Make in India: Challenges & Prospects

The popular consensus is that all India needs to do is to make its land, tax and labour laws more business-friendly, improve its infrastructure and slash red tape. Let’s evaluate the challenges and filter the prospects of a successful Make in India campaign.

Make in India: Challenges & Prospects

‘Country of Origin’ on GeM Portal

Note4Students

From UPSC perspective, the following things are important :

Prelims level : GeM

Mains level : India-China trade deficit

The government has made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the country of origin of their goods when registering new products.

Practice question for mains:

Q. India’s quest for self-reliance is still a distant dream. Critically comment in light of the popular sentiment against the Chinese imports in India.

What is Government e-Marketplace?

  • The GeM is a one-stop National Public Procurement Portal to facilitate online procurement of common use Goods & Services required by various Government Departments / Organizations / PSUs.
  • It was launched in 2016 to bring transparency and efficiency in the government buying process.
  • GEM aims to enhance transparency, efficiency and speed in public procurement.
  • It is a completely paperless, cashless and system driven e-marketplace that enables procurement of common use goods and services with minimal human interface.
  • It provides the tools of e-bidding, reverses e-auction and demand aggregation to facilitate the government users to achieve the best value for their money.
  • The purchases through GeM by Government users have been authorized and made mandatory by the Ministry of Finance by adding a new Rule No. 149 in the General Financial Rules, 2017.
  • It has been developed by Directorate General of Supplies and Disposals (Ministry of Commerce and Industry) with technical support of National e-governance Division (MEITy).

What is the new move?

  • Sellers on the GeM portal will now have to disclose the origins of their products.
  • The portal also has a ‘Make in India’ filter, and government offices will be able to ascertain which products have a higher content of indigenously produced raw materials.

Why need ‘Country of Origin’ tag?

  • The tag would help bidders choose products that meet the ‘minimum 50 per cent local content’.
  • This is the new procurement norm amended by the government earlier this month categorise suppliers based on the level of local content in their goods.
  • The GeM portal now allows buyers to reserve a bid for Class I local suppliers, or suppliers of those goods with more than 50 per cent local content.
  • For bids below Rs 200 crore, only Class I and Class II (those with more than 20 per cent local content) are eligible.

Why is all of this happening?

  • The decision comes in the backdrop of the government’s push for self-sufficiency which intends to promote self-reliance by boosting the use of locally produced goods.
  • At $ 70.32 billion in 2018-19 and $ 62.38 billion between April 2019 and February 2020, China accounts for the highest proportion of goods imported into India (around 14 per cent in 2019-2020 so far).
  • It also follows the deadly clashes between Indian and Chinese troops in Galwan Valley which have prompted several government departments to launch an offensive against imports from China.

How will ordinary consumers in India be impacted?

  • The announcement may over time filter out imported goods from use in government offices and facilities.
  • This might provide an opportunity to Indian manufacturers across industries to push their products in government facilities.
  • A more direct impact may be seen if the proposal to mandate the country of origin for products on private platforms is implemented.

Make in India: Challenges & Prospects

Integrating “Assemble in India” into Make in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Make in India

Mains level : Expected outcomes of the said integration

Giving a new dimension to ‘Make in India’, the Economic Survey 2019-20 suggested that the government should integrate ‘Assemble in India for the world’ into ‘Make in India’ to boost exports and generate jobs.

Assemble in India

  • Survey says India has unprecedented opportunity to chart a China-like, labour-intensive, export trajectory.
  1. By integrating “Assemble in India for the world” into Make in India, India can:
  2. Raise its export market share to about 3.5 % by 2025 and 6 % by 2030.
  3. Create 4 crore well-paid jobs by 2025 and 8 crore by 2030.
  • Exports of network products can provide one-quarter of the increase in value added required for making India a $5 trillion economy by 2025.

How to harness the situation?

  • The US-China trade war is causing major adjustments in global value chains and firms are scouring alternative locations for operations.
  • Even before the trade war began, China’s image as a low-cost location for final assembly of industrial products was rapidly changing due to labour shortages and increases in wages.
  • These developments present India an unprecedented opportunity to chart a similar export trajectory as that pursued by China and create unparalleled job opportunities for its youth.
  • As no other country can match China in the abundance of its labour, we must grab the space getting vacated in labour-intensive sectors.

Key suggestions made by the Survey

Survey suggests a strategy similar to one used by China to grab this opportunity by:

  1. Specialization at large scale in labour-intensive sectors, especially network products.
  2. Laser-like focus on enabling assembling operations at mammoth scale in network products.
  3. Export primarily to markets in rich countries.
  4. Trade policy must be an enabler.

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.

 

 

 

 

 

 

Make in India: Challenges & Prospects

[pib] Largest FDI project of Indian Railways

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Make in India


  • Indian Railways has entered into Procurement cum Maintenance Agreement with Madhepura Electric Locomotive Pvt. Ltd. (MELPL), a joint venture of Indian Railways and M/s Alstom.

About the Project

  • Indian Railways and Alstom came together in 2015 to transform the heavy freight transportation landscape of the country.
  • A landmark agreement worth 3.5 billion Euro was signed to manufacture 800 electric locomotives for freight service and its associated maintenance.
  • This is the first time such High Horse Power locomotive is being tested on Broad Gauge network in the World by any Railways.
  • As part of the project, factory along with township has been set up in Madhepura, Bihar with  capacity to manufacture 120 locomotives per year.

Benefits of Project

  • Indian Railways have taken decision to have 12000 horse power twin Bo-Bo design Locomotive with 22.5 T (Tonnes) axle load upgradable to 25Tonnes with design speed of 120 kmph.
  • This locomotive will be game-changer for further movement of coal trains for Dedicated Freight Corridor.
  • With the success of this project it will boost the “Make in India” programme of the Government of India. This will further develop ancillary units for locomotive components.
  • The project will allow faster and safer movement of heavier freight trains.
  • It will haul 6000T trains at maximum speed of 100 kmph.
  • With 100% electrification, the new locomotive will not only bring down operational cost for Railways, the locomotive will also reduce the congestion faced by Indian Railways.
  • This will be used to haul heavier trains such as coal and iron ore.

Why makes it special?

  • More than 300 Engineers from India and France are working in Bangalore, Madhepura and France on the Project.
  • The project is expected to create more than 10,000 direct and indirect jobs in the country.
  • In two years time, more than 90% parts will be manufactured in India. This is a truly Make in India project.

Make in India: Challenges & Prospects

[op-ed snap] To make India the factory of the world

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Prospects for India becoming global manufacturing hub

Context

A golden opportunity

  • With the US-China trade war in its second year now, old business arrangements are under severe stress.
  • American companies that have long used Chinese factories to crank out low-cost products for various markets find themselves under US policy pressure to either pull out of China, or to shift key operations elsewhere.
  • US President Donald Trump might just raise tariffs on Chinese imports to 30% this October, enough to disrupt the cost calculations of the most resilient firms that make products in China.
  • This presents India an opportunity to plug a vacuum, and the government has moved in to seize it.

India’s footsteps

  • With new FDI norms, India would open the domestic field of contract manufacturing to 100% foreign ownership of ventures.
  • It is seen as a move explicitly designed to attract global players currently in search of low-cost locations for production units.
  • Coupled with the easing of local-sourcing conditions imposed on foreign single-brand retailers in India, the reform serves as a big welcome board to US firms.
  • It is one thing to issue an invitation, however, and quite another to win decisions in India’s favour.

Plugging loopholes

  • Our country does not have much of a reputation for manufacturing efficiency.
  • The sector has languished, as a proportion of the overall economic pie, even as services have leapt ahead.
  • While it is true that new investors could transform the way products are put together by bringing in practices perfected elsewhere, analysts have long expressed concerns about low productivity here.
  • Excessive red tape, which tends to raise corruption levels, has been another deterrent to foreign investment.
  • However the EODB in India has risen in recent years though, as measured by the World Bank, and inflows from overseas businesses have been rising apace.
  • In other words, the problems of the past need not persist in the future.

Replacing China

  • For India to try replacing China as the world’s factory, a prospect that holds out the dream of job generation by the million, the country would need to enhance its overall competitiveness as a manufacturer.
  • This is primarily about allowing companies to meet high quality standards at the lowest possible cost.
  • Broadly, the Chinese success formula so far has involved the large-scale use—and even diversion—of state resources to subsidize mass production, not to speak of labour conditions that some consider repressive.

Way Forward

  • In a democracy like ours, due caution should be exercised before attempting to emulate such ideas.
  • Even on keeping export price tags low, China is not a good role model.
  • Indeed, integration with global supply chains would require the Indian rupee’s value to be export-oriented, which could mean letting it slide when appropriate, but policymakers must resist currency manipulation.
  • India must make its market and democratic forces work in tandem as it sets about creating conditions that would spur efficiency and turn “Make in India” into a routine sight across the world.

Make in India: Challenges & Prospects

Defence manufacturing rules eased

Note4students

Mains Paper 3: Economy | Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the SPG

Mains level: Indigenization of defence manufacturing


News

Opening up for Private Players

  1. The government issued a notification last week simplifying the process for approval of manufacturing of a range of defence and aerospace equipment and components by private industry.
  2. It is to be done by bringing them under the licensing authority of the Department of Industrial Policy and Promotion (DIPP).

Warships included

  1. Items are listed in three categories — defence aircraft, warships of all kinds, and allied items of defence equipment.
  2. The most significant aspect is that warships of all kinds, surface and sub-surface, have been included in the listing.
  3. The industrial licensing has been terminated for ‘parts and components of the equipment’ which would benefit the small and medium enterprises (SMEs).

Foreign manufacturers

  1. This move is also expected to help foreign Original Equipment Manufacturers (OEM) looking for partnerships with the private sector.
  2. The Defence Ministry has also formulated an ambitious Strategic Partnership (SP) model under the Defence Procurement Procedure (DPP).

Back2Basics

Navigate to this page for more readings on SP Model in defence manufacturing:

Leg-up for private sector participation in defence equipment manufacturing

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