MISSING THE MARK

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.