Is India Ready To Make In India?

Make In India

“Make In India” is one of the most ambitious projects launched by Prime Minister Narendra Modi on September 25, 2014 which is aimed at making India a manufacturing hub globally. It also aims to create 100 million jobs in the manufacturing sector  while pushing manufacturing to contribute about 25% of the total GDP of India by 2022. By the “Make in India” initiative the NDA government has taken several steps to perform better in the ease of doing business to promote entrepreneurship and attract maximum foreign direct index (FDI). It focuses on increasing GDP and tax revenue of the country.

Four major policies are of concern under Make in India initiative. This includes improving ease of doing business by minimizing the hindrances created by complicated red tape as well as increasing transparency. The NDA government has also promoted electronic registers for businesses under this program.  Up to 100% FDI is allowed in all sectors save for a few sectors such as Public Sector Banking which is limited to 20%, Defense which is limited to 49% and the power exchange industry which is limited to 49%. The government has also initiated the process to improve Intellectual Property Rights to encourage innovation in the country as it will help to build the infrastructure needed for the “Make in India” project as well as provide an incentive for foreign entities to bring in their expertise and implement it in India. Last but not the least – enhancing manufacturing in the domestic markets and creating jobs for the rural and urban masses. Skill development is also an important factor which is being considered by the government to create a more skilled labour force. If “Make in India” meets its objectives then billions can be saved by India in foreign exchange thus marking an important milestone in our economic development and self sufficiency.

Make in India has been launched at a time when the country is undergoing the economic stresses of  a developing economy. The Prime Minister has suggested a solution – “Make in India”, which created a great deal of buzz in the minds of the public as well as the media, but a policy which may potentially have a great impact on the economy needs to pertain to the ground reality of the country and determine the practicality of such a huge project. The Prime Minister’s foreign tours have been a means to promote “Make in India” but if this initiative is not a success then all of that might just have been in vain.

Now to make any place a manufacturing hub there are a few basic issues which are required to be taken care of. Things such as land which is a basic commodity is of major concern. Land in cities such as Mumbai and Bengaluru do not come in handy due to urban development, high costs of acquisition and a scarcity of available land; And if the manufacturing hubs are not near a major city, drayage, i.e. cost of shipping over short distances, will increase the price of the commodity. For this, the NDA government has launched the ‘100 smart cities’ project. But it will take a substantial amount of time till this project reaches gestation and only after these challenges are overcome can “Make in India” be considered a success. India’s infrastructure is still highly prone to disruptive cycles making smoother business transactions difficult and often times not meeting the schedule.

Energy security is another major area where India needs to invest heavily. For any business to thrive there is a need of continuous and uninterrupted power throughout the year – a stable power supply is needed for which India needs to increase its energy production. To address this issue the current government has initiated projects to increase solar power generation capacity to 100 Gigawatts over the next five years.

Lending rates in India are also much higher than those compared to developed countries. Therefore high capital expenditure can become a challenge for an entrepreneur. It is imperative that interest rates will be high in a market such as India where inflation rates are also high, therefore, the inflation rate needs to be controlled by various methods. Manufacturing still contributes only 16% to the total GDP of India whereas the service sector contributes up to a whooping 57% of the GDP. This leads to the question that whether we should be reforming the service sectors rather than the manufacturing sector? The counterpoint to this is the government’s objective of increasing the contribution of manufacturing to boost employment and therefore indirectly increasing the value added services sector.

Moreover better governance, political and bureaucratic will is required to make any policy a success. There is also a need to encourage public and private investments. Considering the current picture India still lacks the technological advancement which are required for certain industries to flourish. Isn’t it shocking that the majority of companies in India are functioning without any major Research and Development (R&D) wing? In my opinion, there is a need to invest in R&D by private companies as well as public sector undertakings.

According to reports of the World Bank, India ranks 130 among 189 countries in the ease of doing business index – it has jumped 12 places from the rank of 142 in the previous year. The report states that it takes around 29 days to start a business in an Indian metro city such as Mumbai or Delhi with an average of 14 procedures as compared to 8 in other South Asian countries. In Singapore on the other hand, which has topped the list, it takes only 2.5 days to start a business with the minimal number of procedures – 3. This is a standing proof of how much effort is needed to be taken in order to make India a leading market for investment. Recently, even the RBI Governor Dr. Rajan expressed his concerns regarding the “Make in India” project. He proposed “Make for India” criticising that “Make in India” is inspired from other Asian countries who built their economies on export but the same policy is criticized by major policy makers and economists in the current market requirements. Dr. Rajan is of the view that “just because one idea has worked for China, it would not necessarily work for India in the changing world dynamics”. Making an economy export oriented might not be the ideal economic policy in the current scenario. He suggested that, rather than focusing just on the manufacturing industry India should focus on every sector equally. There is a need to identify what the needs of various sectors are, and addressing them accordingly. It is better if India boosts manufacturing for the domestic market and brings about economic reforms by passing certain important bills such as the Goods and Sevices Tax (GST) bill which will reform the collection of indirect taxes leading to a lower cost to consumers, manufacturers and ultimately making our exports competitive. India also needs to focus on Small and Medium Enterprises (SMEs) which employs about 65% of the labour force and is an inefficient sector of the Indian economy. Making changes according to current domestic market might have better results. “Make for India” is a more sustainable model for India.

Considering all the pros and cons of the ambitious project of the NDA government, a single question arises. Is India ready to Make in India?