How to ‘Make in India’

November 6, 2014

(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)

Prime Minister Narendra Modi’s “Make in India” campaign to revive manufacturing will become a success only if the government manages to convince companies to manufacture in India. The key decision factors for manufacturers are (a) size of market and access to market (b) good infrastructure (c) availability of skills (d) stable and competitive fiscal regime and (e) ease of doing business.

India is a large market. If we translate the requirements of the national programmes of 100 “smart cities”, industrial corridors, Digital India and making SMEs globally competitive into a requirement of cement, steel, computers, furniture, locks, hinges, construction equipment, etc, it may give voice to the accelerating demands for manufactured goods within India.

As India veers toward a higher growth curve, it faces destabilising forces arising from the magnitude of its growth. There is an increase in the available labour force without the required increase in employment opportunities proportionate to economic growth.

Attaining a near double-digit growth rate without a significant increase in manufacturing may prove to be challenging. Labour requirements in the primary sectors are falling quickly due to increasing mechanisation and productivity spurts. The manufacturing sector can absorb semi-skilled workers who are challenged by the fast-growing services sector as well as the primary economy of agriculture and mining.

Roughly 16 percent of Indian labour is still in the primary sector, compared to 6 percent in other BRIC countries. As India charts its way towards a labour utilisation structure consistent with fellow BRIC nations, manufacturing as the secondary sector must also gain momentum.

The economic impact of manufacturing in India will go beyond direct employment. It will create jobs in the services sector and allied services like logistics, transportation, retail etc. Needless to say, since manufacturing would require free flow of raw materials and finished goods, improving logistics infrastructure such as port-to-inland connectivity, cargo airports, etc. would be imperative and these developments promise to transform India into a global manufacturing hub.

The government’s “Make in India” initiative aims to increase the share of manufacturing to 25 percent of GDP by 2022 from the current 12 percent. This is expected to result in the creation of 100 million jobs.

However, with little fiscal stability and no clarity on when GST will be implemented, one cannot expect large manufacturing investments to flow into India. There are still too many hindrances to conduct business in India. While the “inspector raj” is slowly being dismantled, the process must be accelerated.

With a virtual stagnation from 2010 to 2014, manufacturing in India continues to be crippled by issues such as shortage of coal, inability to acquire land and tax disputes. While the provisions under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013 are expected to drastically decrease time and cost to acquire land, it is necessary to rationalise the act and set up land banks that would assist ventures involving acquisition of large land parcels.

KPMG and CII recently completed a report which identified nine key action items to make India conducive for large-scale manufacturing. These include streamlining investment approval, facilitating land acquisition processes, creating an appropriate labour development ecosystem, efficient and effective enforcement of laws, facilitating greater cross-border transactions, creating clear exit guidelines, rationalising taxation regimes and technology enablement of the government.

Implementing the aforesaid action items requires a detailed roadmap, including the development of uniform standards and procedures, introducing common application forms for seeking approval from central and state governments, and building a model for a single window mechanism.

When developed economies like the United States are renewing focus on reviving manufacturing, “Make in India” is not just an option but a national imperative that is needed to keep pace with global growth. Transforming the vision to reality requires a concrete roadmap that will support not just the manufacturing of today, but also of the future, which may involve technologies such as 3D printing with its own set of challenges.

To ensure the country’s place as a global manufacturing powerhouse, the government, industry and civil society must work in tandem to restore investor and public confidence in “Make in India”.

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