1 Year of Modi Govt: Come, Make In India: (Adverse) Conditions Apply
PM’s pet project ‘Make In India’ has been the centre-piece of economic reforms and much has been done to establish India as a manufacturing powerhouse. But the scale and nature of infrastructure and policy hurdles are not likely to be overcome any time soon
Published - 18-May-2015
In September 2014, PM Narendra Modi launched ‘Make In India’ initiative which was aimed at encouraging domestic production of services and products in order to make India the world’s manufacturing hub. The focus was also to enhance skill development and create jobs within the country. The NDA government’s Union Budget 2015 was also designed to give a big thrust to the ambitious Make In India project. With the Union Budget, basic rate of Corporate Tax was reduced from 30% to 25% in next 4 years; accompanied by reducing exemptions. FM Arun Jaitley had also announced an annual flow of Rs 20,000 crore for National Investment and Infrastructure Fund.
The government has taken some key initiatives of delicensing and deregulation measures such as the process of applying for Industrial License & Industrial Entrepreneur Memorandum made online on 24×7 basis through eBiz portal. PM Modi is actively seen propagating ‘Come, Make In India’ line of thought in other countries, Germany’s Hannover Messe being one case in point where India was a partner country. PM Modi has appealed Chinese CEOs during his visit, to make in India and reports state deals worth $22 billion have been signed between the two countries.
FDI hikes in Insurance, Defense , Pension sector, and Railways are also likely to bring in more inflow of investment. E-auctioning of coal blocks, passing the Land Acquisition Bill in the Lok Sabha and strides in implementing GST are seen as positive steps that could boost the programme.
The biggest strides in the last one year of Make In India initiative have been seen in the defence sector where 46 licences have been issued for producing homegrown defence vehicles, artillery and systems as well as several high-ticket international deals with countries like France (Rafale deal) and USA (Howitzers deal).
Most recent developments include L&T’s agreement with Hyundai Heavy Industries for technology transfer to build carriers for LNG (Liquefied Natural Gas) in Tamil Nadu, Motorola evaluating production in India, Nivea opening its first manufacturing plant in Gujarat, Xiaomi’s said plans to set up manufacturing and R&D units in India. Samsung has indicated that it will start manufacturing Galaxy S6 in its Indian facilities.
One of the sectors believed to be leading Make In India initiative from the front is the automotive industry. Auto giants like Volkswagen, BMW, Mercedes, Honda, Daimler, among others have reiterated their commitment to manufacturing state-of-the-art technology in their India-based factories. Two-wheeler manufacturer Honda Motor has stated it wants India to be its largest two-wheeler operation globally. BMW has increased localisation by upto 50% in India. GM aims to make India its new global manufacturing and export powerhouse in the coming years. Ford recently opened a facility in Sanand, Gujarat to increase production.
Actualising Make In India still too many steps too far…
As rosy as the picture may look, there are a number of hurdles facing the Make In India initiative and the ground realities could portend a different scenario. The truth is PM’s pet project is a mighty task and it could take years before it actualises owing to the nature of the project. Recent growth in India has been due to the booming service and IT industry but in the manufacturing sector the country hasn’t seen as much progress compared to China. According to WEF’s Global Competitiveness Index 2014-15, “Dropping for the sixth consecutive edition, India ranks 71st (down 11) out of 144 economies in the Global Competitiveness Index (GCI) 2014-2015. It is the lowest ranked among the BRICS economies. The rank differential with China (28th) has grown from 14 places in 2007 to 43 today.”
The report also finds that India ranks 106th in No. of days to start a business, 90th in quality of overall infrastructure, 103rd in quality of electricity supply. But on the brighter side, it ranks 48th in capacity for innovation and 30th in company spending on R&D, ranks 3rd in domestic market size index and 4th in foreign market size index. The five most problematic factors for doing business were identified as access to financing, tax rates, foreign currency regulations, inadequate supply of infrastructure and corruption.
According to PwC’s India Manufacturing Barometer 2014, “Global market trends are important to most manufacturers—five out of every six companies we surveyed said they imported some of their raw materials. Manufactured materials, components and specialised inputs (such as specialised chemicals and additives) comprise a large chunk of imports by the businesses surveyed, whereas finished products and manufactured inputs dominate exports. High raw material costs, poor quality perception of Indian products and limited access to R&D and technology are key challenges identified by Indian manufacturers in the context of their exports.”
Land, an important factor in setting up manufacturing hubs is still difficult to acquire in India. Although the Land Acquisition Bill was passed in Lok Sabha, has yet to receive the nod of approval from the Rajya Sabha. A joint committee has already been appointed to look into the matter.
Taxation policies have been identified as one of the major obstacles facing Make In India dream, especially taxes on import. Critical GST bill has also been passed in Lok Sabha however, Congress is inclined to sending it to a parliamentary panel for further scrutiny.
Infrastructure is another highly precarious factor where India lags behind many of its developing counterparts. Roads, ports, railways in India leave much to be desired, hampering a smooth distribution system. Although labour is available in abundance, the country’s labour laws are also seen as complex, archaic and a barrier to business.
But for an initiative as mighty as this, stepping stones have been put in place. Optimism surrounding Make In India is high among India Inc. Execution and implementation are key in making it a success.