The ‘Make in India’ - A flop show
PM Modi was therefore
absolutely right when he stated that his government’s goal was to give the
highest priority to ‘Make in India’ and called upon the world’s manufacturing
companies to “Come and make in India”.
No large country can become rich without manufacturing the
goods that are consumed or demanded by its people. Most services especially the
basic, low technology and low value-added services will anyway be produced
within the country. A country will move up the ladder of prosperity if it can
manufacture the goods and produce the services required by its people and also
export a considerable part of those goods and services.
Prime Minister Narendra Modi was therefore absolutely right when
he stated that his government’s goal was to give the highest priority to ‘Make
in India’ and called upon the world’s manufacturing companies to “Come and make
The share of manufacturing in India’s GDP is about 16.5 per cent.
Agriculture has declined steeply and the Services sector has risen sharply but,
notwithstanding the changes in the shares of the two sectors, manufacturing has
gained ground. 70 per cent of manufacturing units are in the private sector and
about one-third of those are with the quasi-corporate and unorganized entities.
Manufacturing’s share of GDP has risen steadily from 9.8 per cent in the 1950s
to about 16.2 per cent in the 2010s. Mr. Modi promised a further boost to
To make a product and capture a significant market share is
not an easy task. There may already be one or more persons making the same
product. It may be imported too. To make the product, the intending
manufacturer must make it better or cheaper or reach it to the consumer sooner
or be able to offer something which makes his product more attractive to the
consumer. It is here we face the hurdle of ‘factor costs’. Land, labour,
electricity, technology, transport, cost of capital, cost of borrowing, and many
others are factor costs. Unless some or all factor costs are favourable, no one
will embark upon manufacturing.
The major manufacturing economies of the world have reached their
positions by making factor costs more advantageous if the product were made in
their countries rather than made elsewhere. Making in a country must provide a ‘competitive
advantage’ to the manufacturer. Take cars. They were first mass-manufactured in
the United States. When Germany and Japan emerged as major economies, they
offered competitive advantages and the industry shifted to Germany and Japan. A
few decades later, car manufacturing moved to South Korea. A couple of decades
later, a significant portion of car manufacturing shifted to India.
2015-16 2016-17 2015-16 2016-17
(Manufacturing GVA) (Overall GVA)
Q1 8.2 10.7 7.6 7.6
Q2 9.3 7.7 8.2 6.8
Q3 13.2 8.2 7.3 6.7
Q4 12.7 5.3 8.7 5.6
The shift to India was not fortuitous. It
was because of a well thought out strategy that was translated into clear
policies. That story which began in 1991-92 deserves to be told separately.
When Mr. Modi promised to make India into a global hub of manufacturing,
I assumed that he had been advised and he had reflected on the many hurdles
that had to be crossed. I refuse to believe that ‘Make in India’ was just
another slogan to enthuse the large gathering on Independence Day, 2015.
The steep decline
Two years later, what
is the status of ‘Make in India’?
The CSO has released the quarterly growth rates of Gross
Value Addition (GVA) of manufacturing at constant prices (2011-12). I have
placed them along side the growth of overall GVA: Since the announcement of
‘Make in India’ on August 15, 2015, there is no evidence that manufacturing has
gathered momentum. On the contrary, it seems to have lost steam and, in
2016-17, the sector had weakened considerably. Between Q1 and Q4 of 2016-17,
the growth rate of manufacturing GVA had halved. The weakness of the
manufacturing sector is reflected in the steady drop in the growth rate of
The conclusion is that apart from the announcement of ‘Make in
India’, there has been little policy or administrative support. All other data
point to the same conclusion. In the five quarters between Q4 of 2015-16 and Q4
of 2016-17, Gross Fixed Capital Formation (GFCF) as a proportion of GDP had
declined 30.8, 31.0, 29.4, 29.4 and 28.5. A drop of 2.3 per cent in 12 months is
a disaster. Considering that GFCF was 34-35 per cent only a few years ago and
the government has done nothing to step up private as well as pubic investment,
it is a catastrophe.
Data point to flop
Data on IIP point to the same conclusion. In May 2014, the index
was 183.5, in August 2015 it was 184.8, in March 2016 it was 208.1 and in
February 2017 it had fallen to 190.1.
Data on credit growth point to the same conclusion. Credit growth
to the industry sector has been negative since October 2016. Credit growth to
micro/small and medium industries has been negative since March 2016 and June
Data on job creation point to the same conclusion. The eight
leading job-creating industries created only 109,000 jobs during the period
April-September 2016. That is a sign of stagnation.
Data on electricity demand point to the same conclusion. The
average Plant Load Factor of thermal plants is about 60 per cent reflecting
poor demand for electricity.
I had welcomed ‘Make in India’. It was innovative and aspirational.
Unfortunately, it appears that there was little homework done before and
practically no policy support after. ‘Make in India’ has turned into a hollow
The author is a Senior
Congress leader and former Union Finance Minister