Across the aisle: The Make In India 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”.

Written by P Chidambaram | Updated: June 11, 2017 9:22 am
Make In India, narendra modi, good manufacturing, value-added services, Manufacturing gains ground, GDP, indian economy, indian GDP, indian express news, india news, opinion Mr Modi promised a further boost to manufacturing.

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 in India”.

Manufacturing gains ground

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 manufacturing.

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.

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 overall GVA.

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 2015 respectively.

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 slogan.

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  1. K
    Kamalakanta
    Jun 24, 2017 at 8:41 pm
    Please wait sir, next year government will have great achievement of greater tax collection, better than that of UPA !
    Reply
    1. V
      Verisa
      Jun 23, 2017 at 12:15 pm
      I strongly agree to advance : tvmesum / India as the government's achievement of the position of India in : tvmesum /category/bokep-asia/ the country and hopefully the stock that goes to India is bigger and more investors are joining to further advance the company in india and india country more advanced again in the midwife of the economy.
      Reply
      1. R
        Raman Govindan
        Jun 15, 2017 at 7:38 pm
        India missed the bus in manufacturing to China continuously every year from the day of liberalisaztion started gaining ground in China! i.e around 1980 onwards. besides it it did not use the rhetoric to put a break on its own development. and it sets its eyes on the rate of industrial development of India and its GDP growth. It wanted at least 2 to 3 more growth than ours! Mr. Lee Senior statesman and former PM, of Singapore gave it the clue. it set its target, worked towards it and achieved, our political leaders particularly, the dynasty, set the target of only retaining the power within its family and achieved it. to break out of 50 or more years of insufficient development or poverty is a Herculean task. besides China was helped by better literacy and reduced population growth. Dynasty never stressed literacy or family planning. it did not take a cue Kamaraj's paradigm shifting educational policy on education but condemned him as conservative. that is sad part!
        Reply
        1. R
          Raman Govindan
          Jun 15, 2017 at 6:35 pm
          India missed the bus in manufacturing to China continuously every year from the day of liberalisaztion started gaining ground in China! i.e around 1980 onwards. besides it it did not use the rhetoric to put a break on its own development. and it sets its eyes on the rate of industrial development of India and its GDP growth. It wanted at least 2 to 3 more growth than ours! Mr. Lee Senior statesman and former PM, of Singapore gave it the clue. it set its target, worked towards it and achieved, our political leaders particularly, the dynasty, set the target of only retaining the power within its family and achieved it. to break out of 50 or more years of insufficient development or poverty is a Herculean task. besides China was helped by better literacy and reduced population growth. Dynasty never stressed literacy or family planning. it did not take a cue Kamaraj's paradigm shifting educational policy on education but condemned him as conservative. that is sad part!
          Reply
          1. R
            rishi
            Jun 14, 2017 at 4:18 pm
            obsessively playing out figures for 65yrs duping the people.....chidmabaram and his ilk behave as 9th graders discovering economics....wilfully failing to figure out the truth as they disfigured the Nation's cashbooks !
            Reply
            1. A
              Anand
              Jun 13, 2017 at 8:15 am
              Can Congress jokers both P. Chidambaram and Indian Express owner explain the below to public. Congress has looted money over years and now try to p wrong message to public s: in.yahoo /finance/news/2g-scam-wheres-missing-rs-1-76-trillion-162947652
              Reply
              1. A
                Abdul Pasha
                Jun 13, 2017 at 2:28 am
                Indian Express owned by Congress hiya, aricle published by Congress hiya and article written by Congress hiya who son is already in CBI shoes for corruptions..
                Reply
                1. C
                  Cheruvathoor Simon Jacob
                  Jun 12, 2017 at 7:11 pm
                  At a GDP growth rate of around 6.5 percent, the economy is doing reasonably well but when compared to the tall claims made the performance looks lack lustre. During the ten year period of UPA, the average growth rate clocked was 7.5percent p.a, a record for any 10-year period since the independence. Likewise, the export growth was 18 percent p. a excluding oil- again a record. So the claim often made by the present Finance Minister that he had inherited a bad economy is not true. He has to excel the performance of the UPA on all fronts, especially in terms of GDP growth and exports. The slide started in 2012-13 though marginally recovered in 2013-14 and in the next year, the promised growth rate and job creation are elusive. What is worrying is the stagnation in exports since the year 2012-13. On the contrary, the import from China continues at $ 60 billion p.a. If India cannot take on China on the home turf, how does one expect it compete with China in the overseas markets?
                  Reply
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