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This article is more than 3 year old.

Four years of the Modi government: Make In India, launched with much pomp, is now struggling

Four years of the Modi government: Make In India, launched with much pomp, is now struggling
On August 15, 2014, Prime Minister Narendra Modi announced from the ramparts of the Red Fort his flagship ‘Make in India’ initiative.
Make in India aims to invite global companies to invest in India’s manufacturing sector and create millions of jobs and boost growth
When the initiative was announced, it caught the imagination of investors, businessmen and analysts in India for its timeliness and boldness.
At the time of Modi’s ascent to power, growth in foreign direct investment (FDI) had trickled to just just 8% by the end of 2013-14.
India is known for anything but its manufacturing chops and finally some solution was in sight by taking foreign help.
Ergo, Make In India was seen as the answer to jump-start foreign investments and awaken the animal spirits in India’s industrial sector.
Four years later, has Make in India achieved its objectives? We’ll come to that in a moment.
Soon after the announcement, the government hit the ground running. Within a month and a half, Modi inaugurated the Make In India campaign by targeting 25 sectors for specific interventions. The campaign was supplemented by reforms on the FDI front.
In the defence sector, for example, a foreign company was allowed to invest in wholly-owned subsidiaries if they bring in modern technology (two years ago, the government allowed up to 100% FDI in defence and removed the requirement of “state of the art” technology for cases of above 49% foreign investment).
FDI in brownfield pharmaceutical was allowed up to 100% through the approval route and foreign investors could set up factories to make medical devices.
The government also shut down Foreign Investment Promotion Board (FIPB), its FDI gatekeeper.
Good Start
Results were palpable almost immediately. As much as $156.64 billion poured into India from abroad between April 2014 and February 2018.
In 2014-15, FDI inflows rose 27% to $30.91 billion and in 2015-16, foreign investment grew 29% to hit a record $40 billion.
Was this uptick in FDI thanks to Make In India? The government initially said so. But it started taking a different stand subsequently.
In 2016-17, FDI equity inflows again broke records and touched $43.47 billion – but the pace had slowed to 9%.
In the period between April and February of 2017-18, FDI grew a meagre 0.23% at $42.24 billion. It is clear that there will be a less than 1% growth in FDI in 2017-18 – a first since 2012-13.
In January, the government provided the Lok Sabha details of investments under the Make in India campaign.
Junior Commerce and Industry Minister CR Chaudhary said the percentage of industrial production is not available linking it with the Make in India initiative.
“Make in India is not a programme but an initiative launched in 2014, which aims at promoting India as an important investment destination and a global hub in manufacturing, design and innovation,” he said.
Given that the government was reluctant to provide answers, we did some digging on our own. We looked at how much did manufacturing contribute to the overall FDI inflows by examining the data by Department of Industrial Policy and Promotion (DIPP) of the top 10 FDI receiving sectors between 2014-15 and February, 2017-18.
What Went Wrong?
At $22.97 billion, the share of FDI in manufacturing sectors such as automobile, power, drugs, chemicals and metallurgical sectors was just 14.66%.
In contrast, the share of FDI in non-manufacturing sectors such as banking, BPO, construction, telecom, computer software and hardware was 46.37% at $72.64 billion.
What exactly is wrong with Make in India?
Sudden changes in policy, such as the u-turn the government took last year over a locomotive deal with General Electric (GE) and its push to buy weapons directly from foreign companies instead of looking to make them in India have not helped.
GE won a $2.6 billion contract in 2015 to supply 1,000 diesel locomotives but the union railways ministry said in September last year that it wouldn’t need diesel because it was looking to save on fuel and maintenance costs. The ministry said GE might want to make electric engines instead.
The GE contract was the biggest direct investment in India by a US company and the first deal awarded to a foreign company after the government allowed 100% foreign investment in railways.
These developments point to the hemming and hawing that have gripped the Make in India initiative.
The government soon accepted that it was time to recalibrate the Make In India campaign. In mid-2017, the list of Make In India-focussed sectors was pruned to 21 from 25.
CNBC-TV18 has sought details of the targets that were set for these sectors through an Right to Information (RTI), but DIPP is yet to reply to our queries.
In January, the government said in its the economic survey that it is looking at Make In India 2.0.
This time, the government wants to focus on capital goods, auto, defence, pharmaceutical, renewable energy, chemicals, electronic system design and manufacturing, leather, textiles, food processing, gems and jewellery, construction, shipping and railways.
The pruning of sectors by more than half might help. But Make in India needs more efforts from the government to truly make an impact in India’s manufacturing scene.
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