Revitalising ‘Make in India’: Get cities on track, and build new ones

Illusions & Delusions

The ‘Make in India’ programme to promote Indian manufacturing needs a mid-course evaluation, though recent efforts to make Indian manufacturing a globally recognised success story have been focused, thoughtful and determined. India used to languish around rank 120 or even lower in the World Bank ‘Ease of Doing Business’ ranking till 2014. It currently ranks 62/63 because of a systematic effort to improve governance quality in each of the monitoring parameters. Likewise, rankings in logistics, international shipments and trade-related infrastructure indices have also improved.

It is worth recognising that the government has been forthcoming in offering a variety of financial incentives. Tax rates have been substantially lowered and are now globally competitive. Apart from the ‘Make in India’ incentives, an additional bold push to attract large-scale greenfield investment in 14 priority sectors was made via the Production Linked Incentive (PLI) Scheme in March 2020. Consequently, in FY23, electronics goods exports emerged as a standout performer for India’s export basket, totalling $25.3 billion, up 49% over FY22. Domestic production of electronic goods, consisting of cellphones and computer hardware, peripherals, electronic components, and medical and scientific instruments has risen from $49 billion in FY17 to $101 billion in FY23, implying a CAGR in excess of 13% and a rapidly growing employee base of 1.2 million.

Critics argue that this has come at the cost of increased import dependency. It is true that India’s imports of electronic goods have steadily risen from $53.52 billion in FY20 to $87.85 billion in FY23. However, increased imports could also be occurring because of the rapidly growing equipment import demand of the 1,400+ GCCs (global capability centers) of various MNCs operating in India.

Criticism arguing that we are mostly ‘assembling,’ not ‘manufacturing,’ as component manufacture resides elsewhere, is equally invalid. Manufacturing is increasingly fragmented, leading to terms such as ‘Global Value Chains’ to better describe the manufacturing process. A beginning had to be made somewhere, and attracting assembly operations, the most labour-intensive of the value chain outside ‘design and development’, was a good first stage strategy. Additionally, a variety of component manufacturing, including semiconductor production, is being targeted.

This attempt to attract chip production is also critiqued and termed unaffordable. It is forgotten that given their importance to the economy, semiconductors have become a key strategic industry for many countries, with governments and companies alike investing heavily in R&D. The PLI budgets may look impressive to Indian eyes but pale into insignificance against the subsidies offered elsewhere. The semiconductor supply chain is a complex network of companies, organisations and individuals involved in designing, testing, manufacturing in specialised foundries, packaging, and distribution of semiconductors. Indian presence in design and development already exists in a significant way. A number of the GCCs powering our services exports are involved in it. Attempts to attract other chip-making activities are thus not to be ridiculed.

The actual critique lies elsewhere. Promoting manufacturing has always been a State priority post-Independence. However, it has always been viewed as a market access issue or as an incentives problem but never as an ecosystem challenge. Further, every competing country is also trying to attract manufacturing. So, they also incentivise. As a result, Indian manufacturing, notwithstanding government efforts, underperforms, despite a growing economy. Manufacturing’s share of profit has fallen from 46.7 per cent in FY16 to about 30 per cent currently. We continue to languish as the 14th largest exporter despite becoming the fifth-largest market. The potential to improve is enormous.

Fortunately, a short-term opportunity beckons. Tens of thousands of US/EU companies currently located in China and powering its $3.59 trillion exports are potentially re-examining their locational strategy, given the US-China trade war. They will look for similar living/working conditions. Our ecosystem needs to be ready to compete on equal terms to attract them. We are not even trying to resolve this challenge, though several of our traditional growth centres are increasingly choking in a complicated web of traffic congestion and environmental pollution. The cities/industrial areas of our competitors are more attractive. We need to overcome this speed-breaker.

A way out exists. The Delhi-Mumbai Industrial Corridor road projects are nearing completion. It will be worth recalling that in 2013, Amitabh Kant, as the then CEO and MD, DMIDC Limited, had mentioned that plans for creation of seven of the planned new 24 industrial cities in the corridor had already been finalised and were due for rollout. This bid to create new cities has since been on the backburner, but could now be revived with appropriate modifications to strengthen ‘Make in India’. We should not lose this opportunity through inaction.