Growth and Development of Manufacturing Sector in India under ‘Make in India’ Mission – A Case Study of Making and Implementing Right Policies
Growth and
Development of Manufacturing Sector in India under ‘Make in India’ Mission – A
Case Study of Making and Implementing Right Policies
Dr. Rajiv R. Thakur
Jaipuria
Institute of Management, Noida
Mr. Jitender Sharma
Jaipuria
Institute of Management, Noida
ABSTRACT
‘Make in India’
is the initiative launched by the new Government of India after assuming power
in 2014. This initiative is about inviting and encouraging global companies to
establish their manufacturing base in India to boost its manufacturing sector
and generate large scale employment opportunity for Indian youth. In comparison
to the services sector which has been the major driver of growth of Indian
economy for over two decades now, manufacturing sector contribution has remained
lowdespite the fact that India has vast semi-skilled and literate manpower best
suitable for manufacturing sector.
Recognizing the
potential of manufacturing sector for providing mass scale employment, growth
of Indian economy and to achieve sustainable growth, Government of India has
framed new policies and is determined for their implementation.
This paper is a
critical study of how ‘Make in India’ mission can help in growth and
development of manufacturing sector in India and hence provide much desired
mass scale employment and how government can play a significant role for the
development of manufacturing sector through framing and implementing right
policies.
Keywords: Indian economy, Make in India mission, Manufacturing sector growth, Policies formulation for economic growth
1.
INTRODUCTION
According to International
Monetary Fund’s World Economic Outlook Database’ figures released in October
2014, India’s GDP stands at US$2.048 trillion and India’s GDP share adjusted for
Purchasing Power Parity (PPP) is at US$7.277 trillion.1 As
per latest estimates of Finance Ministry, Government of India, Indian economy
may achieve 7.4 per cent growth rate by the end of current financial year2.
World Bank has projected this growth rate to be 7.2 per cent by the end of this
financial year and projected a growth rate of 7.5 per cent in the financial
year 2015-163. Its’ current rank as per GDP stands at 10th
in the world4. Contributions of agriculture, industry and services
sector were 13.7 per cent, 21.5 per cent and 64.8 per cent respectively to
overall GDP in 20135. Sector wise employment share as per 2012
available data for agriculture, industry and services sector is 49%, 20% and
31% respectively6.
Indian
economy since independence has primarily been agricultural based economy
followed by manufacturing and services. Agriculture sector has contributed most
to India’s GDP since 1950s till the time services sector overpowered it after
its tremendous growth in 1990s when liberalization process was introduced in
the country. Manufacturing sector growth rate has remained between 6 to 8 per
cent after independence till 1990s. It reached to negative growth rate in
financial year 1991-92, rose sharply to 15.46 per cent in 1995-96 and then fell
again during economic slowdown. In first decade of 21st century it
has remained around 8 per cent except when second economic slowdown reduced the
demand to lowest.
Services sector
has remained a moderate constituent of Indian economy till 1990; however, after
liberalization and opening up of Indian economy, backed by huge skilled English
speaking youth manpower, India established itself as a leading player in the
services sector. This was a result of emergence and adoption of information
technology to a massive scale in 1990s in India. Since then service industry of India has been
the real growth engine for Indian economy. Services sector contributed about 60
per cent to the Indian GDP in the financial year 2013-14. India services sector
strength lies in sectors like hospitality, tourism, healthcare, medical
transcription, consulting, construction, infrastructure, telecom, software and
information technology, customer care tele-services, banking and other sectors
of economy.
However, growth
in a single sector alone is not sufficient for India to achieve its objective
of becoming largest economy in long run. India is currently facing stiff challenge
from several other developing countries such as Philippines, Indonesia,
Malaysia, Thailand, Mexico, Vietnam etc. in services sector and hence no longer
can Indian economy afford to be based upon services sector alone. Downfall of
global economy over last few years has resulted in lower demand of financial
and services sector. It is not able to generate enough employment opportunities
for huge population of India. In such a scenario, it is imperative for
countries like India to look beyond services sector and identify the sectors
that have the potential of generating large scale employment for the literate
but low-skilled huge manpower of India.
It is therefore highly
important to ensure that the manufacturing sector not only grows significantly
but comes at the forefront among all sectors. Manufacturing sector has had the potential
to generate and provide employment opportunities to a larger section of
society. Generation of employment opportunities will provide a chance of
increased incomes in hands of all sections of the society which shall further
increase the consumption demand in Indian markets. This increased demand will
provide big opportunity to the world. According to economic projections and
calculations, it is necessary for the manufacturing sector to grow at the rate
of about 25 per cent if India aims for double-digit or minimum 10 per cent GDP
growth rate.
2.
CURRENT STATUS OF
MANUFACTURING SECTOR IN INDIA
According to
2013-14 statistics, in India manufacturing sector contributed 21.5 per cent
whereas agriculture sector’s contribution was 13.7 per cent and services sector
contribution was the maximum with 64.8 per cent of overall GDP. To meet future
needs, it is not desirable to have such a large inequality in manufacturing
sector contribution. Contribution of manufacturing sector in employment generation
has remained 20 per cent by the year 2012. According to the McKinsey Quarterly Report,
manufacturing sector has potential to contribute US$1 trillion to Indian
economy by the year 2025 and creating 90 million job opportunities7.
To achieve
double digit growth for India, manufacturing sector needs to contribute at
least 25 per cent in overall GDP. In comparison to other countries including
China where manufacturing sector’s contribution is about 40 per cent, India
lags behind significantly. Even in lower income category countries like
Pakistan and Bangladesh, manufacturing sector contributes 12 and 18 per cent
respectively whereas in middle income category countries like Vietnam, Sri
Lanka, Indonesia, Malaysia and Brazil, manufacturing sector contributes more
than India. Malaysia manufacturing sector contributed 24 per cent to its GDP,
whereas manufacturing contribution in Sri Lanka and Vietnam contribution is
about 17-18 per cent. Among rich countries like Russia, Japan, US and European
Union manufacturing sector’s contribution is more than India.
This scenario is
a matter of great concern for policy makers. It is highly undesirable
especially when India has huge market, is rich in natural resources and have
low cost labour in abundance. Lagging in manufacturing sector has not only
impacted growth and employment generation but has also caused adversely on its
market and demand. Not only this, India exports are also lower resulting in
trade deficit significantly. Although services sector has tried to meet this
deficit through its export orders and is also providing employment
opportunities significantly but for a country like India where over 600 million
people are educated only up to secondary level, labour intensive manufacturing
sector is the only sector that has capacity to provide employment opportunity
at such massive scale. Unfortunately, as indicated above contrary to its large
capacity, in last twenty years, only about 53 million job opportunities could
be developed with a growth rate of about 1.87 per cent per year in
manufacturing sector, whereas, services sector’s contribution during this
period has been 150 million jobs with a 6.5 per cent growth rate per year.
Targets fixed under National Manufacturing Policy, 2012 also seem unattainable.
As against target of 25 per cent contribution to GDP and about 100 million
additional job creation by the year 2022, India has been able to reach only up
to 15 per cent contribution of manufacturing sector in total GDP and less than
5 million additional job creation has taken place, which is highly disappointing.
3.
‘MAKE IN INDIA’
MISSION
Among various
initiatives taken for the growth and development of manufacturing sector, the
most important step in recent times is the ‘Make in India’ mission. Launched in
September 2014, ‘Make in India’ is the initiative of inviting and encouraging
global companies to establish their manufacturing base in India to boost its
manufacturing sector and generate large scale employment opportunity for Indian
youth. Over 25 sectors of the economy have been identified under this mission
for job creation and skills enhancement, namely, automobiles, aviation,
wellness, railways, electronics, renewable energy, chemicals, and information
technology and others8.
‘Make in India’ mission
stated purpose is to establish India as a unique manufacturing hub at world
level. ‘Make in India’ mission is aimed to generate more than 100 million
employment opportunities and to achieve 25 per cent contribution of
manufacturing sector to the country’s GDP in next one decade.9This
mission not only intends to raise competition but also offers a big market for
products manufactured by world’s largest corporations out of increased
disposable income as a result of employment. In today’s global economy,
manufacturing sector is essential even for increasing country’s exports and
make the country export-rich.
Union Minister
for Commerce and Industry Ms. Nirmala Sitharaman addressing at the ECGC Dun and
Bradstreet Export Performance Award ceremony, as published in an English Daily,
DNA newspaper on March 8, 2015 also said that exports play a key role in
ensuring success of the 'Make in India' initiative. An Advisory Committee would
suggest key reforms measures to boost export performance.10
Government has
assured to give special focus on de-licensing and de-regulation and provide
Ease of Doing Business environment. It has committed to establish new
industrial clusters, industrial corridors, and smart cities, opening up of critical
sectors like defence, construction and railways for foreign direct investment (FDI).
It has assured simplification and rationalization of the existing rules and establishing
single window clearances for setting up any business venture. Government has
promised to make governance more efficient and effective. Recently an e-biz
portal has been launched to facilitate ease
of doing business by manufacturers and exporters.
Government
has also taken major steps towards skill development to ensure that skilled
manpower was available for manufacturing. It has also undertaken Digital India
mission so as to ensure that government processes remain in tune with corporate
processes. Government initiatives have opened up way to generate employment for
the large pool of young people joining the labour force every year.
All past
governments paid attention towards development of small and medium enterprises
in India, however, ‘Make in India’ mission surpasses them and is focused
towards enhancing their scale, quality, branding and upgrading and linking them
to large industries.
The Union Budget
2015 takes stocks of work which are already in progress based on last year
budget proposals of building several industrial cities to generate new job
opportunities. The Budget 2015 hopes that there would be new openings in
sectors such as infrastructure, power, transport, etc. Infrastructure building and
development is essential for success of ‘Make in India’ mission. To further
strengthen and enhance capacity level of SMEs among reserved classes of SC/ST, it
is proposed in the budget to set up Mudra Bank for enterprises led by SC/ST
with an initial allocation of 200 billion rupees. Government is committed
towards improving quality of employment under MNREGA. Setting
up of National Investment and Infrastructure Fund, Tax free infrastructure
bonds for projects in the rail, road and irrigation sectors, setting up a
Public Debt Management Agency (PDMA) to deepen the Indian Bond market to
provide additional fund raising avenues for infrastructure sector, taxation
benefits in respect of Real Estate Investment Trusts (REITs), Converting
existing excise duty on petrol into Road Cess will provide additional Rs. 400
billion to fund investment in roads and other infrastructure. Increased budgetary allocation for the road
sector, setting up 5 new Ultra Mega
Power Projects (UMPPs), each of 4000 MWs, proposal for generation capacity of
renewable energy to 175.000 MW by the year 2022, all these measures shall play a great role in boosting infrastructure
required for the manufacturing sector and for the success of ‘Make in India’
mission.
Further to boost
manufacturing sector of India, government has proposed to reduce corporate tax
from existing 30 per cent to 25 per cent over next four years. Reduction in
corporate tax will encourage corporate from world over establishing their
manufacturing base in India. The budget also proposes to launch National Skill Development Mission. National Rural
Internet and Technology Mission for services in villages and schools, training
in IT skills and E-Kranti for government service delivery has been proposed and
5 billion rupees have been allocated.
4.
STRATEGIC
IMPERATIVES FOR SUCCESS OF ‘MAKE IN INDIA’ MISSION
Towards the success of ‘Make in
India’ mission it is essential to improve business environment by making
regulations and taxes less onerous, building infrastructure, reforming labour
laws, and enabling connectivity. These would reduce the cost of doing business,
increase profitability, and hence encourage the private sector, both domestic
and foreign, to increase investments. There is urgent need to redesign India’s
industrial policy that can boost manufacturing. Government can help through
lowering the cost of capital, and creating special economic zones. Government of
India has taken three strategic steps for success of ‘Make in India’ mission.
1.
To
improve trade and industrial environment. Important steps like ease of doing business,
easy licensing and improvement in trade regulations have been taken up.
Currently, India stands at a very lower rank of 142 among 182 nations in Ease
of Doing Business Index Survey conducted by the World Bank. Primary reasons cited
are casual approach in governance and changing policies. To improve this
scenario, the government has adopted “Minimum Government & Maximum
Governance” principle which should result in positive outcomes.
2.
Second
step is in the direction of self-dependency of manufacturing sector i.e. creating
structure of industrial corridors, estimation and formation of industrial
clusters, designing and implementation of smart cities, recognition of
innovation and skill development etc.
3.
Third
important step is opening up of FDI in special sectors like defense, construction
and railways. This should increase foreign investments.
A comprehensive
strategic view has to be taken to establish India as one among leading
manufacturing nations in the world. Increase in competitiveness of India at the
world level should be one of the prime objectives. On one side, it is essential
to improve the quality of products produced, on the other hand, exposure of its
manufacturing capabilities all over the world, to connect with world and
increase in exports is also equally important. It will be very important to
boost up ‘Brand India’ image. It is necessary to bring forward micro, small and
medium enterprises and make it integral part of bigger industry.
Global current
scenario offers possibilities for India to develop its manufacturing capacity.
On one hand, China is losing its advantageous position due to increase in
labour and production costs. Russia too is losing its shine due to
geo-political reasons and rise in labour and production costs. Countries like
the US and Mexico however are increasing their share in manufacturing due to
the liberal economic and working environment. Hence, while India has chance to
develop its manufacturing sector, it also has competition from the other
countries like the US and Mexico.
In today’s
global economy, big industrial corporations and companies continuously keep
searching and changing their manufacturing bases in different countries
depending upon various factors like political stability, labour-cost, energy
price, productivity and fluctuation in foreign currency markets. It has been
observed that due to changing environment, many corporations have shifted their
manufacturing locations over the years from the countries where they were in
profits in past years.
For India this
pattern of relocation across the globe by the companies can be an advantageous
proposition. According to BCG
Manufacturing Index 2014, India stands second among top 25 exporting nations measured
on low manufacturing costs. Indonesia ranks first with lowest manufacturing
costs. Although labour costs have increased in these countries also, but due to
increase in productivity and change in foreign currency rates, negative impact
of increasing labour-cost has been neutralized. In other countries labour and
other costs have comparatively increased more than India and hence India has the
advantage. Rising manufacturing prices in China and their vast impact is a case
in point.
Countries like Mexico,
however, are in a good position due to low cost and better working environment
and is benefitted with foreign investment. The US is also successful in
attracting companies due to falling gas and shell gas prices. Due to success in
technological development and research, it has been able to attract technology
centered manufacturing. Industries like additive manufacturing,
nano-technology, artificial intelligence, and robotics etc. are mushrooming
there. From Indian perspective, these are bigger challenges. It is therefore necessary
for India that it takes concrete decisions and steps about costs and other
related issues like political, financial and Ease of Doing Business policies in
order to strengthen its position as a leading manufacturing hub.
In addition to
production cost, some more important issues need to be paid urgent attention,
viz. infrastructure especially highways, port and power sector, reforms in
labour-sector, simple tax system, easy capital sources and a better worldwide
image. Simultaneously government should pay special attention on
labour-reforms, and facilitating ease of doing business.
Finally, it is
essential to put right policies in place to achieve leading position in the
world. China has established its leading position in manufacturing and demonstrated
to the world through its right policies those boost manufacturing. Initially,
China established itself in the category of simple technology developer nations
but slowly and gradually established its supremacy among technology-led
sectors. India too will have to do some similar attempts.
‘Make in India’ mission has ambitious
targets to achieve. It has full policy support of the Government of India and
undoubtedly it has great potential also of generating mass employment
opportunities resulting in rise in income level of society in general. However,
it is equally essential that other sectors contributing significantly to the
Indian economy are not overlooked in order to boost manufacturing sector. Kamath,
KV (2015), Independent Director at InfoSys and ex-banker cautions not
overlooking the services sector over the manufacturing sector. According to
him, “While manufacturing will add another
dimension to our growth, the services
sector will continue to be strong, given its robust contribution in
the last 15 years and enormous potential to drive growth by meeting the
aspirations of a growing consuming class”. Post
liberalization, services sector had made significant contribution to
India's GDP. Its share rose from 42.55 per cent in 1990/91 to 60 per cent in
2013/14. During this period, the services sector grew at a compound annual
growth rate (CAGR) of 8.1 per cent compared to 6.5 per cent overall economic
growth11.
5.
IMPACT OF ‘MAKE
IN INDIA’ MISSION ON MANUFACTURING SECTOR
In order to make
‘Make in India’ mission successful and meaningful Government of India has
already identified some priority areas like Defence, Railways, Power especially
Renewable Energy and Construction in addition to other sectors with high
consumption demand and dependent upon imports e.g. Electronics. India can
encourage home production of these items to lower imports bill. In addition for
a natural resources rich country like India, sectors like cotton, steel, coal,
and petro-chemicals can contribute significantly to manufacturing. These
sectors have lesser manpower costs with easy and plentiful availability of the
same. Also, technical know-how of these sectors to the work-force is also an
added advantage. India competitive advantage lies in its abundant unskilled and
low-skilled labor, as of now.
India’s manufacturing sector
has potential to touch US$ 1 trillion by 2025. There is potential for the
sector to account for 25-30 per cent of the country’s GDP and create up to 90
million domestic jobs, by 2025. ‘Make in India’ mission can play a catalytic
role in achieving these targets. After launching of ‘Make in India’ mission,
investment in manufacturing sector is growing continuously. Following table
displays some of the major investments received or committed in manufacturing
sector. This list is not exhaustive but just indicative only and is
continuously growing each day.
Table
1: Big Investments in Manufacturing Sector in India
|
S. No.
|
Name of Sector
|
Company Name (Country)
|
Investment
Amount (In Rupees)
|
|
1
|
Electronics
|
Huawei (China)
|
10.37 billion12
|
|
2
|
Electronics
|
Samsung (South Korea)
|
5.17 billion13
|
|
3
|
Electronics
|
Spice Group (India)
|
5 billion14
|
|
4
|
Electronics
|
Lava
|
5 billion15
|
|
5
|
Power
|
Toshiba (Japan)
|
18.8 billion16
|
|
6
|
Vehicles
|
Hero MotoCorp (India)
|
5 billion17
|
|
7
|
Jewellery
|
KalyanJewellers (India)
|
12 billion18
|
|
8
|
Paints
|
Asian Paints (India)
|
17.50 billion19
|
|
9
|
Chemicals
|
Pidilite Industries (India)
|
2.64 billion20
|
|
10
|
Solar Energy
|
Danfoss
India
|
5 Billion21
|
|
11
|
Electronic
|
Intex (India)
|
10 billion22
|
|
12
|
Defence
|
ADAG
(India) acquired PipavavDefence and Offshore Engineering
|
8.19 billion23
|
Exchange Rate Used: Rs. 1 = US$ 0.0157 as on December 26, 2014]
Electronics goods production
in India is expected to touch US$ 104 billion by 2020. The country’s
electronics market is anticipated to grow to US$ 400 billion by 2020 and expand
at a CAGR of 24.4 per cent during the period 2012-2020.24 Similarly,
Indian chemical industry is expected to reach US$
190 billion by the financial year 2017-18 on account of increase in demand of
the chemicals from industries of various sectors25.Defence sector
will be the biggest contributor in the years to come as far as manufacturing
sector is concerned once all government policies are in place to increase FDI
in the sector.
Countries like
Germany already have expressed interest in working with India in the
manufacturing sector, especially in the auto and solar energy industries, at a
meeting with business lobby Confederation of Indian Industry (CII) recently.26
6.
CONCLUSION
India has the potential
to become world’s largest economy. However, to achieve the same, it has to walk
a long way. Dependency on agriculture or services sector alone won’t be enough
to reach this goal. Agriculture sector development is prone to the monsoon.
Moreover, employment in this sector is continuously shrinking due to modern
cultivation methods where human intervention and role is minimized. Services
sector growth depends largely upon performance of global economy. Hence, India
has to necessarily ensure higher growth of its manufacturing sector so that it
contributes at least 25 per cent to overall GDP and meet
the employment targets set up under Manufacturing Policy, 2012. To achieve the
same, India has to pledge for resurgence of its industry and focus on establishing
internationally accepted quality standards for the industry, so that Indian
goods can be exported and accepted in international markets.
Government of
India has initiated framing policies conducive for investment as visible from
the Union Budget 2015-16. It has opened up many important sectors like
insurance and pension for higher foreign direct investment (FDI) up to 49 per
cent. Government is putting its efforts to remove all obstacles hindering right
investment climate in India. It is essential that India maintain its momentum
of focusing comprehensively on encouraging areas like industries growth and
development; education and skills development, knowledge management; research
and development; innovation; boosting power and electricity generation
capacity, infrastructure and logistics. Framing right policies and implementing
them will help India to reach the league of developed economies and becoming
world’s largest economy subsequently and India is destined to reach there in
the times to come.
REFERENCES
[1]http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/weorept.aspx?sy=2014&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=91&pr1.y=18&c=534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=
[2] http://en.wikipedia.org/wiki/Economy_of_India
[3] Ibid
[4] Ibid
[5] Ibid
[6] Ibid
[7] Dhawan, Rajat; Swaroop,
Gautam andZainulbhai, Adil (2012).
Fulfilling the promise of India’s manufacturing sector. The McKinsey Quarterly,
March 2012, Pp 1-10. Available at: http://www.mckinsey.com/insights/operations/fulfilling_the_promise_of_indias_manufacturing_sector
[10]http://www.dnaindia.com/money/report-exports-key-to-success-of-make-in-india-initiative-nirmala-sitharaman-2066940 [Accessed March 9, 2015]
[11] http://businesstoday.intoday.in/story/services-sector-growth-to-drive-manufacturing-kv-kamath-2015/1/213477.html
[12] http://www.firstpost.com/business/huawei-technologies-makes-rs-1037-cr-make-india-investment-2081827.html
[13] http://www.dnaindia.com/money/report-samsung-to-expand-noida-facility-invests-rs-517-crore-2055992
[14] http://articles.economictimes.indiatimes.com/2015-01-28/news/58546839_1_digital-india-spice-group-indian-cellular-association
[15] Ibid
[16] http://businesstoday.intoday.in/story/toshiba-invest-in-india-indian-power-sector/1/212170.html
[17] http://www.ibef.org/industry/manufacturing-sector-india.aspx
[18] Ibid
[19]
Ibid
[20]
Ibid
[21]
Ibid
[25]
Ibid
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