January , 2018
Make in India’ evoked mixed responses
16:46 pm

Ankita Chakraborty

Indian Prime Minister Narendra Modi’s ‘Make in India’ campaign has traversed three successful years. Many foreign investments were already parked before the government announced the launch of the campaign. PM Modi had visited 27 foreign countries to promote his dream campaign and promote India as a manufacturing base for 25 major sectors. In its initial stage, the campaign had witnessed increase in Foreign Direct Investment ( FBI). India had attracted $31 billion of FDI in the first half of 2015, ahead of $28 billion of China and $27 billion of the US.

The ‘Make in India’ (MII) initiative was started at a time when the Indian industries were sinking. Manufacturing had to be taken under consideration as most of the items imported to India were made and assembled in either China or US. This incurred heavy costs for the Indians, with meager employment condition. Agriculture which contributes to 17% of GDP and employees 60% couldn’t be the backbone of the Indian economy. The sector was unproductive and there had to be changes. Survival with service sectors wasn’t promising too because it needed highly specialised skills. Movement to manufacturing is slightly easier, and hence started the programme. MII seems to be more of a conscious risk taking programme by the government to curb the bureaucracy and red tape culture from the system which will invite more leaders and create big organisations.

The idea behind this entire programme was to create a favourable environment for the foreign investors to invest in India and domestic investors to make in India. They would in turn get skilled workforce through Skill India. The increase in GDP (Gross Domestic Product) would ultimately decrease unemployment. The revenue from taxes would be pushed into improving infrastructure.

While the government claimed on receiving a heavy investment interest during 2015 in the area of electronics systems design and manufacturing, the retail segment also witnessed fresh growth opportunities with IKEA’s plans to open 25 stores across India. Other retails like GAP, Wal-Mart and H&M group have also entered and expanded market in
India. The government had also boasted about investment plans from auto companies like General Motors, Volvo, Fiat, Daimler-Benz and defence sector entities like Dassault,
Boeing and Airbus were also likely to invest in India.

Although, ‘Make in India’ became popular, it did not seem promising. Even, the finance ministry’s mid-term review of the economy stated that growth in capital goods imports has slowed down. There were hardly any fruitful outcomes from manufacturing sectors like steel, iron, aluminum and cement.

Mixed reviews

According to the ratings agency, Moody’s, the net foreign direct investment inflows had hit an all-time high in  early 2016, making the ‘Make in India’ initiative a positive one. The agency had also stated that the rise in FDI points
towards a stronger investor interest in India. Higher inflows also suggested that government policies were bearing fruits. FDI inflows into India hit an all-time high in January 2016 to reach $3 billion on a 12-month moving average basis. India’s current account deficit is now more than covered by its FDI inflows. The basic balance returned to a surplus in 2015 after being in deficit from 2003 to end-2014. The value of domestic currency also improved.

Moody’s also emphasised the need to develop new industrial corridors and stated that there is a need to enhance investment. It noted that ‘smart cities’ will also boost investment inflows. The report added, “In particular, flows into the manufacturing sector are likely to accelerate as the government seeks to boost the sector’s share of gross domestic product (GDP) to 25% by 2022. Government investment in infrastructure and the establishment of a dedicated fund in last year’s Budget to foster private sector participation in infrastructure projects will also help to address some of India’s deficiencies in this area and foster FDI.”

A report by K.S. Chalapati Rao, Professor (Retd), Institute for Studies in Industrial Development (ISID), and Biswajit Dhar, Professor, Jawaharlal Nehru University reveals that the programme may not have yet made any impact on FDI into focus sectors. The investments should be examined from the point of view of fresh capacity addition in domestic production and not on account of round-tripping of funds. It also stated that statements regarding the contribution of FDI to India’s development which ignore these critical features of FDI would be misleading. India should start taking an objective view based on appropriate empirical evidence. FDI under the automatic route fell by nearly 30% during April-August period of 2016-17 fiscal, according to this report.

But, contrary to the government data which say that FDI during October 2014 to May 2016 grew by 46% to reach $61.58 billion after the launch of the Make in India  programme, the report claims that decisions on long-term investments will not be taken instantly and will be based on careful analysis of investors’ future requirements and after evaluating the relative advantages offered by alternative locations globally. Further, it said the overall FDI increase during January-September 2016 was achieved in large  measure because of a huge jump in the acquisition of existing shares by foreign investors (i.eM&As) by displacing existing investors. The ‘Make in India’ campaign aims to make India into a global manufacturing hub, but according to recent RBI data, both FDI in manufacturing and the percentage of FDI flowing to manufacturing declined in 2015-16.

According to Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP), the government agency in charge of the initiative, “The growth in FDI has been significant after the launch of Make in India initiatives, with a 48% increase in FDI equity inflows between October 2014 and April 2015 over the corresponding period last year.”

Is ‘Make in India’ successful?

The objective of ‘Make in India’ is to increase the share of manufacturing in India’s GDP to 25% by 2022, which is expected to generate approximately 100 million jobs for Indian workers. But how much of this has been achieved so far?

After an encouraging jump to a record $9.6 billion in 2014-15, FDI in manufacturing actually fell to $8.4 billion in 2015-16 (below the $9.3 billion it had reached in 2011-12). Furthermore, the FDI flowing to the manufacturing sector which was between 35% and 40% for the past four years, dropped to 23% in 2015-16.

E-commerce and digitisation were given more importance as compared to manufacturing. Education sector still lags behind. No positive investments were made in terms of health and no new technologies have been introduced in the healthcare industry. No new investments or job creation has been noted in the infrastructure sector as well. There has been a time lag and no proper execution had taken place. Demand was not enough in accordance to supply. These have to shoot up. Increasing the disposable incomes and reducing interest rate can facilitate more demands. The lending capability of banks has also reduced as they suffer high level of NPA’s. This has affected the entire chain of demand generation.

For short-term relief, the government can release only a small amount of public money. Manufacturing sector should be monitored closely. Diversions should be created in terms with the interest of the public and keep aside political fondness.

However, the success of this initiative remains unclear.  It may be too soon to write it off.

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