Soon after taking over as the prime minister, Narendra Modi announced the ambitious “Make in India” Campaign, giving a ray of hope to the nation. In September 2014, this program was launched with an aim to promote India as the investment destination and a global centre for technology, design and manufacturing. Currently, the manufacturing sector contributes only 16 per cent to the GDP which Mr Modi planned to make 25 per cent by 2015. Indeed, it was an ambitious goal.
It carried a huge implication for the Defence sector as India is the biggest importer of Defence Equipment in the world. We are importing everything from aircrafts to warships, war tanks to communication equipment, Spare parts to ammunition and even specialised equipment and clothing.
While countries like Brazil, Sweden, South Korea, Spain, Italy and even Pakistan started manufacturing their own military warships and aircrafts, India is way far behind. We have not been able to produce important parts, such as avionics, radar and engine for our own indigenous aircraft “Tejas”. So, what is the reason behind this?
Why are we not able to succeed in Make in India Campaign?
Several countries announced their interest in this campaign and declared a sizeable value of Foreign Direct Investment (FDI) for their initiatives in India, yet they have not been able to start their projects and, hence, the effect of Make in India Campaign is not visible. Numbers show that in FY 2011-12, the total FDI inflow in the manufacturing sector was 9.4 billion USD which has fallen to 8.4 billion in 2015-16.
The biggest challenge is the nature of manufacturing. When Mr Modi invited investors from all over the world to come and manufacture in India, they experienced a specific challenge. Indian manufacturing sector is largely labour oriented. While a massive 76 per cent of total labour in China works in medium and large-scale industries, the number in India is just 16 per cent. Which means about 84 per cent of India’s labour is employed in small-scale and cottage industries, a factor which needs to be understood by all.
The second challenge is the diversity of the Indian manufacturing sector and the corresponding need of investment vis-a-vis return of investment. If we take the example of high-end medical equipment, the domestic demand is very low (5-6 billion USD) whereas the investment required to make them is quite high.
The third challenge is the technology dependence. In the current scenario of technical advancement, India is heavily dependent upon manual labour. Not only this, the average hourly labour remuneration in India are one of the lowest in the world. It causes difficulties in acceptance of technology-oriented industries.
The fourth challenge is the availability of market. The kind and scale of “Make in India” activities PM Modi is talking about need large-scale investments and to have an effective return of these investments, the industry must find additional markets outside India where it can export the goods too. Not only manufacturing is sufficient but the government must open more Special Economic Zones for the same purpose.
The fifth challenge is the ease of doing business in India. Despite massive efforts of the Union Government, there are hurdles for an investor in terms of clearances, approvals and sometimes lack of coordination between state and union government, leading to undue harassment of the investor and ultimately failure of the project.
The seventh aspect is the selection of right industry for pitching. As we know well that India leads the world in pharmaceutical and chemical-based manufacturing, however, there are few sectors which can show much better growth, keeping in view of all the challenges mentioned above. Biotechnology, building materials, textiles, education and consumer durables are one of the few. Selecting the right industry is likely to give better dividends in less time.
The eighth aspect is the expenditure on Research and Development (R&D). Despite having premium institutions, such as IITs and IISc, we are lagging in terms of R&D. These institutions which could become a hub of R&D have now become a mere institution to provide Degrees. The government must take a special interest in this.
There is a long way to go for this government. The success of the 'Make in India campaign' lies in a sustainable model which can take care of the country and its needs. The policies must be investor-friendly and not a mere invitation to an investor. It is the responsibility of the Union Government to initiate meaningful dialogue and effective mediation between the investor and the concerned state government. And we must do it immediately. Three and a half long years have passed without any substantial visual impact and the results are needed to be seen before country loses its patience.
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL).