CEOSPEAK: 'Make In India' has rekindled investors' interest
Make in India', flagship project of the Government of India has the potential to drive significant investments and make India a global manufacturing hub. The government has been aggressively promoting it with Prime Minister Narendra Modi himself inviting global companies during his international visits. The recent Hannover International Trade Fair, where India was a partner country, also saw a strong statement that clearly communicated government's conviction to make the initiative hugely successful.
As India targets a long term Gross Domestic Product (GDP) growth rate of 8.0% plus, manufacturing sector expansion will be a key component of the growth strategy. In the past several years, the sector's contribution to the GDP has only marginally increased whereas other developing economies have been able to achieve higher share of manufacturing in the GDP. In India too, there is huge potential waiting to be realised with the government targeting 25% contribution by 2022 from the current ~16%.
BMW Group India is part of automotive industry that is a significant contributor to the manufacturing sector in India. We have believed in 'Make in India' philosophy and have been manufacturing since 2007. The state-of-the-art manufacturing facility at Chennai (Tamil Nadu) produces eight different models contributing to more than 95% of our sales in India. Our engagement in India has focused on deeper localisation and continuously exploiting the supplier potential for our global sourcing requirement. We are also proud of our strategic cooperation with TVS Motors to jointly develop and produce motorcycles in the sub 500 cc segments. It strongly leverages BMW's expertise in design, development and TVS' manufacturing strength.
'Make in India' initiative aims at following a structured approach focusing on 25 sectors (automotive, aviation, textiles etc.) to create an enabling environment for facilitating investments. The 360 degree approach of focusing on innovation, skill development and creating best-in-class manufacturing infrastructure makes it a comprehensive initiative. However, translating the vision into reality would need a clearly defined strategy, strong April 30, 2015 execution, favourable policy framework, political commitment and concerted efforts of all stakeholders.
I would focus on three dimensions that impact the market attractiveness for global investments - Policy, Potential, and People.
Policy: Policy formulation and implementation must lead to improvement in ease of doing business. Global investors have a lot of negative sentiments and apprehensions about the policy regime. The government's ambition of breaking into top 50 from the current 142 on the 'Ease of Doing Business' ranking will need concrete, decisive and quick action. Stable, transparent and predictable policy framework is a pre-requisite. The challenges posed by retrospective amendments, retroactive applicability of rules, and suddenly changed policies without sufficient transition period shake the confidence of investors and deeply hurt investment sentiments. Lack of clarity for future planning always results in delayed or deferred investment cycle. There is also need for non-
The government should encourage entrepreneurship and have a targeted approach for small
and medium enterprises that form the backbone of a
adversarial tax regime. We welcome the government's intent to create a positive environment however there are still challenges on the ground. It is high time to bridge the trust deficit between tax authorities and corporate. The corporate needs to be viewed as partners in growth. The government ought to move forward with politically sensitive policy topics like labour, land reforms that are critical for manufacturing sector's growth. Implementation of Goods and Services Tax is expected to significantly spur manufacturing growth.
Potential: This has to be evaluated from two perspectives - a) growth potential resulting in demand creation and b) manufacturing potential. Growth Potential: A lot of studies expect India to rank amongst the world's top three growth economies that will significantly outperform its peers in the medium to long term. This coupled with a sizeable middle class population with increasing disposable income creates a huge potential for domestic consumption led growth. However, taking a cue from the success of other manufacturing economies, this has to be ably supplemented with substantial increase in exports. Therefore it is imperative to secure global market access for products made in India. In this context, economic April 30, 2015 cooperation and free trade agreements with key trade partners will play a crucial role. Learning from excellent example of Mexico in attracting significant investments in the automotive sector leveraging several free trade agreements, we need to view it more as an opportunity than a threat.
Manufacturing Potential: Defines the capability to produce world class products at a competitive price. An enabling infrastructure is a key building block for driving manufacturing competitiveness. There has been considerable progress made in the past however a lot still needs to be achieved. There is an urgent need to develop fully equipped, pre-approved (prior environmental and other clearances) manufacturing zones/ clusters providing world class amenities. This has to be further supported by modern, efficient and high quality ports, railways, road highways and freight corridors. The government's focus on developing strong infrastructure is very positive and we look forward to smooth execution.
The government should also encourage entrepreneurship and have a targeted approach for small and medium enterprises that form the backbone of a vibrant manufacturing ecosystem.
People: The young workforce offers both a challenge and an excellent opportunity. There is a continuous requirement of creating employment opportunities for millions of young people entering into workforce every year. However, this offers a golden opportunity to invest in young and motivated labour force, training and skilling them to be globally competitive thus leveraging the much famed India's "demographic dividend". The current reality is a significant skill gap both in terms of quality and quantity and merits a quick and comprehensive action. National Skills Development Council and Automotive Skills Development Council (Automotive Sector) are steps in right direction. However we will need to accelerate the 'Skill India' drive to support the future manufacturing growth. The success of "Make in India" will also be determined by the productivity and competitiveness of the labour force. We need to have right thrust on education, vocational and technical training making it more industry oriented. The corporate will need to play a bigger role in bridging the skill gap. BMW has been contributing to strengthening the skill development through its world class training centre in Gurgaon. ‘Make in India' campaign has rekindled investor's interest in India. The onus is on India to seize the opportunity and earnestly embark on transformational journey towards manufacturing excellence. A comprehensive approach leveraging synergies across other projects like 'Digital India', 'Skill India', 'Clean India' and 'Smart Cities' will pave way for India rightfully claiming its leadership position in the global manufacturing landscape.
Philipp von Sahr*