Confederation (ITUC), ranked India as one of the 10 worst countries for working people. Large-scale exclusions of workers from labour law, violence and arrests are the reasons for India’s poor performance. There are eight core conventions of the International Labour Organization (ILO) against forced labour. India has sanctioned only four, and refuses to consent to the following four: Freedom of Association and Protection of the Right to Organize Convention, Right to Organize and Collective Bargaining Convention, Minimum Age Convention, Worst Forms of Child Labour Convention.
Economists have criticized the rigidity of labour laws in the country. They believe that these inflexible laws are the reason behind reduced employment opportunities, and can even be an obstacle to the Make in India initiative. Companies like Maruti, Nokia, Ford and Hyundai have had strikes and protests in India at their manufacturing plants almost every year.
Solution: The government needs to hurry up on labour reform. Disciplining the workforce has become too challenging an effort for the industry, impacting India’s manufacturing competitiveness. The Industrial Disputes Act, 1947, mandates companies employing 100 or more workers to seek prior permission of the government to lay off even a single worker. Chapter V B of the Act bars companies from exiting or downsizing quickly. To make ‘Make in India’ successful, the new government needs to address out-dated labour laws urgently.
The complex taxation system, a huge amount of paperwork and corruption may be the main cause of worries among the investors. India started out with an overly complex, poorly-designed GST, which has dampened investor sentiment and created tremendous compliance burdens on small and medium sized enterprises (SMEs). The administration for its part has found administering the GST a challenge, and ad hoc changes in the tax slabs applicable to commodities have not helped. The government must also figure out how to help states build capacity to improve recovery and reduce the administrative burden on taxpayers. This will not only help improve the business climate but also lead to higher revenues.
To revive the investment climate, the finance minister needs to do only one thing – act on his own promise made in his very first budget of 2015-16, that he will eliminate most tax incentives and put in place a flat 25% tax rate. Government has come up with the e-way bill system by which goods worth more than Rs 50,000 have to be pre-registered online before they can be moved from one state to another. This is expected to curb evasion as such movement would be recorded in the GSTN database.
Some economists believe stringent land acquisition laws and inflexible labour regulations make it difficult for India to attract investors in the manufacturing sector. India’s benchmark land acquisition law must be amended to make it easier to buy land for defence and development projects in the fast-growing economy, while also ensuring the rights of farmers. “The biggest issue we are facing is the pace of land acquisitions - on average, it takes 59 months to acquire land under this law,” said Hukum Singh Meena, a joint secretary of the department of land resources.
Conflicts related to land and resources are the main reason behind stalled industrial and development projects in India, affecting millions of people and jeopardizing billions of dollars of investment, a recent study showed.
The land to be acquired from the land owners should be acquired either on a long lease or in the form of equity for the proposed business. In either event ownership of the land would not be alienated. The same format should apply even to public funded schemes. This option will ensure a steady income for the affected families. In order to help the land owners to make an informed choice it should be mandatory to educate the concerned individuals about the details of the proposed project(s). Such education should be conducted by a group of suitable but independent experts. Further, the process should remain under judicial scrutiny.
The biggest concern of policy makers, analysts, and investors related to the success of the ‘Make in India’ initiative is around political hold-ups. In every session, the working of Parliament is interrupted which delays the approval of important bills. Therefore, the economy and the mind-sets of the investors suffer setbacks. Red tape can stifle the spirit of innovation and entrepreneurship. Important bills and reforms related to land acquisition and labour are some examples.
Important economic reforms that are required for the implementation of ‘Make in India’ programme are still being held up in Parliament. Investors, who were attracted by ambitious promises, may opt for other options due to this prolonged political stalemate. Global rating agencies are also worried about the slow pace of reforms in India. The political impasse may lead to uncertainties and low interest of the overseas investors.
Solution: The government has to act as the central pivot of aligning industries, private companies, public sectors and all stakeholders in realising this vision. The government has to put realistic policies in place and concentrate on eliminating business barriers.
Infrastructure and power
India needs funds to build industries, which in turn need infrastructure. Economists believe that stringent land acquisition laws and inflexible labour regulations make it difficult for India to attract investors to the manufacturing sector. Industrial zones equipped with basic needs of modern and high-speed communication technologies, integrated logistic arrangements, regular power supplies, enhanced connectivity and ease of availability of raw materials are needed. Availability of land is required for better infrastructure. This requires a new, transparent, effective and equitable land acquisition law. The approval of such laws is interrupted due to political interferences in India.
Greater availability of power is needed to realise the dream of Make in India. India is running short of power with a deficit of 5.1%. The Comptroller and Auditor General (CAG) has also recently claimed a loss of $37 billion due to lack of transparency in the allocation of the coal blocks.
Solution: The government should develop infrastructure to bring industry and not vice versa. It should allocate 25% of the land available at all industrial corridors for MSMEs at different rate slabs and for acquiring models. It should also implement a realistic policy to reduce the nationwide deficit in power.
A report by consulting firm Ernst & Young said in 2012 that India lags far behind other nations in imparting skill training. Not too much has changed since then. Over the years, industry experts have argued that ‘lack of opportunities’ is a concern. But, it seems ‘lack of skills’ is a greater concern. According to the National Sample Survey, out of the 470 million people of working age in India, only 10% receive any kind of training or access to skilled employment opportunities.
Solution: Government should improve access to education with higher enrolment coupled with better quality of education. Course contents should be revised to be in line with global trends. Use of technology enabled solutions and adoption of the ‘PPP model school’ format should be brought in. Also the number of Industrial Training Institutes needs to be increased.
Role of states
Indian states play a very crucial role in the implementation and success of the Make in India initiative. India has a versatile geographical and demographical distribution with a federal political system. The involvement and cooperation of state-level decision-makers, political leaders and authorities in a positive way is the basic requirement for the initiative to work. But different political parties ruling different states differ and can never be brought on the same page. To make the concept of Make in India a success, a common consensus among the states need to be achieved.
Solution: There is lack of coordination between the state and the central government. Public agencies which are mostly involved in the project execution have to set practices and processes to execute and monitor investments in order to avoid project delays. PPI (Private Participation in Infrastructure) should be high. The government and the financial institutions must help to create MSME-oriented SEZs, hubs, clusters in rural areas.