Governance · Law · Public Policy

Make In India: Too Close Yet Too Far?

The Make in India campaign might have propelled Narendra-Modi led NDA government to a stomping victory in the last elections, but the pragmatism of such a claim deserves a much more in-depth analysis. At the Vibrant Gujarat Summit 2015, while the Prime Minister proudly welcomed international organizations and world-powers like the United States to ‘make’ in India, it also served as a beckoning call for Indian manufacturing giants to invest their resources towards the creation of a self-sufficient economy. At this juncture, it is imperative to analyze whether the Indian administration and economy is ready for such a transition.

Following the Mahalanobis Plan, India adopted a close-door policy much until the 90’s in order to allow indigenous industries to explore their resources and protect them while they were in their nascent stages. For a country that had just liberated itself after nearly two centuries of subjugation, this served as a political symbol of self-reliance. It is important to note that the Indian economy had flourished in the pre-Industrial age, being the locus of the trade network with the Arabian peninsula and the Ceylon islands as its main trade partners. The political instability that ensued after India gained independence saw the economy suffer a huge setback. The GDP dropped to a figure of merely 2.7 lakh crores. The government, nevertheless, made sustained efforts to boost the indigenous enterprises by establishing the office of the Development Commissioner for Micro, small and medium enterprises in 1954 and even a Ministry for MSME’s in 1990.

The Indian Government soon realized that the economic policy had to be revised to ensure that the Indian economy could cope with the changes brought about by Industrialization and the advent of globalization in the West. Thereafter, in 1991, from a protectionist policy, we liberalized the economic system. This brought in multi-national corporations. Liberalization and globalization also brought about the understanding of the concept of mobility of expertise, that one could create communities of producers and consumers who could even be poles apart, geographically.

As globalization and the products of the westernized world invaded all spheres of economic life, the trend of consumerism rose exponentially. Those in India realized the need for technical skills and this resulted in the social phenomena more popularly known as the brain drain. While because of this exodus, India did emerge as the epicenter of the knowledge-based economy and this subsequently fostered bilateral ties and promoted access to the business markets of several host countries such as the United States and the OECD countries, the brain drain was detrimental to the development of the Indian economy. India could not capitalize on the technical expertise of these emigrants, who contributed nearly 10% of the Indian GDP to their foreign hosts.

The political instability that accompanied the various collation governments that ruled India until the NDA-government created a sort of chronic policy paralysis from which the economy is continuing to recuperate. Amongst the characteristic features of the coalition regimes of the UPA government was that of inordinate delays in decision-making. Scandals such as the CWG scam, the 2G scam and the economic downturn in 2008 only aggravated the damage. To cope with the economic meltdown, the President did announce several stimulus packages, however they backfired by causing a huge disarray in the macro-economy owing to the exorbitant rates of inflation (particularly food price inflation) that followed. The end of the UPA – regime saw the GDP growth a fraying figure of 4.9%, nearly 40% less than the staggering figure that it had been handed over with.

UPA’s announcement of retrospective taxation was the final blow that destroyed the foreign investor’s confidence in the Indian economy. The Vodafone controversy that ensued is still to undergo arbitration proceedings. The BJP have clarified their stance on the taxation issue by stating that taxes that impose fresh liability cannot be charged retrospectively. Moreover, the Goods and Service Tax that is purported to integrate the domestic market is still pending.

The new government heralds the era of economic renovation. The most important responsibility of the Government is to create a congenial investment climate for foreign and domestic investor alike. Having already taken positive steps such as relaxing the FDI limits in the defense sector to 49%, the Government has paved the way for foreign capital access in Indian markets. Despite the positives that are surfacing, the economy has still a long way to go.

While it is the ambassador for several economic reforms, the Make in India campaign’s primary onus is to tilt the scales of economic production in favor of innovation. India may boast of the largest percentage of scientists and engineers according to World Economic Forum’s Global Competitiveness Index. However, India’s expenditure on research and development is not enough to unleash the true extent of its potential for innovation. Studies have showed that India’s record of assets do not match its output and productivity. The Global Innovation index for 2014 ranked India as 76th on innovation and innovation capacity, a lowly figure even compared to the other BRICS countries[1]. This aspect is linked to the development of intellectual property arrangement in India. If investors are not able to secure their investments via patents awarded to them, they will not be assured enough to invest in the Indian markets. Known world over for being the knowledge base, India needs to capitalize on its knowledge assets and devote adequate funds towards promotion of research and development, to climb up the rungs of economic leadership. In this light, organizations such as the ISRO and the DRDO should be monetarily supported so that they are able to realize their full capacity.

The need for more extensive involvement with R&D goes in hand in hand with resolving the productivity gap between the services and manufacturing sector. The focus of the Make in India campaign should also be rebuilding the machinery for Micro, Small and Medium Enterprises. Based on the theology of self-sufficiency, this industry has immense potential that still lies untapped. The MSME sector contributes 8% to the GDP accounting for nearly 45% of the manufactured output. Growing at a steady rate of 10%, this sector is one of the major sources of exports too. However, it continues to grapple with the stringent taxation policies and labor laws, which add to its infrastructural and managerial inadequacies. At this juncture, there is an urgent need for people to be trained industrial entrepreneurship, wherein they can employ their skills in creating and managing whole businesses with the available labor and raw material. Equally important is to be able to move goods across state borders without being subjected to harassment. The Government should also exploit international platforms to provide the much required exposure to indigenous crafts such as the cotton weaving styles of Tamil Nadu and the bamboo of Assam. In terms of budgetary allocation, more attention should be devoted towards establishment of Industrial Training Institutes while simultaneously supervising and ensuring better credit access State financial corporations and industrial development banks. Studies have showed time and again that there is a systemic advantage that existing businesses acquire, in terms of creation of credit vis-a-vis new businesses. This credit gap has been reported to be nearly 56%. With the relaxation of FDI limits, the prominent domestic firms are also able to tap the credit that foreign markets as well as the foreign firms that have ample access to such credit from their home countries.

The regressive provisions of the Land Acquisition Act of 2013 also pose as an additional roadblock to development projects. The new Government has sought to undo the effects of the Act by passing an ordinance to make the industrial sector more conducive to growth and development. The little success that foreign projects have had in getting clearances from environmental authorities has all the more deterred foreign investors. Little wonder that India was ranked 134th among 189 countries in the World Bank’s report on ‘Ease of Doing Business’ in 2013.

The Make in India campaign most definitely seeks to reverse the trend of brain drain and create a labor-intensive manufacturing and services sector that can accommodate both the skilled as well as unskilled population. This will necessitate the easing out of procedural formalities and environmental clearances so as to facilitate the investors as well as new entrepreneurs. The need of the hour is to come with up with a planned strategy aiming at inclusive growth and a competitive economy. This will not just require a NITI Aayog Commission, instead a much more nuanced understanding resting on the foundation of cooperation and spirited progress.

[1] Mark F Schultz , Bridging the Innovation gap, The Hindu , November 5, 2014 (can be accessed at http://www.thehindu.com/opinion/op-ed/bridging-the-innovation-gap/article6561565.ece)

About the Author

RaghaviRaghavi is a second year student pursuing her B.A. LL.B. (Hons.) from National Law Institute University, Bhopal. She is a member of the Centre for Human Rights and Justice, Advocacy and Legal Advice Centre as well as the editorial Board of the NLIU Law Review. She has worked with several NGOs on human rights issues and is an ardent member of a social welfare organization that teaches children of nearby villages. She firmly believes in the power of self-expression and takes active interest in mooting and debating. She is also an aspiring musician and hopes to balance out the two professions someday. Currently, she is interning with the Model Governance Foundation.

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