Many man­u­fac­tur­ing sec­tors are still works in progress. And with ‘Make in In­dia’ yet to take off, it’s not clear where the break­through will come from


WHEN PM NAREN­DRA MODI as­sumed power in May 2014, man­u­fac­tur­ing was stut­ter­ing at around 14 per cent of the GDP, driven by dif­fi­cul­ties in the set­ting up of new fac­to­ries be­cause of tough land ac­qui­si­tion norms, ar­chaic labour laws, cheap im­ports from China that blunted do­mes­tic pro­duc­tion and the as­so­ci­ated prob­lems with in­ad­e­quate in­fra­struc­ture.

Three years into his five-year term, does the PM have much to show in turn­ing around man­u­fac­tur­ing, the sec­ond largest em­ployer in the coun­try after agri­cul­ture? One of his pet projects to re­vive man­u­fac­tur­ing has been the ‘Make in In­dia’ cam­paign, launched in Septem­ber 2014. The aim was to im­prove In­dia’s rank­ings in the ease of do­ing busi­ness ma­trix, and at­tract a tidal wave of in­vest­ment from over­seas. In Novem­ber 2015, the gov­ern­ment re­laxed for­eign in­vest­ment rules in 15 sec­tors such as civil aviation, bank­ing, de­fence, re­tail and news broad­cast­ing to fa­cil­i­tate this.

But all through the pe­riod till De­cem­ber 2015, the pain in In­dian man­u­fac­tur­ing con­tin­ued, while the ease of do­ing busi­ness in­di­ca­tors barely moved. A few man­u­fac­tur­ing firms closed down on fall­ing com­mod­ity prices, un­cer­tainty in a de­mand re­vival, or as part of gen­eral con­sol­i­da­tion of op­er­a­tions. The coun­try still ranked a low 130th in the World Bank’s ease of do­ing busi­ness rank­ings in Oc­to­ber 2016. Ear­lier, in a bid to counter the neg­a­tive pub­lic­ity, the gov­ern­ment held a Make in In­dia Week in Fe­bru­ary 2016, which at­tracted 8,000 busi­ness del­e­gates from 22 coun­tries across 11 in­dus­trial sec­tors. Seven­teen states show­cased their man­u­fac­tur­ing prow­ess at the event, which was also ex­pected to wit­ness 2,500 bi­lat­eral meet­ings.

The gov­ern­ment claims the Make in In­dia jam­boree worked, with In­dia get­ting a de­cent chunk of global in­vest­ments. It says since the launch of the ‘Make in In­dia’ cam­paign in 2014, FDI into the coun­try has jumped 60 per cent ($77.86 bil­lion in the Oc­to­ber 2014-Septem­ber 2016 pe­riod). Crit­ics have con­tested this by point­ing to fewer projects on the ground that could have cre­ated more jobs—In­dia’s un­em­ploy­ment rate rose to 5 per cent in 2015-16, a five-year high.

De­mon­eti­sa­tion, which sucked out Rs 15.4 lakh crore of cur­rency from the sys­tem in Novem­ber 2016, se­verely set back the man­u­fac­tur­ing sec­tor. The au­to­mo­biles sec­tor was a case in point, with monthly sales dip­ping 19 per cent the next month, in De­cem­ber, the big­gest monthly fall in 16 years, as buy­ers de­layed pur­chases. Sales of FMCG prod­ucts too fell 40-50 per cent on the cash squeeze. The in­for­mal sec­tor, which com­prises over 80 per cent of the econ­omy, was the

worst hit. Hun­dreds of small units downed their shut­ters, leav­ing thou­sands job­less.

De­spite this, the econ­omy seems to have made a quick come­back, as has man­u­fac­tur­ing. GDP for the third quar­ter of 2016-17 stood at 7 per cent, while over­all growth for the year is es­ti­mated at 7.1 per cent. Al­though the data has left many won­der­ing whether it cap­tured the full im­pact of de­mon­eti­sa­tion, auto sales num­bers re­leased sub­se­quently have been re­as­sur­ing. Pas­sen­ger ve­hi­cle sales in 2016-17 crossed three mil­lion for the first time ever, mostly on high de­mand for SUVs.

In­dus­trial pro­duc­tion is show­ing some re­cov­ery, al­beit un­der a new method of cal­cu­la­tion. The In­dex of In­dus­trial Pro­duc­tion (IIP) rose 5 per cent in the fi­nan­cial year and 2.7 per cent in March, after the Cen­tral Sta­tis­tics Of­fice re­sorted to a new se­ries—cal­cu­lat­ing th­ese num­bers with a 2011-12 base year, as has been done with the GDP num­bers ear­lier. How­ever, un­der the old se­ries with a 2004-05 base year, IIP rose by a mere 0.7 per cent in the full year and 2.5 per cent in March.

With pri­vate in­vest­ment strug­gling, the gov­ern­ment be­gan to fo­cus on pub­lic ex­pen­di­ture on a host of ar­eas in­clud­ing in­fra­struc­ture, with a tar­get to achieve 8 per cent growth. While pri­vate in­vest­ment moved into the neg­a­tive zone in mid-2016, pub­lic in­vest­ment has been on the rise, up by 21 per cent year-on-year in 2016.

IN THE MEAN­TIME, there have been a few big ticket in­vest­ments an­nounced in man­u­fac­tur­ing, but in­ter­est­ingly, th­ese are from MNCs. The lat­est to do so is Kia Mo­tors, an arm of South Korea’s Hyundai, which said in April that it would build a $1 bil­lion plant in Andhra Pradesh. Chi­nese hand­set mak­ers, such as Xiaomi and LeEco, have set up fac­to­ries in In­dia, while Ap­ple has also said it will as­sem­ble phones in In­dia.

A strong ru­pee has been of con­cern to man­u­fac­tur­erex­porters. Over the past few months, the ru­pee has been ris­ing against the dol­lar (at the time of go­ing to press on May 17, it stood at 64.17 to a dol­lar). Since the start of the cal­en­dar year, the ru­pee has gained 6 per cent against the dol­lar on strong for­eign fund in­flows and a weaker dol­lar.

Many of the sec­tors within man­u­fac­tur­ing are still works in progress. There is a lot of onus on the states too, to im­ple­ment mea­sures to at­tract more in­vest­ment. With ‘Make in In­dia’ fail­ing to take off as ex­pected, the big ques­tion is what magic the gov­ern­ment will spin in the last two years of its ten­ure to re­vive this cru­cial sec­tor.

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