Context
Five years after its launch its appropriate time to take the stock of the progress made by ‘Make in India’.
Three major objectives of the initiative
- First- Manufacturing growth rate at 12-14 %: The first objective is to increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy.
- Second-100 million jobs: The second objective is to create 100 million additional manufacturing jobs in the economy by 2022.
- Third-increase manufacturing’s contribution to GDP to 25%: The third objective is to ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.
Assessment of the progress made so far
- As the policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.
- Progress on the investment front:
- Slow 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.
- The decline in gross fixed capital formation: Gross fixed capital formation of the private sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
- Gross Fixed Capital Formation is the measure of aggregate investment.
- Increase in private sector’s savings decrease in investment: Household savings have declined, while the private corporate sector’s savings have increased.
- This is a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
- Progress on the output growth front:
- Double-digit growth only in two quarters: The monthly index of industrial production (IIP) pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
- Below 3% for the most part: The data show that for a majority of the months, it was 3% or below and even negative for some months.
- The negative growth implies a contraction of the sector.
- Progress on the employment growth front:
- No progress: The employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market.
Problems with the policy
- The initiative had two major lacunae.
- First- Too much reliance on foreign capital: The bulk of these schemes relied too much on foreign capital for investments and global markets for produce.
- This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.
- Second-Lack of implementation: The policy implementers need to take into account the implications of implementation deficit in their decisions.
- The result of such a policy oversight is evident in a large number of stalled projects in India.
- The spate of policy announcements without having the preparedness to implement them is ‘policy casualness’.
- ‘Make in India’ has been plagued by a large number of under-prepared initiatives.
Three reasons why ‘Make in India’ failed to perform
- Too-much ambitious goals: It set out too ambitious growth rates for the manufacturing sector to achieve.
- Beyond capacity rate for the sector: An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
- Overestimation of implementation capacity: To expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government.
- Dealing with too many sectors: The initiative brought in too many sectors into its fold.
- Lack of policy focus: Bringing in too many sectors under its fold led to a loss of policy focus.
- Lack of understanding of comparative advantages: Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
- Ill-timed launch
- Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
Conclusion
- In order to revive the ‘Make in India’ there is a need to make necessary changes in the policy and root out the causes associated with the policy implementation.
