7 PM |Why ‘Make in India’ has failed|20th January 2020

Context: ‘Make in India’ initiative

Make in India:

  • The Make in India initiative was launched by Prime Minister in September 2014 as part of a wider set of nation-building initiatives.
  • Devised to transform India into a global design and manufacturing hub, Make in India was a response to a critical situation. 
  • The campaign aims to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure in India.
  • It is being led by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India. 
  • The Make in India programme is very important for the economic growth of India as it aims at utilising the existing Indian talent base, creating additional employment opportunities and empowering secondary and tertiary sector.
  • The programme also aims at improving India’s rank on the Ease of Doing Business index by eliminating the unnecessary laws and regulations, making bureaucratic processes easier, making the government more transparent, responsive and accountable.
  • The focus of Make in India programme is on 25 sectors. These include: automobiles, aviation, chemicals, IT & BPM, pharmaceuticals, construction, defence manufacturing, electrical machinery, food processing, textiles and garments, ports, leather, media and entertainment, wellness, mining, tourism and hospitality, railways, automobile components, renewable energy, biotechnology, space, thermal power, roads and highways and electronics systems.
  • Objectives:
  • The primary objective of this initiative is to attract investments from across the globe and strengthen India’s manufacturing sector.
  • To increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy
  • To create 100 million additional manufacturing jobs in the economy by 2022
  • To ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.
  • The policy approach was to create a conducive environment for investments, develop modern and efficient infrastructure, and open up new sectors for foreign capital.

The Plan to make the campaign success:

  • To start a movement, you need a strategy that inspires, empowers and enables in equal measure. Make in India needed a different kind of campaign: instead of the typical statistics-laden newspaper advertisements, this exercise required messaging that was informative, well-packaged and most importantly, credible.
  • It had to:
  • inspire confidence in India’s capabilities amongst potential partners abroad, the Indian business community and citizens at large;
  • provide a framework for a vast amount of technical information on 25 industry sectors;
  • reach out to a vast local and global audience via social media and constantly keep them updated about opportunities, reforms, etc.

Is it Successful?

As the policy changes were intended to usher growth in three key variables of the manufacturing sector are investments, output, and employment growth, an examination of these will help us gauge the success of the policy.

  • Investment:
  • The last five years witnessed slow growth of investment in the economy.
  • Gross fixed capital formation of the private sector, a measure of aggregate investment, declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
  • Interestingly, though the public sector’s share remained more or less the same during this period, the private sector’s share declined from 24.2% to 21.5%.
  • Part of this problem can be attributed to the decline in the savings rate in the economy. Household savings have declined, while the private corporate sector’s savings have increased.
  • Thus we find a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
  • Output Growth:
  • The monthly index of industrial production pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
  • In fact, data show that for a majority of the months, it was 3% or below and even negative for some months. Thus, negative growth implies contraction of the sector.
  • Employment Growth: Employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market

Thus, on all three counts, ‘Make in India’ has failed.

Reasons of the Failure:

  • It set out too ambitious growth rates for the manufacturing sector to achieve. An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
  • The initiative brought in too many sectors into its fold. This led to a loss of policy focus. Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
  • The policy relied too much on foreign capital for investment. Thus in the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
  • Other Reasons:
  • Low Productivity: Productivity of Indian factories is low and workers have insufficient skills. McKinsey report states that Indian workers in the manufacturing sector are, on average, almost four and five times less productive than their counterparts in Thailand and China.
  • Complicated Labour Laws: One of the major reasons behind small companies is the complicated labour regulations for plants with more than 100 employees. Government approval is required under the Industrial Disputes Act of 1947 before laying off any employees and the Contract Labour Act of 1970 requires government and employee approval for simple changes in an employee’s job description or duties.

Conclusion:

Make in India and reforms that followed have led to an improvement in ‘Ease of Doing Business’ ranking. However, investments are yet to arrive. The ‘Make in India’ programme may have the potential to transform India into a manufacturing hub but if we are to achieve that potential, the government would have to move beyond rhetoric to actual implementation of the announced policies.Source: https://www.thehindu.com/opinion/op-ed/why-make-in-india-has-failed/article30601269.ece

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