An evaluation of the performance of the Make in India initiative.
Date : 18/05/2024
The Make in India initiative was launched on 25th September 2014, a time when India was included in the ‘Fragile Five’, and reviving high growth rates and global confidence was the need of the hour. The program intends to transform India into an investment destination and a global hub for manufacturing, design, and innovation. It is the first ‘vocal for local’ initiative for the manufacturing sector.
Objectives and Features
The most important objective of the Make in India campaign is to increase the growth rate of the manufacturing sector to 12-14 percent per annum and thereby increase the share of the manufacturing sector to around 25 percent of GDP by 2022 (revised to 2025). Through industrialization, its plan is to come up with 100 million job opportunities in the manufacturing sector by 2022. Thus Make in India is a great attempt to mend the irregular pattern of structural change in India, a major reason for the low level of employment in the country.
Make in India is a confidence booster for entrepreneurship in India and it is built on four pillars: new processes, new infrastructure, new sectors, and a new mindset. The idea of Make in India is based on ‘Minimum Government, Maximum Governance’ while providing for an investment-friendly environment and efficient infrastructure for the ease of doing business. The initiative encourages both multinational and domestic companies to start manufacturing ventures in India. Relaxations are made in foreign direct investment policies for the easy inflow of capital. The government has invited stakeholders for public-private partnerships. Make in India stresses the protection of intellectual property rights, promotion of research and development, creation of jobs, and skill development. Export orientation-‘Make in India, make for the world’- is another key feature of the campaign. The ‘zero defect and zero effect’ slogan of the Make in India campaign implies high-quality manufacturing standards with minimum environmental impact.
Raising the growth rate of the manufacturing sector is carried out initially by targeting 25 sectors in manufacturing, infrastructure, and services. Now, under Make in India 2.0, the focus is on 27 sectors. The Department for Promotion of Industry and Internal Trade is coordinating Action Plans for 15 manufacturing sectors, while the Department of Commerce is coordinating for 12 service sectors. Recent steps taken by the government to attract domestic investments in India include the National Infrastructure Pipeline, reduction in corporate tax, easing liquidity problems of NBFCs and banks, trade policy measures to boost domestic manufacturing, etc. Domestic manufacturing of goods is also promoted through public procurement orders, Phased Manufacturing Programme, and Schemes for Production Linked Incentives of various Ministries.
Performance Evaluation
An evaluation of the performance of Make in India is conducted by tracking the trend in the key related macroeconomic indicators. The year 2020-21 has been intentionally avoided from the trend analysis, as the pandemic is a structural break in the economy. Facilitating a business-friendly environment, being a major goal of Make in India, India’s rankings in the World Bank’s Ease of Doing Business Reports are assessed for the period 2011-2019 (Figure 1). The Doing Business Index is constructed based on several indicators that measure the business regulations and their enforcement in an economy. These indicators cover different topics of business- starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. The recent Doing Business Report 2020 ranks the ease of doing business in 190 countries on a scale ranging from 1 to190, the higher rankings (a lower numerical value) showing a better regulatory environment for the starting and operation of a business. After having a continuous deterioration in the ranking till 2014, India has achieved drastic improvements in the Ease of Doing Business ranking. During the period 2014-19, India has jumped 79 positions in the ranking, reaching an enviable position of 63, which is a clear indication of effective implementation of regulatory reforms in India.
Figure 1: India’s Rank in Ease of Doing Business Reports
The stated objectives of the Make in India campaign are to raise the growth rate in the manufacturing sector to 12-14 percent per year and to increase the manufacturing sector’s share in GDP to 25 percent. A look at the trend in the growth rate of Gross Value Added (GVA) in the manufacturing sector (Figure 2) reveals that in the post-Make in India period, the growth rate in the manufacturing sector rose above 12 percent in 2015-16 only. For all other years, except 2019-20, it shows the pre-Make in India trend, and a negative growth rate is reported in 2019-20. The sluggish growth rates in the Indian economy correlate to the decline in output and trade globally. To a certain extent, the trade tensions between the US and China contributed to the slow-paced growth in major economies. A similar trend is visible in the manufacturing sector’s share in GVA (Figure 3). After an initial increase in 2015-16, the sector’s share in GVA is found to decline, with a drastic reduction in 2019-20. The manufacturing sub-sectors could not sustain the progress achieved in the initial years of Make in India (Figure 3).
Figure 2: Growth Rate of Gross Value Added in Manufacturing Sector at Basic Current Prices
Data Source: NSO.
Notes: Base year is 2011-12. Data for 2016-17 are Third Revised Estimates, for 2017-18 are Second Revised Estimates and for 2018-19 are First Revised Estimates. Data for 2019-20 are Provisional Estimates.
Figure 3: Percentage Share of Manufacturing Sector and Sub-Sectors in Gross Value Added at Basic Current Prices
Data Source: NSO.
Notes: Base year is 2011-12. Data for 2016-17 are Third Revised Estimates, for 2017-18 are Second Revised Estimates and for 2018-19 are First Revised Estimates. Data for 2019-20 are Provisional Estimates.
The Index of Industrial Production (IIP) captures the pace of industrial activity in India. The composite index, computed by the Central Statistical Organisation, assigns a weight of 77.6 percent to manufacturing followed by 14.4 percent to mining and 8.0 percent to electricity. The annual growth rates of the IIP for the manufacturing sector (Figure 4) show that, after a decline in growth rate in 2015-16, there was considerable improvement in 2016-17 and 2017-18. Further, a decline in growth rate is found in 2018-19 and a negative growth rate in 2019-20. The growth of manufacturing activity was affected by reduced consumer demand globally. Along with that low credit flow to industries, international oil price volatility, global trade-related tensions, reduced demand for automotive, pharmaceuticals, machinery and equipment, etc. also contributed to the slow growth of the manufacturing sector. Exports reflect the global competitiveness of the Indian manufactured goods. The growth rate in the exports of manufactured goods (Figure 5) shows a fluctuating trend after the year 2014. The negative growth rate in 2015-16 turned to positive in the next three years, only to become negative again in 2019-20. The global reduction in consumer demand, industrial activity, and trade led to a fall in Indian manufacturing exports in 2019-20.
Figure 4: Growth Rate of Index of Industrial Production for Manufacturing Sector
Data Source: NSO.
Notes: Base year is 2011-12
Figure 5: Growth Rate of Exports of Manufactured Goods
Data Source: DGCI&S.
Gross Fixed Capital Formation (GFCF) is an indicator of infrastructure development as it means capital accumulation in the form of gross additions to fixed assets. Except for the sharp plunge in 2016-17, GFCF in the manufacturing sector is on a positive and upward-rising growth path since 2014 (Figure 6).
Figure 6: Growth Rate of Gross Fixed Capital Formation in Manufacturing Sector at Basic Current Prices
Data Source: NSO.
Notes: Base year is 2011-12. Data for 2016-17 are Third Revised Estimates, for 2017-18 are Second Revised Estimates and for 2018-19 are First Revised Estimates. Data for 2019-20 are Provisional Estimates.
Foreign Direct Investment (FDI) is a source of external financing for economic development. The recent FDI policies of India like opening up of key sectors, relaxing the FDI caps of many sectors, extending investment-friendly norms, etc., along with the slow growth in the world economies and monetary policy easing by the US have made India a favored destination for investing capital. Since 2014, there has been a substantial rise in the total FDI equity inflows to India (Figure 7). FDI equity inflows grew by 12 percent in 2019. Some of the sub-sectors in the manufacturing sector have attracted an enormous amount of FDI equity inflows from Jan 2014 to Dec 2019 (Figure 8). India received the highest ever FDI in the year 2020-21. According to the World Investment Report 2021, published by the UN Conference on Trade and Development (UNCTAD), India is the fifth-largest recipient of FDI inflows in 2020.
Figure 7: FDI Equity Inflows
Data Source: DPIIT.
Notes: Calendar year data is taken.
Figure 8: Cumulative Total of FDI Equity Inflows into Major Sub-Sectors of Manufacturing from Jan 2014 to Dec 2019 (Amount in Rupees Million)
Data Source: DPIIT.
Notes: Calendar year data is taken.
Apart from these macroeconomic variables, employment creation in the manufacturing sector is another important indicator of the performance of Make in India. As per the Annual Survey of Industries, between 2014-15 and 2017-18, the total number of workers increased by 14.7 lakh, and the total number of persons engaged increased by 17.3 lakh in the organized manufacturing sector in India (Economic Survey 2019-20). The Periodic Labour Force Survey finds that the manufacturing sector employed 12.1 percent of the total employed persons in 2018-19 (Economic Survey 2020-21).
Conclusion
The trend analysis of relevant macroeconomic indicators provides evidence of substantial improvement in the manufacturing sector of India unless affected by exogenous factors. Thus, it can be assessed that the performance of Make in India is so far so good, but the goals are yet to be achieved. The revival of growth rates after its slow pace in 2019 was disrupted by the spread of the Covid-19 virus. Subsequent lockdowns have hit hard on the economy, especially the manufacturing sector. The V-shaped recovery of the industry after the first wave of Covid-19 points at the resilient nature of the economy due to its strong macroeconomic fundamentals. Even during the pandemic, India has high FDI inflows and also, has gains in the stock market, which are signs of confidence among the foreign investors in the Indian economy. Continued thrust to the manufacturing sector through the Make in India campaign can help repair the damages caused by the Covid-19 lockdowns in the form of income cuts and job losses.
Image Credits: Flickr
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