Eighteen months ago when Prime Minister Narendra Modi revealed the Make in India campaign to corporate leaders, diplomats and ministers, he called it the step of a lion. Modi expects his government’s policies to boost manufacturing enough to create a 100 million jobs and increase its contribution to the national output to 25% from the current 17%.
For many years, India has harboured hopes of chasing down China to the forefront of economic growth but its attempts kept faltering as unwieldy coalition governments held back much-needed reforms for nearly 25 years. The Indian economy, which grew at a nearly doubledigit rate in the middle of the last decade, slowed down 5.08% in 2012 before recovering to 7.2% in 2014.
The contribution of manufacturing in India’s GDP growth has come under fresh scrutiny after factory output dipped for the second consecutive month in December.
The ministry of statistics reported that the index of industrial production shrank by 1.3% in December compared to the previous year. Cumulative factory output for the nine months to December 31, 2015, grew just 3.1% over the previous corresponding period. The data stood at odds with the GDP numbers of the same period that showed manufacturing growing at 12.6% during October-December 2015.
Slowing industrial activity has put pressure on banks which have piled up bad assets as company balance sheets turned red.
Valuations have plunged and investor wealth has eroded since last March when stock markets hit life-time highs surfing the political wave that brought a majority government to power after 30 years. The 30-share bellwether of the Bombay Stock Exchange, the Sensex, crossed 30000 then but is now scraping 52-week lows. Sentiment is downcast and investments still remain lofty promises.
The government, however, expects manufacturing to grow at 9.5% in terms of gross value added in the current financial year, compared to 5.5% in the previous year. It is rolling out the red carpet to anyone willing to build factories, set up research and development centres and establish new businesses in India. Industry experts say India is moving slow but in the right direction.
WHAT HAS BEEN DONE
Last year India improved its position on World Bank’s Ease of Doing Business index by climbing 12 spots to 130. That is not saying much considering that Mexico ranks 38, Russia 51 and Pakistan 138. Amitabh Kant, secretary, Department of Industrial Policy and Promotion, the key agency for the Make in India initiative, says India will break into the top 50 within two years.
“The challenge is to push Bankruptcy Law and get the National Company Law Tribunal and commercial courts operational. We must improve on trading across borders and enforcement of contracts,” Kant, a veteran of high-profile marketing campaigns, told ET. Kant built Make in India’s multi-million global communication campaign around a striking logo of a lion made of machine parts.
Meanwhile, just like the World Bank’s Ease of Doing Business ranking of countries, the DIPP began ranking states on 98 parameters such as availability of a single window for approvals, ease of getting construction permits, enforcing contracts and labour and environment compliance.
Gujarat topped the list followed by Andhra Pradesh and then Jharkhand. This year the department has increased the number of parameters to 338. States have been told to share and adopt one another’s best practices.
“This was the lowest hanging fruit and huge progress has been made on this front and we need to continue building on it,” said Manish Agarwal, leader – capital projects and infrastructure, PwC India. India also liberalised its foreign investment policy, including opening up the automatic route to manufacturing companies getting into e-commerce and defence equipment makers up to 49%.
Over the last few months several foreign companies have unveiled investment plans for India — Taiwanese gadget-maker Foxconn Technology Group is building a $5 billion factory in Maharashtra and China’s Dalian Wanda is scouting for locations to build industrial townships at a cost of $10 billion over the next five years.
TAKING IT FORWARD The one piece in India’s economic growth story that has never really fallen into place is infrastructure. Despite several attempts, India has not been able to build adequate roads, ports and railways to move goods and raw materials. Two years ago, farmers in the North-Eastern states had to sell their bumper crops at below cost because there was not enough transport capacity to move their produce to other parts of the country.
Rajesh Agarwal, co-founder of smartphone maker Micromax, told ET that a consignment from China reached the Mumbai port in 12 days. But it took nearly a month for it to reach its factory in Uttaranchal. That lag has now come down to 20 days, though it could be half that, says Agarwal.
“Infrastructure is a work in progress and it will not happen overnight,” a senior DIPP official told ET. Finance Minister Arun Jaitley has indicated that the government will continue to invest in infrastructure — physical, social and rural.
The government wants to focus on domestic companies to encourage innovation and entrepreneurship. It will converge multiple initiatives such as Start-Up India, Skill India and Digital India to boost manufacturing. “We have to move ahead in the spirit of cooperative federalism and states have to work closely with the Centre to make sure business process reforms happen in the country,” Jaijit Bhattacharya, partner in charge of infrastructure and government services at KPMG India, said.
The longest wait, however, has been for tax reforms which can improve the country’s competitiveness. But first, the government has to break political logjams to get crucial enabling legislation through Parliament.
That would pave the way for a uniform goods and services tax, Intellectual Property Rights Policy and a Bankruptcy Code, all of which the industry has been waiting for long.