2020 could be for manufacturing what 1991 was for our economy5 min read . Updated: 04 Nov 2020, 09:13 AM IST
India’s thrust for self-reliance can be accompanied by policy reforms to turn the country into a global manufacturing hub
India, once a predominantly agrarian economy, has come to be acknowledged globally as a software/ information technology giant. Sector-wise, it has been a quantum leap from agriculture to services. While there have been state interventions aimed at industrialization, ranging from the “temples of modern India" to special economic zones, an Indian manufacturing revolution never really took off in earnest.
Manufacturing, however, must take off now. Every year, an estimated 12-15 million youngsters enter the Indian job market. Our mainly service-oriented economy is structurally incapable of absorbing this massive influx of human resources. The only sector that can, clearly, is manufacturing.
In 2014, when the Bharatiya Janata Party government was voted to power, Prime Minister Narendra Modi was determined to change things. His government launched an ambitious “Make in India" programme in September 2014 that sought to take the share of manufacturing to 25% of the country’s gross domestic product (GDP).
While sectors like smartphone production did get a big boost as a result, there’s a view that more could have been done to encourage domestic manufacturing. In this context, recent covid-induced global supply chain disruptions and international trade wars, both of which had China in focus, have presented us with a unique opportunity. Every other country and large corporation is looking to de-risk its dependence on China and hunting for alternatives. If India plays its cards right and acts now on key policy initiatives, it can emerge as a preferred destination for global supply chains and as a manufacturing hub for the world.
The Modi government has sought to make up for missed opportunities by launching Make in India 2.0. It has tweaked its priorities to make the country a manufacturing hub under the overarching idea of Atmanirbhar Bharat. Even if the idea of a self-reliant India is not entirely new, the renewed thrust on “Vocal for Local" and “Make in India for the world" could see it succeed. The political intent is evident. It’s now for India to seize the moment that history has presented it in the form of an opportunity.
Let’s look at some of the latest initiatives that we have seen in the Make in India story so far. The latest drive focuses on 27 sectors; and 24 sub-sectors, including agro-processing, electronics, steel, textiles and auto parts have been identified with their export potential kept in mind, as also their scope for import substitution and employment generation towards making India a global supplier as part of the Atmanirbhar Bharat vision.
As part of the government’s thrust for local capacity expansion, the Union ministry of defence has earmarked 101 items that will be manufactured and procured domestically.
However, myriad challenges remain. A recent Teamlease report showed how difficult it is to do business in India, notwithstanding the government’s good intentions. The conditions and demands of India are unique, and hence call for a uniquely Indian response. For a diverse, throbbing democracy, an idea like self-reliance may just provide the template needed for a manufacturing boom. The time to act is now. Let me list some priorities that must be met for that to happen.
Political stability and will, in ample supply today, can do with a consensus on the need for economic reforms. It’s good that an empowered group of government secretaries has been constituted to fast-track investments in coordination with the central and state governments. A political consensus on the issue is needed, too.
A major roadblock to faster economic growth, a necessary precondition for generating jobs, spreading prosperity and lifting millions out of poverty, is India’s creaking infrastructure. It is learnt that the Centre has earmarked a massive ₹111 trillion for infrastructure projects in the coming years. However, the government needs to ensure that these projects not only take off, but are also completed in a time-bound manner, so that the much-needed capital infusion for a big infra push does indeed take place and we have modern facilities to support manufacturing initiatives.
Labour and land are two priorities that have been mentioned by Modi too. While we remain committed to labour rights, we need to move ahead on our unfinished agenda of labour reforms, initiated recently by many states. Land banks are also needed for dedicated industrial usage.
We also need to further institutionalize the idea of—and commitment to—the ease of doing business. It is encouraging to see states with a relatively low industry presence doing well in the national rankings on that measure.
In addition, we need to offer more tax holidays to investors. While slashing the corporate tax rate to 15% for new manufacturing companies has been a good idea, more could be done on taxation.
We must also promote industrial townships and parks in a big way, so as to attract transnational corporations that are exiting China and looking for alternatives with similar size and scale.
To make Indian industry globally competitive, the government must ensure raw material security with cheaper power and better logistical support to existing industries. Indian industry cannot become a global manufacturing hub if its key input costs continue to remain high.
Above all, an important indication of success demonstrable to potential investors would be how governments in India, both at the central and state levels, are supporting the investments that are already on the ground in India. If existing investments cannot operate at full capacity utilization and unlock their full potential, then attracting new investments, both domestic and foreign, could turn out to be a Herculean task.
As a country, we may have missed the manufacturing bus in the past. Now, however, it’s an idea whose time has come. Just as the external balance-of-payments crisis of 1991 unshackled the Indian economy, the covid crisis of 2020 could well be remembered for laying the foundation of a manufacturing revolution in India. The will and intent is there for all to see. All we need to do now is act, and act fast.
Naveen Jindal is chairman of Jindal Steel and Power Ltd and chancellor of O.P. Jindal Global University.