Make in India: Challenges & Prospects

[op-ed snap] Why ‘Make in India’ has failed

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- 'Make in India' , its performance, and reasons for not delivering on the set goals.

Context

Five years after its launch its appropriate time to take the stock of the progress made by ‘Make in India’.

Three major objectives of the initiative

  • First- Manufacturing growth rate at 12-14 %: The first objective is to increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy.
  • Second-100 million jobs: The second objective is to create 100 million additional manufacturing jobs in the economy by 2022.
  • Third-increase manufacturing’s contribution to GDP to 25%: The third objective is to ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.

Assessment of the progress made so far

  • As the policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.
  • Progress on the investment front:
    • Slow growth: The last five years witnessed slow growth of investment in the economy.
    • This is more so when we consider capital investments in the manufacturing sector.
    • The decline in gross fixed capital formation: Gross fixed capital formation of the private sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
    • Gross Fixed Capital Formation is the measure of aggregate investment.
    • Increase in private sector’s savings decrease in investment: Household savings have declined, while the private corporate sector’s savings have increased.
    • This is a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
  • Progress on the output growth front:
    • Double-digit growth only in two quarters: The monthly index of industrial production (IIP) pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
    • Below 3% for the most part: The data show that for a majority of the months, it was 3% or below and even negative for some months.
    • The negative growth implies a contraction of the sector.
  • Progress on the employment growth front:
    • No progress: The employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market.

Problems with the policy

  • The initiative had two major lacunae.
  • First- Too much reliance on foreign capital: The bulk of these schemes relied too much on foreign capital for investments and global markets for produce.
    • This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.
  • Second-Lack of implementation: The policy implementers need to take into account the implications of implementation deficit in their decisions.
    • The result of such a policy oversight is evident in a large number of stalled projects in India.
    • The spate of policy announcements without having the preparedness to implement them is ‘policy casualness’.
    • ‘Make in India’ has been plagued by a large number of under-prepared initiatives.

Three reasons why ‘Make in India’ failed to perform

  • Too-much ambitious goals: It set out too ambitious growth rates for the manufacturing sector to achieve.
    • Beyond capacity rate for the sector: An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
    • Overestimation of implementation capacity: To expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government.
  • Dealing with too many sectors: The initiative brought in too many sectors into its fold.
    • Lack of policy focus: Bringing in too many sectors under its fold led to a loss of policy focus.
    • Lack of understanding of comparative advantages: Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
  • Ill-timed launch
    • Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.

Conclusion

  • In order to revive the ‘Make in India’ there is a need to make necessary changes in the policy and root out the causes associated with the policy implementation.

 

 

 

 

 

 

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