Has a decade of Make-in-India failed?
Introduction – The Ambitions of Make-in-India:
It was the day of 15 August 2014, when the then-maiden Prime Minister, Narendra Modi articulated this pioneering initiative in his Independence Day speech, imbibing an incalculable hope in the hearts of crores of Indians to transform India into a global manufacturing hub. With 2024, a decade rolled by for this initiative to make its impact visible. Thus it is a perfect time to critically appraise the Make-in-India initiative.
Make-in-India is an initiative by the Government of India to create a conducive ecosystem to act as an encouragement and facilitator for domestic and foreign companies to invest and manufacture in the country. This policy approach focused on improving infrastructure and bringing positive changes by bringing effective laws. After the launch, the government committed US$ 200 billion for investments between September 2014 and February 2016. Collaborating with this initiative, individual states too launched their own local initiatives like ‘Make-in-Odisha’, ‘Vibrant Gujarat’ etc.
But before diving deep into the appraisal, a basic question tweaks the mind- Why on Earth do we need Make-in-India, why can we not focus only on our booming service sector, exporting services to earn dollars and using them to import manufactured goods? This would potentially be the best measure, provided that India had both less population and unemployment. But the scenario is not the same: India is both the most populous country in the world, and had 15.7% of its youth unemployed in 2023. Thus we need a robust manufacturing sector that can provide employment to skilled, semi-skilled and unskilled labour, to amplify the exports and enhance the overall economic welfare of the country.
A Reality Check: Did Make-in-India deliver what it promised?
Before jumping into whether Make-in-India has delivered on its promised, we need to figure out what the promises of this strategy are. The three main objectives of the policy approach are – to surge growth of the manufacturing sector by 12-14% per annum; to produce 100 million additional manufacturing jobs in the economy by 2022 (later revised to 2025); and to increase the contribution of the manufacturing sector in the GDP to 25% by 2022 (later revised to 2025).
Day after day, news comes, bolstering our confidence in the Indian economy and our manufacturing sector. The International Monetary Fund (IMF), in its regional economic outlook for 2024, reaffirmed India as the fastest-growing major economy, amid geopolitical crises around the world and a global economic slowdown. India, once importing innumerable electronics, now produces 14% of iPhones in the world. The defence sector exports have shot up multifold. The Introduction of structural reforms and schemes like Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), online company registration through Ministry of Corporate Affairs portal, Production Linked Incentive (PLI) scheme, reduction in Corporate tax and whatnot, has improved the ease of doing business in the country. Now, India is set to receive billions of dollars in investment to produce the mighty semiconductor chips. From electric vehicles to solar panels, you name it and we make it in India.
All this seems tremendous right now, but the reality is that Make-in-India is actually a fiasco. Instead of the manufacturing sector contributing 25% to the GDP, the share has decreased from 16.7% in 2014-15 to 15.9% in 2023-24. The growth rate of the industrial sector remained 9.5%, less than its target of 12%: which was only met in 2015. The Annual Survey of Industries for 2022-23 showed that the number of individuals employed in the industrial sector was 18.4 million in the same year, thus making it almost impossible to accomplish the target of creating 100 million new jobs by 2025. India’s exports have doubled in this decade ,but the trade deficit has increased drastically. Even the net Foreign Direct Investment (FDI) inflows in the country have decreased in the same period. All these facts show that although Make-in-India has revamped the manufacturing ecosystem in India, it has been a failure in terms of achieving its over-ambitious goals.
Breaking It Down: What held Make-in-India back?
When we have a government that is aggressive and passionate about manufacturing, which is introducing myriad of schemes to reduce taxes and inviting businesses. We have a large population and a huge list of companies wanting to diversify their production from China, so why are we failing?
The reasons behind the fiasco of this policy can be categorised in two halves – structural issues in the policy design and structural issues in the economy as a whole.
First, the shortcomings in the policy. The objectives set in the initiative are too big to be achieved. Achieving a growth rate of 12-14% in the industrial sector is well beyond our capacity and an anticipation to have such a quantum jump in the capabilities of the sector is an overestimation of the implementation capacity of the government. The initiative brought too many sectors into its umbrella, thus creating a dearth of focus on a particular sub-sector. Most importantly, Make-in-India promotes production in India but mainly by foreigners. It relies significantly on foreign capital, thus making India prone to vulnerabilities of global fluctuations and trade protectionism.
Second, the structural issue in the system, that is, ease of doing business in India. The rank of India in the Ease of Doing Business report issued by the World Bank had improved significantly from 142nd in 2014 to 63rd among 190 countries in 2020, after which the ranking system has been discontinued by the World Bank. This shows that the government’s efforts in improving the business ecosystem in the country have created a discernible impact, but this improvement in the rank doesn’t mean that the problem has been solved. Within the index, there are sub-segments where the performance has been poor. Setting up and operating a manufacturing business is cumbersome due to subsistence of bottlenecking laws, enhancing involvement of bureaucracy and red tapeism. As per the Economics Survey of 2022-23, logistics costs in India vary from 14 to 18% of the GDP, much higher than the global benchmark of 8%. Enforcing a contract in India takes an average of 1,445 days or almost four long years, compared to just 400 days in Vietnam and 496 days in China, as per the Doing Business Database of the World Bank. This shows the inefficiency of the legal system to cater to the requirements of businesses.
Is Leniency in Reforms Affordable? The Vietnam Challenge
The world today has realised the importance of not keeping all its eggs in one basket. Thus, major companies dependent on China for manufacturing are looking to diversify their units. The Zero-Covid policy of China and the increasing geopolitical tensions between the two largest economies of the world, America and China, with issues ranging from their Trade War to the Taiwan issue, have escalated the tendency of manufacturers to mitigate risk by diversifying to other manufacturing destinations. Thiis fabricates an extraordinary opportunity for India to become the next manufacturing hub of the globe.
But a question arises, who are the beneficiaries of this ‘China Plus One’ strategy? It’s our geopolitical friend but economic rival, Vietnam which has emerged as the prime beneficiary of this opportunity. Vietnam has attracted a significant amount of Foreign Direct Investments (FDI), positioning itself as an appealing location for companies to diversify. Vietnam’s continuous efforts to formulate a favourable business environment through construction of requisite infrastructure, reduction logistics costs and leverage its competitive labour costs, which are demonstrating their results. Asserting that India has failed to attract foreign producers would be a pessimistic and false statement, though it will not be false to say that India it’s true that India has not been successful in exploring its full potential and capitalising this opportunity to its fullest. Vietnam is not the sole competitor for India in this race, with countries like Mexico, Thailand and Indonesia all eager to materialise this geopolitical advantage.
Thus, it’s not at all viable for India to be lenient with its reforms and being dormant will risk India from further missing out on critical investment opportunities.
Solutions -Reviving Make-in-India:
The solutions or ways to pick up our manufacturing sector are straightforward. The government needs to improve the ease of doing business in the country, by putting itself into the shoes of businesses to gauge minute problems and bring conducive frameworks to solve them. To enhance the efficiency of the judicial system, the arbitration process should be promoted. Often, government infrastructure projects and corporate investments get delayed due to land acquisition problems and thus, following the land banking model, as used in Gujarat could be an effective way of allocating land resources on time. An inclusive and a more comprehensive programme is the mandate of the time which can upskill the youth of the nation. One such scheme is the Skill India Mission, which is being implemented but its outcomes are not very conspicuous. Most importantly, the government needs to fill the deficit in the implementation phase.
Thus it can be concluded that Make-in-India has not been an ultimate failure but we have very little to cheer about it. Appropriate reforms from the government need to be taken with constructive implementation. India has the potential, India has the potential and the only thing that can be done is to explore and materialise it is to explore and materialise it.
References:
1]. Wikipedia contributors. (2024, October 21). Make in India. Wikipedia. https://en.wikipedia.org/wiki/Make_in_India#Ease_of_doing_business
2]. Babu, M. S. (2020, January 20). Why ‘Make in India’ has failed. The Hindu. https://www.thehindu.com/opinion/op-ed/why-make-in-india-has-failed/article30601269.ece
3]. India Jumps up 79 positions in World Bank Doing Business Rankings, Improving From 142 In 2014 To 63 in 2019. (n.d.). https://pib.gov.in/Pressreleaseshare.aspx?PRID=1601259
4]. Policy Circle. (2024, February 14). China plus one: Can India catch up with dynamic Vietnam? | Policy Circle. Policy Circle. https://www.policycircle.org/economy/china-plus-one-india-benefits/