WHY ‘MAKE IN INDIA’ HAS FAILED
Context: The ‘Make in India’ initiative recently completed five years of its inception.
- On September 25, 2014, the Indian government announced the ‘Make in India’ initiative to encourage manufacturing in India and galvanize the economy with dedicated investments in manufacturing and services.
- Immediately after the launch, investment commitments worth crores were announced.
- In 2015, India emerged as the top destination for foreign direct investment, surpassing the U.S. and China.
- In line with the national programme, States too launched their own initiatives.
AN ASSESSMENT OF THE MAKE IN INDIA SCHEME
- The ‘Make in India’ idea is not new. Factory production has a long history in the country. This initiative, however, set an ambitious goal of making India a global manufacturing hub.
- To achieve this goal, targets were identified and policies outlined.
- The three major objectives were:
- To increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy;
- To create 100 million additional manufacturing jobs in the economy by 2022
- To ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.
The policy approach was to create a conducive environment for investments, develop modern and efficient infrastructure, and open up new sectors for foreign capital.
DRAWBACKS IN THE SCHEME
The policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.
- The last five years witnessed slow growth of investment in the economy.
- This is more so when we consider capital investments in the manufacturing sector.
- Gross fixed capital formation of the private sector, a measure of aggregate investment, declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
- Part of this problem can be attributed to the decline in the savings rate in the economy. Household savings have declined, while the private corporate sector’s savings have increased.
- Thus we find a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
- With regard to output growth, we find that the monthly index of industrial production pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
- In fact, data show that for a majority of the months, it was 3% or below and even negative for some months.
- Negative growth implies contraction of the sector.
- Employment especially industrial employment has not grown to keep pace with the rate of new entries into the labour market.
Thus on all three counts, ‘Make in India’ has failed.
REASONS FOR THE FAILURE
- Firstly it set out too ambitious growth rates for the manufacturing sector to achieve.
An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
- Historically India has not achieved it and to expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government.
- Second, the initiative brought in too many sectors into its fold. This led to a loss of policy focus.
- Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
- Third, given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
- Make in India’ is a policy initiative with inbuilt inconsistencies. The bundle of contradictions unfold when we examine the incongruity of ‘swadeshi’ products being made with foreign capital.
- This has led to a scenario where there is a quantum jump in the ‘ease of doing business’ ranking, but investments are still to arrive.
- The economy needs much more than policy window dressing for increasing manufacturing activity.
- The government must realize that industrialization cannot be kick-started by a series of bills in Parliament and hosting investors’ meets.