Make in India has fallen far short of expectations
A trending social media hashtag alone will not generate jobs. Only a major boost to the manufacturing sector will
How does one judge Make in India? Recent news that foreign direct investment (FDI) flowing to defence in 2016-17 was an absurd trickle of ₹61,000 (or perhaps $61,000, the Ministry of Defence didn’t specify) seems to have not caused much of a ripple. Nor has the fact that FDI in defence in the past three years has been – this isn’t a typo either – $174,000, notwithstanding several liberalisation announcements.
Defence is just one, albeit telling, sector, with its own peculiarities such as the much-delayed “strategic partners” policy and a single buyer – the Ministry of Defence. But it is an exaggerated version of the story playing out across the Make in India campaign, which promises to generate millions of jobs in India by increasing the share of manufacturing to 25% of gross domestic product (GDP).
India has seen strong FDI flows in the last couple of years, but most of this is going to ridesharing services and e-commerce providers. FDI in manufacturing hit a high of $9.6 billion in 2014-15 (slightly better than the previous 2011-12 record), but actually fell the next year to $8.4 billion. A major pickup in 2016-17 seems unlikely. Despite rising costs in China, India has made little headway into becoming a global manufacturing alternative, particularly at the low end that generates the most jobs. Textiles and clothing jobs from China are moving to Myanmar, Cambodia and Bangladesh, while Vietnam, Thailand and Indonesia are gaining in electronics . India has become a global small-car hub, but this relatively highend segment is not a massive job-creator.
Things are slowly changing. India has a large domestic market to leverage, and the two dedicated freight rail corridors it is now building should contribute to a major reduction in logistics costs in a few years.
There are limits to what a government can do. India’s can’t, and arguably shouldn’t, try to emulate China’s labour suppression that kept manufacturing costs down, which Myanmar, for instance, could. This government isn’t even pushing the smaller measures forcefully enough. The focus on “ease of doing business” reforms is commendable, but only four of 31 states have implemented meaningful labour reform in the last three years. The BJP could certainly prod its 12 other states to follow suit.
And let’s not forget the self-goals. Demonetisation has shredded the informal sector. Large companies in sectors from automobiles to consumer goods have laid off thousands of workers, as have their suppliers. Demonetisation may have delayed the goals of Make in India by months, if not years.
It’s not a bad thing for India’s aspirations to exceed its political grasp, but a trending social media hashtag won’t generate jobs. India has always done its bit of manufacturing, and the test of Make in India lies in whether its GDP share meaningfully rises, not in photo-ops.