Modi’s New “Make in India” Initiative
“I tell the world, ‘Make in India’. Sell anywhere but manufacture here. We have the skill and talent for it,” - Prime Minister Narendra Modi in his address to the nation on India’s 68th Independence Day.
India’s manufacturing sector accounts for 15 percent of its GDP, but it has the potential to greatly increase this contribution. The sector has historically suffered due to excessive red tape and bureaucratic hurdles, and has also been impacted by several policy flip-flops in recent years. This is apparent from India’s dismal rank in the World Bank Group’s Ease of Doing Business Index, where it stands at 134 out of 189 countries.
In an attempt to revive the sector and build confidence among potential investors, Prime Minister Modi followed up on his Independence Day promise by formally launching a ‘Make in India’ campaign on September 25. The initiative includes an information portal and a facilitation window for those looking to do business in the country. The window takes the form of ‘Invest India’ and is a collaborative venture between the Federation of Indian Chambers of Commerce and Industry (FICCI), the Department of Industrial Promotion and Policy (DIPP), and state governments, and is intended to facilitate foreign investment by clarifying guidelines and suggesting Indian partners for joint ventures. The campaign’s website—tellingly, fronted by a lion made of machine parts—identifies twenty-five sectors with potential for more indigenous manufacturing, and also hosts a Q&A interface where questions are answered by a panel of experts within 72 hours.
In his address during the launch of the campaign, the Prime Minister recognized the various hurdles to working in India and made assurances that he would see investments through, as he previously did as Chief Minister of Gujarat. Modi also made a strong case for the campaign during his successful visit to the U.S. in September and implored Indian embassies around the world to spread its message in their host countries. As a result, Modi’s address was simulcast in Indian embassies worldwide, to audiences of business people, journalists and diplomats, generating considerable interest. While it is still early to assess the impact of the initiative, it is important to understand the motivation behind ‘Make in India’ and the reasons behind the optimism associated with it.
Make in India: The blueprint
The ‘Make in India’ campaign has its roots in Modi’s economic philosophy, which is one of balanced growth. As Chief Minister of Gujarat, Modi focused his attention on reviving agriculture and manufacturing to balance the state’s fledgling but growing services sector. He went on to quantify this balance during an address at Madison Square Garden in New York: "I believe that for a healthy economy, one-third agriculture, one-third manufacturing, one-third services sector - if all these grow simultaneously then even if one of the sectors faces a decline, the country's economy will not be immensely impacted."
The campaign looks to capitalize on India’s existing manufacturing success in some sectors (such as automobiles, pharmaceuticals and medical equipment) as well as to create an enabling environment to attract others. These include labor-intensive industries, capital goods industries, and industries with a significant strategic component such as IT hardware, defense equipment and solar energy.
While a healthy economic balance is certainly his long term goal, the Prime Minister is eyeing the benefits of its near-term impact, which include:
Job creation: One of the primary motivating factors behind Modi’s grand pitch for “Make in India” is the multiplier effect of the manufacturing sector in creating jobs in medium and small-scale industries upstream, as well as jobs in such areas as logistics, transportation, customer service and technical support. Further, creating millions of new jobs and unleashing entrepreneurial opportunities would be a wise political move: the backbone of Modi’s large electoral mandate comes from India’s growing young population hungry for better employment prospects. Delivering on his promises to create jobs would be one way to assure Modi a second term in power and extend his popularity among the current generation of young voters; it is estimated that 70 percent of all Indians will be under 35 in 2019.
Cutting down on imports: India is still heavily import-dependent in key sectors such as defense, aviation, electronic manufacturing. In light of its focus on fiscal prudence and reducing fiscal deficit, the new government will make self-reliance and import substitution strategic and economic priorities.
Building a well-oiled machine
Lofty plans to boost Indian manufacturing are not new: in 2011, the Congress-led UPA government launched a National Manufacturing Policy (NMP) with the aim of creating 100 million jobs by 2025. The ‘Make in India’ website acknowledges the previous government’s move, describing the NMP as the ‘most comprehensive and significant policy initiative taken by the Government’ and builds off of some of its ideas such as creating National Industrial Manufacturing Zones as well as the Delhi-Mumbai Industrial Corridor. However, the new scheme promises to streamline several processes, such as introducing self-certification for non-risk, non-hazardous businesses and using an online eBiz portal to facilitate a 24/7 application for industrial licenses. Another new feature is a commitment to protect intellectual property, which takes the form of a fund dedicated to building a patent pool for domestic manufacturers.
Another major reason for optimism is that the Prime Minister had a good track record in Gujarat of delivering on his promises. A March 2014 study by Deloitte for India’s Planning Commission that studied regulatory environments for manufacturing across India’s states praised Gujarat for its success in creating a dynamic manufacturing sector. It highlighted the state’s Investor Facilitation Portal, an online platform that provides regulatory information, monitors the success of proposals and assists with obtaining clearances, thus creating a single window mechanism for investors. In some ways, this is a precursor to the new ‘Make in India’ initiative.
Another aspect of Gujarat’s success was the state’s popular outreach initiative, the Vibrant Gujarat campaign, which after its launch in 2002 grew to attract both national and international attention.
Keeping the engine running
Within two weeks of the campaign’s announcement, the Licensing Committee of the DIPP cleared 33 pending applications for industrial licenses, several in the realm of defense production.
While regulatory processes are getting the attention they need, several obstacles remain in the way of unleashing India’s manufacturing potential. A mammoth task that stands before Modi is addressing India’s infrastructure deficiencies, often cited as the primary reason for India’s unattractiveness as an investment destination. The current administration is mindful of this and has emphasized new infrastructure efforts, encouraging dedicated industrial corridors and the creation of smart cities with access to top quality IT, energy and water services.
Thus far the Make in India campaign has struck the right chords both within India and outside. Reviving India’s manufacturing sector has been a key feature in recent investment deals with Japan and China, with the former making significant investments in the Delhi-Mumbai Industrial Corridor and the latter creating special Industrial Parks. If these recent announcements are any indication, the campaign is likely to remain a key priority of this government going forward.