Thursday, Oct 19, 2017
Industry & Trade | Asia-Pacific | India

Make in India

Success lies in implementation


2 years ago

Foreign direct investment in India increased by 29% for the 15-month period October 2014-December 2015, after the launch of the ‘Make in India’ initiative
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The government’s flagship ‘Make in India’ initiative encourages foreign companies to manufacture their products in India. If the Make in India Week, which took place in February 2016 in Mumbai, is an indication to go by, launched on September 25, 2014, then the initiative is slowly but surely moving in the right direction.

Mumbai was in a frenzy during the Make in India week. The colorful and ubiquitous Make in India logo greeted people everywhere they went. Clearly, the marketing push was bang on the buck – hoardings, advertisements, radio talks, boardroom-to-hotel-lobby conversations, it was all there.

The more skeptical observer could’ve been forgiven for fearing India’s old habits of over-promising and under-delivering would repeat themselves; given the resurgent focus on India, nobody in India wanted this event to be all show and no go.

However, by the end of the week, even the most cynical of visitors would’ve been convinced that the Indian manufacturing industry is ready to write its bildungsroman.

Prime Minister Narendra Modi deserves credit for reviving a dormant-to-dead manufacturing sector. Now, robust infrastructure, ease of business through favorable regulations and unambiguous tax structures will make the 21st century India’s century. As put succinctly by Ajay Sahai, Director General and CEO of the Federation of Indian Export Organizations, “If there is no predictability in the taxation regime, and you are not sure of what you’ll be earning in two years’ time or so, you won’t want to invest in a country.”

The Prime Minister did indeed promise a predictable tax regime during the Make in India Week. He said that widespread changes were being put in place, including a company law tribunal and effective intellectual property rights (IPR) regime to create an enabling environment for all to invest. Furthermore, given the 45% jump in foreign direct investment (FDI) since the Bharatiya Janata Party (BJP) regime came to power, all efforts have resulted in India becoming the fastest growing large economy in the world.

 

Immediate attention

“Indians are entrepreneurial by nature,” says Dr Jyotsna Suri, Immediate Past President of the Federation of Indian Chambers of Commerce and Industry (FICCI), the oldest and largest business chamber in India.

She adds, “Half the battle is won if you know what is ailing you. The government knows what’s ailing the business environment and is implementing the necessary reforms.”

So what are some the core areas ailing that require immediate attention?

- Strong product design and engineering skills

- Strong domestic supply chain

- Continuous manufacturing process and commitment

As odd as it may sound, India was flush with all the above in the years preceding the watershed moment – liberalization. In those days, manufacturing technology was prompt and up to date. And because the necessary ecosystem wasn’t available, establishments like the Center for Development of Telematics did everything to create that platform. The digital outlook was born then, but thereafter, not much can be said about its continuity.

There has to be a resurgence of core engineering skills in the country. IT and generation 2.0 have largely focused on software as the core skill, but that needs to change now for Make in India to succeed. Design and engineering of products and their entire assembly lines have to be taught and understood with fresh vigor in engineering schools.

Robust domestic supply chains will be a core aspect for the success of Make in India. Incentives have to be provided to local vendors for them to expand local supply chains, or else ease of procurement will result in non-development of the sector.

Finally, new state-of-the-art equipment that focuses on quality and substantial quantity will have to be encouraged for us to compete at a global level and scale. India needs to have products that have finesse along with global competence; else the battle will be lost before it even begins.

If some of these structural issues are resolved (and there is every intention by the Modi government to do the same), there is no doubt in pronouncing that many national and international businesses will find merit in setting up manufacturing bases in India.

 

Domestic demand

Ashok P. Hinduja, Chairman of the Hinduja Group and founder of the Hinduja Foundation, says, “The program is imperative for India. The country has its 65% population involved in agricultural activity that contributes around 17%-18% of GDP. This single data connotes how imperative the initiative is. We believe the program should have three active dimensions: Make in India (1) for India, (2) for Indians abroad, (3) for the world. The Indian program is demand driven, whereas China’s was focused mainly on the world.”

China became China not just because of the global demand but also because of its robust domestic market. Moreover, China was long held to be an ideal macro story – where the state was more successful than the individual. This created the necessary platform for billions of dollars in FDI, new factors, job creation, etc.

India on the other hand had wasted years being an underperforming state with a less-than‐ideal domestic demand. That has somewhat been addressed in the recent budget. The tenets of the agro‐budget, if implemented in toto, will spur domestic demand in the years to come – a much‐needed vitamin for the success of Make in India. This, along with delivery of physical infrastructure like roads, adequate electricity, effective ports administration, will foster an ecosystem of efficiency and reliability.

Private sector efficiency has so far failed to attract large-scale dividends (poor investments, stalled projects, etc.) but that doesn’t mean India can let go of the public-private partnership (PPP) model. In fact, given that the country’s success story has been micro growth (of the entrepreneur) over the past four decades, a successful PPP model is the most effective of answers.

 

Policy changes

Finally, the success of Make in India involves policy changes through successful diplomacy in both houses of the parliament.

Goods and services tax (GST) has to be brought in at the earliest opportunity. Global economies and global powerhouses are looking forward to the implementation of GST in order to make large‐scale investments in the country.

Labor reforms are required to boost production and exports. To begin with, the 1948 Factories Act has to be completely overhauled to walk the manufacturing talk

The controversial land acquisition bill has been in limbo due to differences and allegations of it being “anti‐farmer” and “pro-corporation”. After multiple ordinances, the bill is now pending before a joint committee, and its successful passage will pave the way for more investment and smoother acquisition of land in the country.

India has to adopt a mercantilist currency policy. A strong currency does not automatically mean a strong nation.

Concluding with what eminent industrialist Baba Kalyani said, the Indian government is walking the talk when they’re saying that they’re creating better conditions for ease of doing business. Existing bottlenecks are being removed and India is going from red tape to red carpet – and many Indians agree with him wholeheartedly. The campaign is great; let the outcome be greater.



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