Make in India

India’s big investment push

Strategy And Trade

November 17, 2015

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Nov-Dec 2014


To attract foreign investment and spur India’s local manufacturing sector, Prime Minister Narendra Modi’s pet campaign ‘Make in India’ was launched. Working on challenges such as the stringent land acquisition law for the international investors, the movement looks forwardd to upsurging growth and employment in the sector.

The Independence Day speech by the new Prime Minister Narendra Modi had left may inspired, when from the ramparts of the capital’s Red Fort, he had announced, “Let’s resolve to steer the country to one destination. We have it in us to move in that direction. Come, make in India. Come, manufacture in India. Sell in any country of the world but manufacture here. We have got skill, talent, discipline, and determination to do something. We want to give the world a favourable opportunity. Come, I am giving you an invitation.”

A day after India’s triumphant Mars mission and hours before he left for his first visit to the USA as Prime Minister, Narendra Modi launched the “Make in India” campaign. Amidst much fanfare and at a ceremony attended by big-wigs of the Indian industry, Modi launched his pet programme, exhorting investors to think of foreign direct investment (FDI) with a twist ‘First Develop India’.

The event was a live telecast all over India and was also watched in several countries as Indian embassies around the world scrambled to gather local businesses in their countries in order to have a glimpse of the decisive government which is now in place after nearly four years of perceived in action and lethargy. Laying out the red carpet before investors, the Prime Minister said, “After what we have done and what I hear from you, I don’t think I need to assure you any further on ‘Make in India’.” He hoped industry across the globe will take his invitation seriously.

Aimed at putting India prominently on the global manufacturing map and to facilitate the inflow of new technology and capital, while creating millions of jobs, the programme has three pillars – improving the ease of doing business by de-licensing and de-regulation, enabling infrastructure such as industrial corridors and opening up FDI in sectors such as defence, construction and railways.

Modi hinted his clarion call to global manufacturers hinged on ‘effective governance’, not just ‘good governance’ that centres on a new mindset. Modi released the campaign’s logo and website that talks of a new way of wooing investors. India will relate to investors “not as a permit issuing authority but as a true business partner”. Dedicated teams will guide first-time investors across 25 identified sectors, which include automobiles and automobile components, aviation, biotech, chemicals, construction, defence manufacturing, electronic systems, food processing, mining, oil and gas, pharmaceutical, ports, railways, renewable energy, roads and textiles among others. Prospective investors are welcomed to post questions on the ‘Make in India’ that would be answered by a panel of experts within 72 hours.

Ahead of the launch of the campaign, the government had already taken several measures to make it easier to do business in India along with the removal or relaxation of foreign equity caps in several areas. “The processes of applying for licences have been made online, it is 24X7. The validity of such licences has also been extended to three years,” commerce minister Nirmala Sitharaman said, adding that several norms and procedures have also being changed to make it easier to do business in India. “Make in India is not a slogan but a mission to be accomplished with a single-minded commitment,” she said.

In addition, the government excluded a number of components from the purview of industrial licensing. The government also did away with the inverted duty structure for many products that made domestic manufacturing uncompetitive – importing a finished IT hardware product, for instance, was more lucrative than manufacturing and selling it in India because of prevalent duties on electronic components used. The government has also exempted all inputs and components used in the manufacturing of personal computers from a four per cent special additional duty.

Though Modi has assured investors that a red carpet will replace red tape, there are plenty of hurdles ahead. Two questions stand out about ‘Make in India’ campaign. First, while a single window for foreign investors is a great beginning, how does it help when no serious reform has been undertaken in areas such as land acquisition, labour laws or administrative reforms. Sure, the executives at Invest India could be trained to be more-friendly than the average bureaucrat and might be able to explain what clearances a business needs to get. But the actual process of getting the clearances is the challenge, and that remains steeped in the old India, where files move at snail’s pace and litigation can break a project. Besides, many of the approvals needed are state subjects, and there is only so much that executives at Invest India, or indeed the central government, can do to facilitate licenses and clearances. These issues have not been adequately addressed.

Second, the focus on foreign investment and big corporations is at odds with the reality of India’s industrial landscape — the small and medium enterprises (SMEs) are the heroes of the industry and they are the ones who need adequate support and encouragement. Within the manufacturing sector, SMEs constitute around 90 per cent of all industrial units and account for nearly half of India’s total industrial output and 40 per cent of exports. For India’s industry to shine, SMEs need to shine, and it should be paid attention through programmes like ‘Make in India’.

The government now seems acknowledging these issues. Finance minister Arun Jaitley said that the government will amend the stringent land acquisition law in the coming months. “Some changes may be necessary. We will first try to reach a consensus and if that is not possible we will go ahead and take the decision. We have opened up investments in various sectors.”

The advantages that India offers as a manufacturing hub are evident. It is the world’s second largest market, at least potentially, for every kind of product and service. It also has a very large, educated and skilled work force and is home to the world’s youngest population, ensuring not just a continuous source of skilled workers, but also consumers, completing the eco-system that an investor is looking at while making long-term and major investment decisions. After 15 days of launch of the programme, Modi said USD 100 billion worth of foreign investments is knocking at the doors of India and it is up to the states to lap up as much as they can. Describing his ‘Make In India’ initiative a win-win proposition, Modi said the foreign investors should not treat India merely as a market, but should focus on turning it to a manufacturing hub with a view to increase the purchasing power of Indians.

Among Modi’s many tasks in 2015, it seems that a crucial one will be to beat back the emerging-market blues and convince investors that India is special. So far, his actions seem to be working, with GDP accelerating to 5.7 per cent in the second quarter after a period of stagnation; inflation is trending down and foreign capital is starting to come in. Modi has also received praise for his recent deals with Japan and China, securing USD 33 billion of new investments from Japan; he even garnered USD 20 billion in infrastructure investment from China – India’s historical geopolitical adversary. These numbers may not be staggering from a western perspective, but they are meaningful for an emerging economy like India’s, and more to the point, a sign of confidence from Asia in India’s economic prospects – a signal that the Prime Minister hopes to obtain from the US as well.

India is reaching for the stars, both figuratively and literally, with an ambitious program of modernisation and free market growth that can generate wealth for itself as well as its trading partners. That is a trend worth supporting. Therefore, foreign investors should bet on India.