Despite its ambitious targets, NDA’s ‘Make in India’ has failed to improve investment, employment, and exports in India’s manufacturing sector
One area where this government has fared relatively better has been in attracting foreign direct investment (FDI) to the country
When the Bharatiya Janata Party (BJP) swept into power in 2014, one of its first acts was to launch the ‘Make in India’ initiative with the ambitious vow of converting India into a global manufacturing hub. Specifically, the government set targets to increase growth in the manufacturing sector to 12-14% per annum, pull up the share of manufacturing in gross domestic product (GDP) to 25% by 2022 (from 16%) and create 100 million jobs in manufacturing.
Five years on and these targets seem like distant dreams. In the first of a Mint Report Card series analysing the current government’s performance on flagship schemes and initiatives, we examined data on investment, industrial output and manufacturing exports to find that Make in India has done little to deliver on its intended promises.
A central focus of Make in India has been to attract more investment. Yet, data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows that growth in new investment projects has plunged since 2015. The overall value of investment in National Democratic Alliance -II (NDA-II) has been less than both United Progressive Alliance-I (UPA-I) and UPA-II. As a share of investments, manufacturing investments have the same share as they did earlier at less than a third of overall investments.
Data on industrial growth from the Annual Survey of Industries (ASI) shows that there has been a deceleration in industrial growth in the first half of the NDA-II regime (from 2014-15 till 2016-17). In this period, industrial job growth has been anaemic and wage growth has been falling, ASI data shows.
One area where this government has fared relatively better has been in attracting foreign direct investment (FDI) to the country. In 2017, FDI equity inflows reached a peak of ₹2.8 trillion, according to CMIE. However, despite this increase in FDI inflows, FDI in the manufacturing sector remained sluggish under NDA-II (based on a broad classification of sector-wise FDI inflows into manufacturing and non- manufacturing sectors). Under the current regime, FDI in manufacturing constituted 28% of total FDI, significantly below the average level of 44% during UPA-II.
Make in India has also not succeeded in turning around India’s position in global trade. Growth in exports, after a decline in 2015 and 2016, recovered in 2017, but, as a previous Plain Facts column pointed out, the recovery in India’s merchandise exports only reflects a larger trend across South-east Asia. Despite the bump, India’s exports constituted only 1.7% of global manufacturing exports as of 2017, only slightly higher than what it was in 2014 (1.6%).
Among all economies for which World Trade Organization (WTO) provides data, India stood 16th in 2014, and moved up one rank to 15th in 2017. In contrast, China’s share in manufacturing exports saw an exponential rise in the 2000s and the country has remained a manufacturing giant, contributing to 17.48% of world manufacturing exports. Other leading countries in manufacturing exports are Germany (10.4%), US (9.3%) and Japan (5%).
So, despite significant publicity, after four years of its launch, NDA’s flagship manufacturing programme does not seem to have succeeded in making India a major manufacturing hub. Perhaps in recognition of the limited impact of the scheme, the government has merely postponed its target of increasing the share of manufacturing in GDP to 25% by three years (to 2025).
However, given the scheme’s struggles so far, a more appropriate response may have been reviewing and revamping the initiative itself.