Seven Ways 'Make In India' Is Making A Difference

There is now enough evidence to say that Make In India is reviving Indian manufacturing.

Since the launch of the Make In India Program (MIIP), Indian macroeconomic conditions have remained stable. Inflation has been benign, exchange rates are not much unfavorable and the monetary policy has been on an easing path. Even the current account deficit remains under control despite low exports realization mainly due to fall in crude oil prices. Moreover, there are several initiatives and measures taken to focus on manufacturing in the past one year. We need to look at these initiatives and discuss their working mechanism for helping the manufacturing sector.

The Make in India program has many unique features like opening up new sectors for FDI, building industrial infrastructure, simplifying the processes and procedures for ease of doing business etc. But most significant one is the idea of forging a partnership between government and industry through a positive mindset. That is, to act more as a business partner and facilitator than a regulator with private players.

Most of the initiatives and measures are leading to improved industrial infrastructure, investment climate and thereby accelerating growth and domestic demand. This is helping manufacturing directly. Here are seven ways Make In India is making a difference.

First, the government has been busy bring about modification of procedures and regulations for ’ease of doing business’. Rules and procedures have been simplified and a number of products have been taken off licensing requirements.

For example – the number of required documents for export and import have been reduced to three (3) in place of ten earlier; payment of Employees’ State Insurance Scheme (ESIS) and Employees’ Provident Funds (EPF) has been made online with 56 accredited banks; elimination of requirement of ‘no objection certificate (NOC)/consent from Sates’ pollution control boards to establish new electricity connection; simpler process for allotment of PAN and TAN cards; extension of validity period of industrial licenses up to 7 years; and inclusion of corporate identity number (CIN) as a proof of identity.

The process of applying for environment and forest clearances has been made online. Also, the green clearance has been made easier now. With the launch of a new e-Nivesh web portal investors can now apply for some 80 government permits online.

Second, MIIP has pushed for effective coordination between central government bureaucracy and state level structures alike for faster project execution. The Department of Industrial Promotion and Policy (DIPP) of Ministry of Industry and Commerce (MoIC) shared a 98 point action plan with all state governments.

These are broadly regarding setting up businesses, land and building issues (like availability of land, registration of property and construction permits), environment compliances, labour compliances, infrastructure related issues (for utilities, getting electricity), finance and tax, inspection reforms, enforcing contracts, and exit from defunct business.

Under this initiative, an assessment framework has been established to rank states on the basis of Ease of Regulatory Requirement (ERR). This is bringing about a “competitive federalism” approach to business reform by states.

Third, new sectors have been opened up for foreign direct investment (FDI) after the launch of MIIP. The government has raised FDI cap from 26 per cent to 49 per cent in defence manufacturing and 100% FDI is now allowed in defence sector for modern and state of the art technology on a case to case basis.

Fourth, industrial corridors, manufacturing cities and industrial clusters are being developed as an integrated approach under MIIP. These would help upgrade industrial infrastructure in the country. A new ‘National Industrial Corridor Development Authority (NICDA)’ has been created to coordinate, integrate, monitor and supervise development of all industrial corridors (ICs).

Fifth, MIIP is putting great emphasis on innovation. Apart from funding of research projects, the government has taken several measures to ensure improvement of the Indian Intellectual Property Rights (IPR) and a new IPR policy is on the anvil.

Some measures under MIIP are working to reinforce IPR to encourage stronger collaboration between foreign and domestic companies, promote partnerships between public and private companies and ensure that business confidentiality and trade secrets are adequately protected.

Sixth, this program is headed by Prime Minister Modi himself and he has a continuous dialogue and engagement with India’s diaspora abroad to support it. This is helping to build trusted contacts, networks, experience, standards, technology, capital etc. which are crucial for developing better manufacturing eco system in India.

Seventh, Investor Facilitation Cells (IFC) are being set-up wherever possible. Many international desks like Japan Plus, South Korea Plus, specific desks for Singapore, Taiwan etc. have been established for facilitating investment from these countries.

Impact

All the above ‘Make in India’ initiatives are providing necessary impetus for manufacturing. The number of Industrial Entrepreneur Memorandums (IEM) filed since October 2014 to June 2015 was 1387, indicating a proposed investment of ₹2,05,752 crore. This is an increase of 16.8 per cent in proposed investment when compared to the corresponding period of 2013-14.

There are indications of a pick-up in investments in the manufacturing sector. The growth in the production of basic, capital and durable consumer goods has been better at over 5 per cent in each segments compared to negative or low at 2 per cent in previous years. Thus, manufacturing growth is improving slowly despite low exports realization.

FDI inflows in manufacturing

In 2014-15, FDI inflows into India have increased by 23 percent at a time when FDI inflows across the world have fallen by 16 per cent. The FDI inflow has further increased by 31 per cent in first quarter of current fiscal year 2015-16 over the same period of previous year. More investments are pouring into manufacturing to diversify into electronics and capital-intensive sector like automobile. These two sectors have relegated services and trading from first and second slots to 3^rd and 4^th respectively in the ranking of sectoral FDI inflow in India.

Challenges Ahead

The positive trends in FDI inflows in Indian manufacturing is continuing while it is decreasing globally. The positive momentum needs to be further strengthened by having a stable tax regime. Emerging markets’ best practices in terms of transfer pricing, mergers & acquisitions and lower corporate taxes along with reformed indirect taxation through GST and direct tax code would also help sustain the momentum.

India has also the highest interest rates and power costs compared to its Asian competitors. The government will have to facilitate for the input factors at competitive rates in line with other global manufacturing hubs or nations. For example- If the central government is not able to carry out requisite land and labour reforms through legislatures to bring down input costs, then willing states need to be incentivized.

*Ajay Kumar (ajaydse@gmail.com) is senior research associate at the Centre for Policy Research (CPR), New Delhi.