Current Conversations
Make in India: only hype or a significant growth driver?

imgbd


What is the Make In India program? How will it be different from past efforts to boost industry? Will it work? Has the government done enough to make it a success? What are the results on the ground? What are the challenges that this flagship program will likely face? Is it, in the final analysis only hype or a significant growth driver?

What is Make In India?

The Make In India program was launched by the Prime Minster in September 2015 with great fanfare. It caught the attention of not only the domestic press but also that of foreign media. The program was envisaged as one part of a series of steps towards nation building. A couple of others are Swachh Bharat and Skill India.

The aim of the Make In India program is a complete overhaul of systems and procedures governing industry, and to actively encourage businessmen to set up industries. The one outstanding feature is the change in government mindset, from being a provider of licenses and quotas to becoming a business partner. The program is a reflection of Mr. Modi's oft repealed mantra of 'Minimum Government, Maximum Governance'.

The aim is to increase the industry's proportion of GDP to 25% by 2020 and in the process create a hundred million jobs. Another aim is to achieve zero net imports for the electronics sector.

How does it work?

Make In India at its core is an effort to facilitate firms and companies in their endeavor to set up factories in India. The entire program has been constructed on the back of wide consultations amongst government departments as well as with industrialists. The Department of Industrial Policy and Promotion, DIPP, began the process by inviting departmental secretaries, Union ministers, state government officials and business leaders to give their ideas for the initiative. In December 2014, DIPP held a national workshop of all stakeholders including the above mentioned groups to develop a three year plan of implementation.

In order to assure success, the government has developed the program differently from past efforts. It took some important steps. The first was that the program had to instill confidence in investors, both domestic and foreign, in our technical capabilities. To this end, the DIPP has identified 25 manufacturing sectors and collated necessary and important technical information on them. The next step is perhaps the most innovative aspect of the program. The program seeks to use social media and other forms of media to reach out to the world at large keeping all the interested parties informed about the program as well as giving out updates. This is perhaps the first time that a government policy has been sought to be actively marketed to its prospective audience.

On the ground

To achieve this, the department developed a website that was mobile friendly as well as a help desk to answer queries on the program. The website contains full details of the program on the 25 sectors covered. All information that investors need, like vital facts and figures specific to each of the sectors, are uploaded.

The following sectors have been identified for the program. Aviation, Automobile Components, Automobiles, Biotechnology, Construction industry, Chemicals, Defence manufacturing, Electronic systems, Electrical Machinery, Food Processing, IT and BPM, Leather, Media and Entertainment, Mining, Oil and Gas, Pharmaceuticals, Ports and Shipping, Railways, Renewable Energy, Roads and Highways, Space, Textiles and Garments, Thermal Power, Tourism and Hospitality, Wellness.

The government has permitted 100% FDI in all sectors except for Space (74%), Defence (49%) and News Media (26%). (DNA 25 Sep 2015)

Policy Changes

The government has made the following policy changes to speed up the clearance and approval process. In a stroke, old policy frameworks have been replaced by user friendly and transparent systems. Environmental clearances can now be obtained online, while the validity of industrial licenses has been extended to three years. Most paper registers held by companies can be substituted with electronic registers. Income taxes can be filed online. Importantly, approval of the head of a department is necessary before inspectors can visit factories. The initiative aims to make a clean break from the past Inspector Raj. This is expected to push investment, drive innovation, build technical skills, promote infrastructure and protect intellectual property rights.

"From an electronics industry point of view, the campaign is a strategic initiative. Some companies depend too much on imports for parts, which can be minimized. But things are definitely improving. In Maharashtra, we required 50 to 60 permissions before going ahead with anything. Now the number has dropped to ten or twelve," says Anirudh Dhoot, director, Videocon. (IIM)

Global interest

The program has also reached out potential global partners, the most important being the US. Some early successes have been scored in railways, defence, insurance, medical devices sectors. Several foreign companies have evinced interest in the program. Firms like Foxconn and Micromax are planning to set up factories. The first China-India Mobile Phone and Component Manufacturing Summit is expected to attract 107 mobile manufacturing firms from India and China including big Chinese players like Techno, Gionee, Coolpad, Vivo, ZTE, Meizu and Huawei.

In the arena of defence, Phil Shaw, CEO of Lockheed Martin said that the program would bolster manufacturing. He was particularly appreciative of the enhancement in FDI in defence to 49%. Not to be left behind, Airbus has nominated its vice president Ashish Saraf, to manage the company's strategic partnerships and offsets, for the Make In India program. (Business Today January 12, 2016)

Will it work?

How will all this work in practice? Is India really competitive in manufacturing? This is a question that has been nagging many analysts. For 'Make in India' to become a success, land and labour reforms will have to be implemented expeditiously. With the current logjam in Parliament this is a tough if not almost impossible call. Further, even if the government manages this, since capacity utilization in manufacturing now hovers around 70%, there must be a demand surge, before new capacity will be needed. This is a real hurdle facing the program.

Another aspect is that the days of employing cheap labour, and lots of it, to make things, seems to be on the way out. In fact emerging technologies like robotics and 3D printing are poised to revolutionize manufacturing. Manufacturing is likely to become so technology intensive that it will need highly skilled workers. This means that manufacturing may go back to the developed countries. The model of cheap labour manufacturing may be past its sell by date.

On the positive side, the new technologies will take time to mature. Thus India has perhaps a 10 year window, wherein it can use cheap labour manufacturing to create thousands of new jobs. According to the Indian Institute of Management, Kolkata, a 2013 study from Deloitte's global index for 38 nations indicated that India was the fourth most competitive manufacturing nation. "The ground is ripe to make India into a manufacturing hub," opines Rajiv Rajvanshi, Sr.VP - corporate strategy, Jindal Stainless Limited. "The infrastructure sector will have to prepare the ground for other industries to follow suit. But the focus of the government policy should also be to prioritize and ensure full domestic capacity utilization, especially in all the core sectors, only then can we truly have a successful Make in India campaign," he added.

The real challenge before the government is to convince global players that India is at last ready to be part of global supply chains. It is this aspect that will actually make a success of the program and turn India into a manufacturing powerhouse.

At this point, in the absence of land and labour reforms and with infrastructure still falling short of current demand on critical aspects like power, roads and ports, playing a material role in global supply chains does seem more of earnest intention rather than a tangible promise. One has to hope that the Government resolves these key issues sooner than later, so that the promise of hundred million jobs for Indian youth actually materializes in the coming years.

Share your thoughts and perspectives

Do you have any observations or insights or perspectives to share on this issue? Did this help you understand the topic better? Do you disagree with some of the observations? Please post your comments in the box below ..... it's YOUR forum !

Share this article