By Apoorva Mandhani
It was three years ago that Prime Minister Narendra Modi launched the Make in India campaign with much pomp and show. The gear-and-cogs lion logo was unveiled to give a face to a campaign which was being touted as one with all the ingredients for ushering in an industrial revolution. Policy experts have, however, begun questioning the lions stride, with their claims backed by glaring statistics.
Policy U-turns: The GE episode
Industry experts have questioned the recent surprise policy shift by the Centre over a locomotive deal with General Electric (GE). GE was awarded a $2.6 billion contract in 2015 to supply 1,000 diesel locomotives. This has been the biggest direct investment by a US firm. This was also the first deal awarded to a foreign firm by India after it opened its doors to 100% foreign investment in its railways. However, last month, it was reported that the government may be taking a fresh look at the contract, as the new Railway Minister Piyush Goyal desires a fully electrified network for the railways. The policy shift was not viewed with approval by several industry experts. This was because GE has already shipped its first diesel locomotive to India and is about to finish the work on its factory in Bihar.
GE expressed discomfort with the reports without mincing words, saying that any such change would put future foreign investment at risk. An alteration of this contract will have a serious impact on job creation and skill development, and cause the government to incur substantial costs…This will also undermine governments signature Make in India initiative, it had further said in a statement.
Moreover, this is not an isolated instance. Another such incident was the recent increase in the maximum levy on luxury cars and sport-utility vehicles (SUVs). The rate was doubled within weeks. This was perceived to have a definite impact on the future expansion plans under the Make in India initiative. Therefore, the policy flip-flops have undermined the initiative and have left industries high and dry, with little time to analyse their own contractual obligations.
Stunted GDP growth and increasing unemployment
There is another set of data that is being cited as an indicator of the initiative being doomed. The government seems to be lagging far behind in achieving its target of increasing the share of manufacturing to 25% of the GDP by 2020 from 15% of the GDP in 2014. As per a recent report of the Parliamentary Standing Committee on Commerce, the manufacturing sector has grown only by an average of 1.6% in the last five years till 2015-16. Moreover, the Foreign Direct Investment (FDI) in the manufacturing sector fell to $8.4 billion in 2015-16 from $9.6 billion in 2014-15.
The rate of unemployment has also been discouraging, with an increase of 3.8% (2011-12) to 5% (2015-16), as per the Economic Survey 2015-16. Moreover, a report released by the International Labour Organization states that the level of unemployment in the country is set to increase from 17.7 million last year to 17.8 million in 2017 and 18 million next year.
Lions dwindling stride
As a counter-view, optimists have relied on the fact that the FDI into the country has topped $60 billion in fiscal 2016-17. This is almost twice the levels before PM Modi assumed power in 2014. The FDI growth was, however, less than half that rate in the latest financial year. This has been attributed to the tax overhaul and demonetisation. Progress has been observed in the IT sector as well, with the IT Minister Ravi Shankar Prasad claiming that 95 mobile manufacturing companies have set up their plants in the country. However, the progress has been limited to mobile manufacturing. The recent surge in merchandise exports also merely seems to be a part of a global cyclical recovery. Further, risks of a more pronounced export slowdown in 2018 remain, according to analysts at Nomura.
When the Make in India initiative was launched three years ago, PM Modi had called it a lions step” towards promoting the manufacturing sector and generating millions of jobs. The lion, however, seems to be directionless. Presently, its stride is marred by poor implementation of demonetisation, the Goods and Service Tax (GST) and persistent policy U-turns. However, the situation can still be embalmed.
Policy experts see a silver lining in Chinas attempt at rebalancing its economy and lowering its dependence on exports. This could give India a leeway to carve out a space for manufacturing labour-intensive products for the world, creating high-productivity jobs in such sectors. A re-examination of the governments priorities is, hence, the need of the hour. Only when it starts re-assessing its priorities, will the Make in India initiative prove to be of any value to the populace.
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