Make in India-“Modi’s M for Manufacturing

Make in India campaign was launched by the Prime Minister of India, Mr. Narendra Modi on 26th September, 2014 during his first Independence Day speech as Prime Minister. The campaign was launched in order to encourage the world to invest and manufacture in India. The launch of the campaign is the first step of his vision to see India as manufacturing hub and bring economic reforms in the country by eliminating the expendable laws and regulations. Since the economic liberalization (post 1991 era) the environment in terms of foreign investments has been quite liberal for the foreign investors.

Figure1
Source: The above data has been taken from the World Bank and the graph has been prepared with datawrapper. From the above figure it is evident that India’s manufacturing (as a % of GDP) is quite low even below Pakistan, Zimbabwe, and Ukraine no doubt India has been bested by BRICKS nations as well. India according to the World Bank is placed 134th in the category of “ease of doing business”; Modi aims to bring India to top 50. The spectrum of manufacturing can have a positive impact on the entire Indian Economy. With the number of middle class households swelling by 12 times and urbanization of population expected to increase up to 40 % by 2025, India would be the largest consumer market in the world. This is very promising for the Indian Manufacturers as it is a huge opportunity for them to cater to the domestic as well as the international market demands.

For poverty reduction and prosperity of the nation, creation of employment is utmost important. India is considered to be prospering in services sector, but even a highly prosperous services sector cannot employ 250 million job seekers in the coming 15 years. Manufacturing assumes a big role for developing countries like India as it can potentially generate large scale employment and meaningfully engage sizable populace in economic activities. With the services sector leading, it is benefitting only the select section of people. India is currently placed lowly in the world in technology value chain. This situation will lead to low skill job opportunities. By neglecting technology innovation in the manufacturing sector, the economy may not be sustainable in the long run as it might be vulnerable to vagaries of the extraneous forces. The path to economic prosperity:

For the manufacturing sector to rise to a new level a lot of effort and time needs to be put in for research and design development by the manufacturers, apart from that innovation, digital business, access to education, skill development etc need to be addressed. A fast growth in manufacturing sector is necessary for providing ample opportunities to low or uneducated youth. There have been some recent policy changes in the small tenure of Modi’s Government till now: 1) 100 % FDI has been allowed in the Telecom sector.

2) 100% FDI in single brand retail.
3) FDI in commodity exchange, courier services, stock exchange, power and petroleum exchange has been brought under the automatic route, under which no permission from the central government is required. 4) Removal of restriction in tea plantation sector – this is a very good move as India is considered to be the second largest tea producing nation in the world after china. 5) Construction and operation of several departments of the railway sector has been opened to 100% Foreign Direct Investment under the automatic route.

What India must do:
India’s manufacturing sector currently contributes around 1.8 % of the world manufacturing output. China contributes 19.8% of the global total manufacturing output in the world, surpassing United States, which contributes around 19.4%. This reflects the competitive advantage it posses over the other nations. Manufacturing acts as the pillar of the national economy of China, it serves as the dominant sector for economic growth and economic transformation. But rising wage costs and depreciation of Yuan by 7.2 % in the past three years has slowed down the industrial boom of china. Wages in china are increasing at a rate of 10 % every year. The implications can be seen as the Electric Equipment maker Havels sourced table fans from a Chinese company, Midea. Of late as the cost of out sourcing and labor costs have increased, Midea plans of starting manufacturing in India itself. Companies such as Bosch, ITC, Godrej, Micromax have all started their operations India. Blue star is also expected to shift its production house to India where as Shanghai Highly Group Co. and Hitachi Appliances are setting up a joint venture in India.

What India needs is a robust supply chain management manufacturer system. If India is to grow in the sector of manufacturing, she can’t do that without the continuous supply of resources such as electricity. Only cheap labor won’t help, good infrastructure such as proper highways connecting rural and urban cities, good inventory management system, better tax systems on goods and services may be the need of the hour. India should take advantage of the china’s declining competitiveness. Generating energy in the most sustainable way should also be one of the agendas. IEP (Integrated Energy Policy) of the Planning Commission defines it as sustainability.

The planning commission of India has developed an energy scenario building tool, the India Energy Security Scenarios 2047, which explores and indentifies the potential future energy scenarios for India. It explores the possible energy future in sectors such as Bio fuel, wind, water, solar, nuclear to cater to the demands such as industry, transport, agriculture, cooking and lighting and appliances. Also, according to the reports, Russia has put forward a proposal to manufacture helicopters, airlines and satellite navigation systems in India. Apart from that it is also setting up a million dollar start up to promote Nano technology. Manufacturing Employment:

It was believed that economic reform, particularly the trade reform would cause the industrial structure to shift towards labor intensive industries and thus contribute to employment generation. But the actual reform has not fulfilled these expectations. It is conducive to consider the employment trends in organized and unorganized sectors of manufacturing. The organized sector of manufacturing comprises industrial units registered as “factories” under the Factories Act. The organized sector covers relatively bigger industrial units. It has an important place in job creation as the level of productivity and wages are much higher in organized sector. India has gone through the phase of “jobless industrial growth” in the 80’s and Mr Modi would never like to see the repeat. Mr Narendra Modi has a dream for India, however the application of the model that he placed in Gujarat will not be easy to replicate.