Waiting for take off March 2018 issue

Waiting for take off

Manish K. Pandey Editor| March 2018 Issue | The Dollar Business

It’s been more than three and a half years since Make in India – one of the flagship programmes of Prime Minister Narendra Modi’s government, devised to transform India into a global design and manufacturing hub – was launched. And not to say, since its very launch it has been part of almost every speech, conversation and talk show that discussed the Indian economy or its manufacturing potential apart from creating thousand of fans and admirers, both domestically and across the border.

When announced in 2014, just after the Modi-led government took over the reins of power at the Centre, Make in India seemed a timely response to a challenging situation that posed a grave danger to India’s manufacturing community. While the overall Index of Industrial Production (IIP) was pointing towards a weaker-than-ever economy (overall IIP growth was down from 8.2% in FY2011 to 1.1% and -0.9% in FY2013 and FY2014 respectively), manufacturing sector growth had slowed down to 1.3% in FY2014 from 8.9% in FY2011. With Make in India, the objective was to arrest the fall by boosting entrepreneurship (in both the manufacturing and service sectors) in India. And how? By focusing on “New Processes”, “New Infrastructure”, “New Sectors” and “New Mindset” – the four basic pillars on which the programme was based. Now three and a half years down the line, has Make in India initiative been able to deliver what it promised? Has it really been able to add value to the country’s manufacturing sector?

A quick look at India’s Index of Industrial Production and Use-based Index and you have the answer. During the last two fiscals and first quarter of FY2018, while the General Index rose by 3.3%, 4.6% and 2.0% year-on-year respectively, the cumulative growth in the three core sectors – Mining, Manufacturing and Electricity – witnessed an annual increase of 4.3%, 2.8%, 5.7% [FY2016], 5.3%, 4.4%, 5.8% [FY2017] and 1.2%, 1.8%, 5.3% respectively [Q1, FY2018] respectively. As per the Use-based classification, the Index for primary goods, capital goods, intermediate goods, infrastructure/construction goods and consumer durables, consumer non-durables too registered positive growths of 5.0%, 3.0%, 1.5% and 2.8%, 3.4%, 2.6% and 4.9%, 3.2%, 3.3%, 3.9%, 2.9%, 7.9% in FY2016 and FY2017 respectively.

Interestingly, foreign direct investment (FDI) trend too give an indication that the Make in India bandwagon hasn’t jumped the track. According to ‘World Investment Report 2017’ by the United Nations Conference on Trade and Development, India received $44 billion as FDI in CY2016, reporting a 29.41% rise from CY2014. Of course, India has a long way to go before it catches up with China that attracted $134 billion as FDI in CY2016.

Although these numbers look impressive (if we compare them with figures from previous fiscals), there is still nothing much convincing about the overall growth story. India’s industrial production growth is still below the 7-8% needed for the economy to grow at potential.

Even when it comes to the share of manufacturing value added (MVA) in gross domestic product (GDP), India stands nowhere close to its Asian peers. While countries like China and Thailand can boast of over 27% MVA share in GDP, India’s share of MVA in GDP is just 16.51%. Interestingly, the industries that dominate the manufacturing sector in China are the same as those in the developed nations, reflecting the dragon’s ability to displace local producers in those markets. However, that’s not the case with India, which still focuses on just a few sectors when it comes to value-addition.

Having said that, Make in India initiative has certainly set aspirations soaring in the manufacturing sector with positive talk of capacity building and billions of domestic and foreign money flowing across production belts of India. No doubt, the signs are positive. But then, how long can we sustain the momentum without harnessing the power of technology and fostering innovation? Not long enough, I would say!