Make In India: Is it a failure?

IASbaba

January 20, 2020

Economy and Governance

General Studies 2:

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

General Studies 3:

Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.  
Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Context:

Impending Union Budget for FY 2020-21 in the background of fears of stagflation in economy and completion of five years of Make in India Scheme

What is Make in India Scheme?

The Make in India initiative was launched by Government in September 2014 to transform India into a global design and manufacturing hub.
It was launched in the backdrop of India’s growth rate falling and rising youth population who were looking for jobs (which can be absorbed in large numbers by manufacturing sector)
It is designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country.
The initiative is based on four pillars:
- New Processes: Ease of doing Business is identified as important factor for promoting investment & entrepreneurship
- New Infrastructure: To develop industrial corridors and smart cities to provide infrastructure based on state-of-the-art technology with modern high-speed communication and integrated logistic arrangements
- New Sectors: Make in India’ has identified 25 sectors in manufacturing, infrastructure and service activities. These include: automobiles, aviation, chemicals, IT & BPM, pharmaceuticals, construction, defence manufacturing, electrical machinery, food processing etc.
- New Mindset: Government will act as facilitator of economic growth (partnering with private sector) and not as regulator.

The targets of the Scheme

To increase the manufacturing sector’s growth rate to 12-14% per annum
To increase the contribution of the manufacturing sector to 25% of the GDP by 2020 from the current 16%
Creation of 100 million additional manufacturing jobs in the economy by 2022

Has the above targets been achieved?

Growth of investment in the economy: Gross fixed capital formation of the private sector, a measure of aggregate investment, declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19). This indicates weak investment by private sector in spite of flexible policies from this scheme
Output growth: Monthly IIP pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
Employment: Unemployment leapt to a four-decade high of 6.1 per cent according to the National Sample Survey Office’s study for 2017-18 that was released in May 2019.

Way forward

Such type of mega projects which have long gestation periods and lag effects the assessments of scheme can be premature.
Resolving Banking Sector Crisis: Twin balance sheet problem and NBFC crisis needs to tackled aggressively so as to boost the credit outtake growth rate.
Boosting Consumer demand: Weak monsoons along with disruption caused by demonetization & hasty implementation of GST lead to falling incomes which impacted the consumer demand. This kick-starts the investment cycle and thus manufacturing growth
Skilling of people: It will ensure that people are equipped with necessary skills and thus reducing the training costs for firms.

Connecting the Dots