JOIN USModi govt's 'Make in India' failed to take off
When Prime Minister Narendra Modi launched the ambitious ‘Make in India’ campaign on September 25, 2014, there was euphoria all around that India would give China a run for its money in manufacturing industrial goods. Over five years have elapsed and when one looks back, the performance in the 25 target sectors seem varied and success not uniform. There’s no reason to doubt the NDA government’s intentions or commitment to give a big push to manufacturing in India by both domestic and foreign businesses. But then, on the ground, the picture is quite different.
The Modi government’s handouts on Make in India paint the big picture while leaving out the details. A scientific analysis of the trends reflects very modest achievement in terms of realizing foreign investments on the ground, creating wealth and jobs, or giving a big push to the consumption cycle. The failure to get Make in India going is part of the reason why the economy is clocking just 4.5% growth, and the slowing is yet to bottom out.
Government data points to foreign direct investment (FDI) flows that have slowed down to a trickle, at $8 billion in the last nine months, the lowest seen during comparative months since 2015. Interestingly enough, the lower FDI has been reported at a time when the Modi government was trumpeting its achievement on ‘ease of doing business’ rankings compiled by the World Bank.
As per the World Bank, India’s ‘ease of doing business’ ranking improved significantly to 63rd position, as against a lowly 140th spot six years back. But this improvement has not resulted in significant investments by domestic or foreign companies in industrial manufacturing units. Has the ‘Make in India’ campaign led to improvement in the industry’s share of GDP beyond 15% in the last six years? The answer is a resounding ‘no’. One does not even get to hear these days the oft-repeated target of pushing up the share of manufacturing in India’s GDP to 25%.
Some sectors actually exemplify the downward spiral that they have suffered, while others have remained either stagnant or reported modest growth notwithstanding the Make in India campaign, which was one of the signature projects of Prime Minister Modi in his first term. Take, for instance, the automobile sector, where companies like Renault, Suzuki, Honda, Kia, and Volkswagen have set up huge manufacturing bases before, during and after the launch of the campaign. The automobile sector was easily identified by the Modi government to lead the charge on Make in India.
By 2026, the sector was expected to account for 12% of GDP, with valuations bulging by three to four times at $260 billion from $74 billion, create 65 million jobs and export 35-40% vehicles. Given the slowdown, the automobile sector has, instead, been taking a reverse, with sales on the decline, dealer outlets shut down, pink slips becoming a norm in the industry, and unscheduled production shutdowns turning into practice. How long will the automobile sector take to rebound? What’s the kind of investments it will attract in the near future and how many jobs will it create? Those are questions to which the government seems to have no answer.
Given that the sector received $21.38 billion in FDI during April 2000–March 2019, i.e. 19 long years, is the Modi government being realistic about its projections for the sector? Given that the automobile ecosystem is undergoing a major overhaul internationally, how this would pan out for India is yet to be evaluated. And, pulling out from the Regional Comprehensive Economic Partnership (RCEP) may not do the country much good in terms of exports in general, and automobile exports, in particular.
The electronics systems design and manufacturing (ESDM) industry is another key area that has for years been projected to grow and which the proponents of Make in India expected to propel Modi’s pet campaign to great heights. As per available industry data, mobile phone manufacturing and accessories units have reportedly grown to 268 from just two in 2014. Over 95% of mobile handsets used in India now are apparently produced in India, with top brands like GE, Panasonic, Mitsubishi, Qualcomm, Xiomi, Samsung and Nokia setting up their bases in the country. Finland’s Sal Comp, which produces batteries for iPhone-maker Apple, has apparently revived a closed factory of Nokia.
While this is one sector where Make in India got decent traction, its growth is nowhere near the targeted $100 billion investment. And, the targeted four-fold increase to $400 billion by 2025 doesn’t look like it’s coming, either. Right now, only about 0.65 million people are employed in the industry, as against the targeted 28 million that are expected to be achieved in five years from now. A continued economic slowdown may put a big pause in recruitments across the industry. And well, the export target of $80 billion, from $8 billion now, seems a wee bit stiff as well.
Roads & highways, food processing, pharmaceuticals and renewable energy were four key areas identified as having growth potential under Make in India. But there’s nothing big to write home about across these sectors. A back of the envelope calculation points to a slowdown in growth in FDI inflows during the last five years when Prime Minister Modi attempted an aggressive Make in India campaign. An over 23% growth in FDI inflows in 2015-16, when the Modi euphoria was at its peak, slowed down to about 1-2% in subsequent years. For instance, FDI inflows during 2017-18 were reported to be $60.97 billion, as against $60.22 billion reported in the year before. About $64.37 billion was reported for 2018-19, which meant a 5% growth.
If one were to go beyond the numbers, though, foreign investors may have preferred to put their money into companies like Flipkart or Swiggy, which are e-commerce businesses. Those may be safe long-term bets for the foreign investor in a consumption-driven economy, but they do not necessarily add to India’s industrial manufacturing muscle. While India continues to be a destination for foreign investors, both in the form of equity as well as portfolio funds, the Make in India campaign has not led to any discernible change in the way India is perceived as an evolving industrial manufacturing base with an open policy framework, innovation and low transaction costs.
In the sclerotic economic environment that the Modi government has created for itself and the nation, thanks to the ill-advised demonetisation and the flawed design and implementation of the Goods and Services Tax, all that the Modi government is now left with to show for a good policy to attract investors are the new corporate tax rates – cut to as low as 15% for new enterprises and 28% (down from over 40%) for existing companies. Prime Minister Modi will have to do better than that, and quickly, to be able to turn India into a modern industrial hub. Otherwise, Make in India is likely to lose steam altogether.
(The author is a Delhi based journalist)