Why did Make in India drive fail?

The Make in India campaign was launched by the Indian government in 2014 with the aim of promoting manufacturing in India and attracting foreign investment. The campaign aimed to boost the manufacturing sector's growth rate to 12-14 per cent per annum, increase its contribution to GDP to 25 per cent by 2025, and create 100 million additional manufacturing jobs in the economy by 2025.

It has also lost its position as a destination for portfolio capital. As a result of a net outflow in recent times, the rupee has come under severe strain. Modi had promised to "bring the pride back" to the Indian rupee. Instead, the currency is now valued at its lowest ever in Indian history. It was designed to increase FDI and it was designed to make India attractive to foreign investors. Did it create enough jobs? That was clear right from the start. There was simply no way that FDI could create millions of jobs every year in India. And, it did not. There are many reasons for it, but the main reason is that while Indian labor is cheap, it's not productive enough dues to many constraints. Plus, the Union government's support for foreigners coming in is somewhat reluctant. So, the Union government now wants Assemble in India. That too will have limited impact.

Four broad contributors to policy failure can be identified: overly optimistic expectations, implementation in dispersed governance, inadequate collaborative policymaking, and the vagaries of the political cycle. To expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government. The initiative brought in too many sectors into its fold and Bringing in too many sectors under its fold led to a loss of policy focus. Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy. Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.

As the policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.

Progress on the investment front

The last five years witnessed slow growth of investment in the economy. This is more so when we consider capital investments in the manufacturing sector. The decline in gross fixed capital formation of the private sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19). Household savings have declined, while the private corporate sector's savings have increased. This is a scenario where the private sector's savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.

Progress on output growth front

Double-digit growth only in two quarters: The monthly index of industrial production (IIP) pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019. The data show that for a majority of the months, it was 3% or below and even negative for some months.

The negative growth implies a contraction of the sector. The employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market.

The initiative had two major lacunae:

Too much reliance on foreign capital: The bulk of these schemes relied too much on foreign capital for investments and global markets for produce. This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.

Lack of implementation: The policy implementers need to take into account the implications of implementation deficit in their decisions. The result of such a policy oversight is evident in a large number of stalled projects in India. The spate of policy announcements without having the preparedness to implement them is 'policy casualness'. 'Make in India' has been plagued by a large number of under-prepared initiatives.

The manufacturing sector covers a vast area, comprising 42 sub-categories, from agricultural machinery to aircraft engine and parts manufacturing, metals and engineering products and others such as chemicals, cements, ceramics, construction equipment, electronics, and glass making, and home appliances, white and brown goods. India manufactures them all. Factory production has a long history in the country. The Make-in-India push was aimed at encouraging the manufacturing industry to exploit its true potential.

However, the campaign failed to achieve its objectives due to several reasons. One of the primary reasons is the overly optimistic expectations of the government, implementation in dispersed governance, inadequate collaborative policymaking, and the vagaries of the political cycle. Bringing in too many sectors under its fold led to a loss of policy focus. Further, the initiative was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy. Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.

Another major reason for the failure of the Make in India campaign was the lack of implementation. The policy implementers need to take into account the implications of implementation deficit in their decisions. The result of such a policy oversight is evident in a large number of stalled projects in India. The spate of policy announcements without having the preparedness to implement them is 'policy casualness'. 'Make in India' has been plagued by a large number of under-prepared initiatives.

Moreover, the bulk of these schemes relied too much on foreign capital for investments and global markets for produce. This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.

Lastly, Indian labor is cheap, but not productive enough due to many constraints. Plus, the Union government's support for foreigners coming in is somewhat reluctant. As a result, the manufacturing sector could not create enough jobs. Overall, the Make in India campaign failed to create an international niche market as promised and lost its position as a destination for portfolio capital. The policy was overly optimistic and lacked proper implementation, resulting in limited impact and failure to achieve its objectives.

(Writer is President, Praja Science Vedika)