Narendra Modi has come to power by promising rapid economic growth that delivers millions of jobs. To achieve this, Modi has devised a ‘Make in India’ policy .
Launched with a blaze of publicity , it seeks to make India a manufacturing giant and attract global investors.
It aims to raise the share of manufacturing in GDP from the current 13 – 14% to 25%. Modi is envious of the rise of China as a manufacturing giant. India has lagged far behind for decades, and he naturally wants India to catch up.
Problem: for all the hoopla and cheering at various Modi meetings and summits, the growth of manufacturing in the July‐September quarter was 0.1%. The growth of fixed investment, the foundation of future production, was virtually zero. Alas, people are not “making in India“, and are not investing to make in the future either. Probably things will improve a bit in the next quarter: early trends suggest that manufacturing growth may go up to 2.5%. But remember that during the much‐derided Nehruvian licence‐permit raj, manufacturing used to grow at 4 – 5% per year! One industrialist who does not want to be quoted asks, “Why will foreigners come to invest here when Indians are not investing?” During his foreign visits, Modi urged global giants to Make in India. They replied politely that they will surely consider this, but such politeness must not be confused with serious intent. A US businessman said during Modi’s US visit, “There’s lots of sizzle, but where’s the steak?” He’s still waiting.
Modi must accept an elementary fact: ‘Make in India’ can only be an outcome, not a policy . If he creates conditions in which all sorts of investment will thrive, the outcome will be a rush to produce in India, by both Indians and foreigners. If the conditions are not conducive, no amount of sloganeering will create a Make in India rush. In such conditions, attempts to force the share of manufacturing up to 25% will fail, exactly as Nehru‐Indira policies failed in the licence‐permit raj. So will additional tax breaks or subsidies for Special Economic Zones.
The government has produced a list of items currently imported, and wants to make them in India. This importsubstitution approach is reminiscent of Nehruvian days.
Modi is implementing the Congress idea of forcing public sector units to procure 20% of their supplies from MSMEs (micro, small and medium enterprises). This is a partial return of the old, failed reservation for small‐scale industries. Quotas, reservations and subsidies do not square with Modi’s promise of “minimum government, maximum governance”.
The Doing Business report of the World Bank and IFC for 2015 places India at just 142nd of 189 countries surveyed in ease of doing business. India used to be 116th of 155 countries a decade earlier.
Has Modi’s coming made a difference? Well, say businessmen, corruption is down a bit and file clearances are faster, but the big picture hasn’t changed much. Land acquisition remains moribund, state‐level clearances are slow even if central clearances are given, labour laws remain unchanged, infrastructure remains a big bottleneck, the electricity sector is bust, banks are reeling under bad debts, and the public‐private partnership model is broken. We have seen modest increases in FDI limits in insurance and defence, and minor reductions in ministerial discretion and inspectors’ powers. These barely touch the fringes of the rules and procedures strangling business.
The Doing Business report ranks India 184th in ease of getting a construction permit, 134th in getting electricity connections, 121st in registering property, 156th in paying taxes, 122nd in ease of foreign trade, 137th in resolving insolvency, and 186th in enforcing contracts. This is pathetic. Modi has shown little or no action on these fronts. Many of these issues fall within the states’ jurisdiction, and Modi has neither the means nor inclination to impose tough reforms on the states.
Modi in his election campaign said the government should not be in business. But he has no plans to privatize anything, not even white elephants like Air India. At the ET Now conclave, energy minister Piyush Goyal said he was proud of Coal India, a company whose productivity is one‐tenth that of the best Australian and American mines.If you cannot see the problem, can you solve it?
Make in India is being confused with Make in Coal India, Make in Air India, Make in MSMEs, Make in SEZs and so on. Even as the BJP castigates Nehru, it is adopting what look like neo‐Nehruvian ideas. Instead, Modi should focus on making business as easy and honest as possible, avoiding artificial props, curbing inflation and fiscal deficits, ensuring a realistic exchange rate, and letting the market decide which sectors should flourish. Investors from everywhere will then rush in to Make in India.