Despite the huge upbeat around the Make in India campaign the initiative has failed to deliver in the last 5 years since its launch. Examine
The Make in India campaign was launched by the government to strengthen the industrial sector and to attract foreign investments. It had challenging objectives like increasing the share of the manufacturing sector to 25 per cent of GDP and creating 100 million employments by 2022.
Why did the Initiative fail to deliver?
A large fraction of the Indian FDI was neither foreign nor direct but was routed from Mauritius-based shell companies. It has been suspected that most of these investments were Indian black money routed via Mauritius.
The productivity of Indian factories is abysmally low. According to the McKinsey report, “workers in India’s manufacturing sector are almost four and five times less productive, on average, than their counterparts in Thailand and China”.
Why low productivity?
The low productivity was not just because of insufficient skills, but also because the size of the industrial units is too small for attaining economies of scale, investing in modern equipment and developing supply chains.
Why are companies small?
The companies are small partly by choice since the labour regulations are more complicated for plants with more than 100 employees. Government approval is required under the Industrial Disputes Act of 1947 before lying off any employee and the Contract Labour Act of 1970 requires government and employee approval for simple changes in an employee’s job description or duties.
Infrastructure challenges such as power outages, transportation delays are adversely affecting the growth of the manufacturing sector. While average speeds in China are about 100 km per hour, In India, they are about 60 km per hour. Railways in India have saturated while Indian ports have constantly been outperformed by many Asian countries.
Bureaucratic procedures and corruption continue to haunt India and make India less attractive to investors. India ranks 78 out of 180 countries in Transparency International’s Corruption Perception Index. To acquire land to build a plant, for instance, remains difficult.
India is facing another challenge of capital outflow. The net capital outflow has jumped as the rupee has dropped from 54 a dollar in 2013 to more than 70 to a dollar in 2019, at a time when oil is becoming more expensive.