UNFINISHED BUSINESS

The Modi government made a good start to boost manufacturing with the Make in India campaign, but it hasn’t been able to build momentum

When Prime Minister Narendra Modi identified India’s manufacturing sector for a special thrust with the ‘Make in India’ campaign, the motive was twofold: one was to pull the sector out of stagnating growth and increase its share in the national GDP from 17 per cent to a more aggressive 25 per cent by 2022, and the other to tap the sector’s potential to help the government deliver on its promise of providing 10 million jobs every year. Sadly, the government has failed on both counts, though it may find consolation in the fact that its efforts have improved India’s standing in the World Bank’s 2018 ease of doing business rankings, which placed India at No. 100 among 190 countries. Its move to allow FDI in various manufacturing sectors has also potentially aided technology transfer to Indian firms.

But what went wrong with Make in India? Well, for one, the timing wasn’t right. India was experimenting with a big manufacturing push on the lines of China, where the sector contributed 40 per cent of that nation’s GDP by 2015. But China achieved this through a huge export push. Make in India was launched at a time when exports, hit by a global slowdown, were only mildly recovering. Moreover, weak domestic demand and declining competitiveness of India in the global markets did not help. Both components of domestic demand—house hold consumption spending and investment spending—slowed in the four years through fiscal 2018 compared with the preceding fiveyear period. A Crisil report says most of the slowdown post2015 was seen after demonetisation. “The cash crunch reduced private consumption growth. Within private consumption, rural consumption was particularly hit as farm realisations wilted...,” it says. The fall in private consumption also reduced fresh investments in industry.

Meanwhile, merchandise export growth fell 3.7 per cent every year on an average in the four years beginning fiscal 2015. The drop came despite an improvement in world GDP growth and export volume growth in this period. In value terms, the fall in India’s merchandise goods was sharper, with average growth between fiscals 2015 and 2018 at 0.2 per cent compared with 14 per cent between 2010 and 2014. Apart from demonetisation, the manufacturing sector was also hit by the transition to the Goods and Services Tax (GST). IIP (Index of Industrial Production) hit its lowest point in the first quarter of fiscal 2018, just before GST implementation, as uncertainty regarding the changes in tax rates led to destocking of inventories. Despite the slowdown in private consumption in this period, imports rose sharply. This suggests that domestic manufacturing couldn’t cater to the domestic demand. Post GST implementation, too, glitches such as delay in input tax refunds hurt small manufacturers and exporters.