Narendra’s Modi’s “Make in India” campaign is only one half of what is needed to make India a manufacturing powerhouse
“Make in India” is an initiative by the Indian government to encourage multi-national companies to manufacture their products in India. The most recent series of this campaign has just concluded in Mumbai with $222 billion in investment pledges.
Modi deserves credit for attempting to expand India’s manufacturing sector. However, changes in taxation, regulation and infrastructure will need to occur if India wants to increase the sector’s importance for the economy.
Major outcomes of the event
The most important outcome that has been championed by government officials is the promise by foreign companies to invest $222 billion in India. The issue at hand is that history has shown that the majority such pledges are not turned into reality.
Some tangible investments have, however, also been made. Taiwanese electronics maker Foxconn is committed to building a manufacturing plant in the state of Maharashtra, with $5 billion being pumped into the Indian economy over the next five years.
Moreover, the American computer technology company Oracle Corporation has signed on to invest $400 million to set up nine business incubation centres.
When foreign companies come to the “Make in India” event they see an economy that has bucked the trend of other BRIC states and is growing at 7% annually. They also see a large, educated and highly skilled workforce.
Yet, they also see an India with one of the most complex business environments in the world. For example, Vodafone and the Indian government are in the middle of a tax dispute that is under international arbitration.
Thus, whilst the outcomes of the event seem to be positive on the face of it, it still remains to be seen whether commitment actually turn into reality.
The future of the “Make in India” movement
Modi is committed to pushing through “common sense” economic reforms in Parliament, which would allow investors to better navigate the maze of India’s state and national tax regimes, and regulatory laws. Given that China’s manufacturing sector contributes 35% to its GDP, compared to only 17% in India, there is no doubt that Modi will continue to push this campaign forward.
The government has done a good job of creating a brand name with the “Make in India” movement easily identified by its glitzy logo, which has shown up on billboards from Germany to the United States.
However, the future of the campaign is relying on two issues. The first is the need to attract more foreign companies to investment conferences. The most recent week-long event was criticised for its glamour rather than substance, with a rather poor attendance of representatives of foreign companies.
The second issue is the continuing concern over regulation, tax and infrastructure in India. Companies frequently cite a general lack of transparency, and Modi must address domestic structural issues if he wants the campaign to pick up steam.
How successful has Modi been in spurring investment?
The success of “Make in India” will depend upon domestic structural and economic reform which can only be judged in the long-term. Another challenge facing the Prime Minister as the estimated 12 million that enter the workforce annually.
The stress India is facing in this regard cannot be underestimated – a telling example is the job ad for tea boys and night guards that attracted 2.32 million applicants.
Modi’s success in spurring investment will be judged by the number of jobs that are created. However, the pledges of investment will only be realized over the next two to five years, making it difficult to gauge how successful Modi has been so far with this campaign.
India needs infrastructural reforms to become a manufacturing powerhouse
The Indian government should be alarmed that – despite its annual GDP growth rate at 7%, an increasingly educated workforce and a large consumer market – “Make in India” is still far away from “Make in India”. In the World Bank’s Doing Business Index, India ranks 130th out of 189 countries. This is well short of where an emerging economic powerhouse should be.
The regulatory environment has put off investors who are weary of region-specific laws that restrict business. Moreover, India’s poor roads and motorways systems are symbolic of how far the country needs to improve in order to attract business like neighboring China does.
Modi is showing initiative with regard to tapping into the country’s manufacturing sector. However, campaigns such as “Make in India” are only half of what is needed. The other half is structural reform, which takes time to occur in India’s complex political system.
It may be that the Prime Minister’s campaign does deliver results, but given the time frame of foreign investment and domestic reform, it is likely that any success will occur long after he has gone as leader.
