Economy Watch – Challenges Before Make in India !!!(Q & A Format – Interview with Nirmala Sitharaman )! and UPSCTREE Summary.

What is Make in India? Is it a scheme, a slogan or a campaign?

It is none of that. It is an initiative. What India has done in last 60 years is confining manufacturing largely to the public sector. I would not say deliberately but as a result of a socialist school of thought that was nurtured by the government of India. Private entrepreneurship was never given encouragement. So, you had a public sector as a major investor and manufacturer, while the big private sector companies, whoever have been there since the British days, they continued. The small enterprise that prevailed all over India was never given its due share.

Second Five-Year Plan, of course, spoke of manufacturing, but that looked at large-scale investment in manufacturing… looking at encouraging entrepreneurship, giving them space to grow in manufacturing did not happen in a concerted way. What was needed as a result is to remove the approach that had almost stifled individual entrepreneurship, remove the role of the government as a regulator, remove the need for constantly asking for certification, inspection, licences. We are saying none of that should happen. You self-certify and if there is minimum requirement, then you do it online.

Do we have an estimate as to how many new companies have actually set up shop in India after Make In India was launched and how many additional jobs have been created?

No, not yet. I don’t think we have even started looking at it from that angle.

What is the idea behind the Make In India celebration?

The momentum was never lost since it was launched. That’s why ease of doing business was possible at the initial stages with the state governments participating with us. Now, more such issues have been identified and those issues have already been shared with the state governments. They are working on it to remove hurdles to make it possible.

Now that more than a year has been completed, we wanted to make sure that everything which is under Make in India is being showcased. Remember, we had identified 25 sectors for focus and have opened up newer areas (for foreign investment) such as railways and some parts of defence, all these will find a place in the Make in India Week where 18 states and more than 65 countries are participating. So, it will be a major event and the scale of it and the way in which we are presenting it will make India proud and show what India is capable of.

With large-scale automation happening in manufacturing, some experts say using manufacturing to create large-scale jobs may be an outdated concept. Do you agree?

Large-scale automation may happen in very large industries which need robotics for precision. But in India, it has not reached that level, which should worry us.

If anything, the government’s focus is on small and medium enterprises and all enterprises that create more jobs than what is scalable for their size and the capital investment they bring in. So, that does not worry me at all. Let automation happen, but it is not happening at the cost of workers.

Experts say India cannot boost its manufacturing without being part of a global value chain. What are the efforts being made towards that direction?

I agree on that aspect and we are working to make sure that linkages as a part of global value chain, which have to be made by Indian manufacturer, is being made. We have opened up a lot of sectors in such a way that the global value chain idea is not lost. Those who are in manufacturing have to see how their focus will have to be for linking with the global value chain. Government can only be a facilitator. We will certainly do that.

Many claim that by focusing excessively on manufacturing, the government may be neglecting the services sector where India has a natural advantage. Do you agree?

In fact, I have just been asked the opposite—that we are over-emphasizing on services and ignoring manufacturing. We recognize that services contribute more than 50% to the Indian economy. We also recognize the fact that the national manufacturing policy wanted to increase the contribution of manufacturing from where it is today to 25% by 2022. So, there has to be focus on product manufacturing both for India and for exports, otherwise we will not be able to meet the target set by the manufacturing policy.

One example often cited is your policy towards the retail sector where many claim the current foreign direct investment (FDI) policy hinders growth of the sector by limiting its potential for job creation. Is there a rethink on the FDI policy in retail?

Retail sector already provides a lot of jobs and that is one of the reasons why in order to understand how that will be affected if you open the windows without even preparing that sector, we took a decision that multi-brand retail should be kept aside from FDI (reforms).

Is there any thought of changing that policy?

At the moment, there is not any. If there is any, I will let you know.

In e-commerce also, the same issue is raised that because the FDI policy is not clear, it fails to create large-scale jobs.

I am not sure it is the case. E-commerce is already happening in the country… we will come out with something on it in terms of defining e-commerce because every state has taken its own approach. But to say that will have an impact on job creation, I don’t believe that is true.

So, we are working on definitional issues, not on FDI issues in e-commerce, because there were some reports suggesting government will allow 100% FDI in marketplace e-commerce?

That’s right. We are talking about definitional issues. I don’t respond to reports.

You recently said India may require to undertake structural reforms like it did in the early 1990s to respond to the Trans-Pacific Partnership (TPP). What are these reforms we would need?

The question about the value chains you raised is a very important thing and a lot of activity needs to happen on that front. Second, you have to beat the rules of origin argument. We will now need to see whether we can establish manufacturing facilities in areas where we have a global recognition in countries which are part of the TPP. So, sectors who otherwise think they may lose out their market because of TPP can now hopefully set up units in such countries and manufacture so that they can gain from the rules of origin restrictions. Third, all said and done, we have to work on standards. Once India’s own standards of goods, some of which have global recognition, are able to match up with markets that are now having their pluriliteral understandings, you can reach out to these markets which are otherwise not covered (by our trade deals). So, standards are very demanding, but necessary work.

You have said at the Partnership Summit in Visakhapatnam that India will renegotiate some of the free trade agreements (FTAs) to address the concerns of the industry. How exactly will you do this, given the complications involved?

Well, I am not going to start renegotiating them now; there is always a time for it. Some of them are negotiated for a certain period and when they come for a negotiation or renewal, that is the time when we have to look at it again. Because the experience of a lot of manufacturers and exporters are reaching us. We will have to see how best they have understood the FTAs or is it that many of our exporters fully not utilizing the provisions which are available under the FTAs. So, it’s a constant exercise of looking at how best we can help the situation. I certainly did say that if at all when an FTA comes for review, we will certainly look at it.

After the Nairobi ministerial meeting of the World Trade Organization (WTO), what will be India’s approach at the WTO?

Post-Nairobi, we will have to see those commitments, reiterations which have been made there are carried forward. We ensured that we just didn’t get a reiteration but also a commitment for a work programme for each of them, whether it is for food security or it is for special safeguard mechanism (SSM). So, our first effort will be to get a work plan out. We will also make sure that many of the other unfinished agenda of the Doha round also start getting traction before the next ministerial happens in two years.

But for us, is the Doha round alive or dead, because there was no consensus on it at Nairobi

There is no consensus means status quo continues.

Editorial

Make in India:-

1. A Major National Initiative.
2. Designed To Facilitate Investment.
3. Foster Innovation.
4. Enhance Skill Development.
5. Protect Intellectual Property.
6. And Build Best-In-Class Manufacturing Infrastructure.

Make in India was launched by Prime Minister against the backdrop of this crisis, and quickly became a rallying cry for India’s innumerable stakeholders and partners. It was a powerful, galvanising call to action to India’s citizens and business leaders, and an invitation to potential partners and investors around the world. But, Make in India is much more than an inspiring slogan. It represents a comprehensive and unprecedented overhaul of out-dated processes and policies. Most importantly, it represents a complete change of the Government’s mindset – a shift from issuing authority to business partner, in keeping with Prime Minister’s tenet of ‘Minimum Government, Maximum Governance’.

The government launched “Make In India” initiative which aims at promoting India as an investment destination and to establish India as a global hub for manufacturing, design and innovation. The initiative aims to provide favorable environment to the business community so that they can devote their resources, efforts and energy in productive work. A number of steps have been taken by the government to improve the ease of doing business in the country. Rules and procedures have been simplified and a number of products have been taken off licensing requirements.

Government has opened up a number of sectors for FDI. The Policy in defence sector has been liberalized and FDI cap has been raised from 26% to 49%.

100% FDI has been allowed in defence sector for modern & state of the art technology on case to case basis. 100% FDI under automatic route has been permitted in construction, operation and maintenance in Rail Infrastructure projects.

Further, liberalization norms for Insurance and Medical Devices has been done. ‘Make in India’ program represents an attitudinal shift in how India relates to investors; not as a permit-issuing authority, but as a true business partner. An Investor Facilitation Cell has been created in ‘Invest India’. A dedicated team of the Investor Facilitation Cell is there to guide and assist first-time investors.

It is time for India to focus on building competitive advantage on global scale in sectors where we have a large domestic market and certain inherent capabilities. Strategy is all about making choices. The top five priority industries are- Defence, electronics hardware, construction, health care and agro-industries.

However, for India to become a manufacturing nation, it has to quickly move beyond rhetoric to create a clear strategy and favourable policy environment for manufacturing to take off. The government has chosen to quietly dismantle the sclerotic National Manufacturing Competitiveness Council (NMCC) but it needs to foster a more vibrant think tank in its place.

A close dialogue and partnership between government and the private sector, both domestic and foreign, is critical. Indian companies along with Chinese, Japanese, German, American and Swedish companies are all vital partners and we must create an environment that is open and welcoming.

In many of   the Indian industries, people insist for manual skill because they apprehend that adoption of advanced technology will result in redundancy of human resource, which is abundantly available in India. As such they resist the change and introduction of new technology.

However, technology driven processes with minimum human intervention will guarantee manufacturing excellence. From technological point of view India is lagging behind the western world, as far as manufacturing is concerned.

Experts say, India is still about a decade behind advanced countries, when it comes to usage of technology and manufacturing excellence. But this situation can be turned to our advantage. The country can learn from the mistakes of the western world and try to adopt the best ever technology in the years to come.

Make in India necessarily involves the drive to boost the manufacturing sector. However, the investors are wary of prevalent labor laws and bureaucratic hassles in India and as such, unless conducive atmosphere is created on these fronts the investments will not come as expected and Make in India drive will not accomplish desired results.

In order to make this initiative a great success, we need to be at par with the advanced world as far as usage of modern technology is concerned and we need to have more clarity, maturity and intensity on quality aspects of our products.

Creating healthy business environment will be possible only when the administrative machinery is efficient. India has been very stringent when it comes to procedural and regulatory clearances. A business-friendly environment will only be created if India can signal easier approval of projects and set up hasstle-free clearance mechanism. India should also be ready to tackle elements that adversely affect competitiveness of manufacturing. To make the country a manufacturing hub the unfavorable factors must be removed. India should also be ready to give tax concessions to companies who come and set up unit in the country. India’s small and medium-sized industries can play a big role in making the country take the next big leap in manufacturing. India should be more focused towards novelty and innovation for these sectors. The government has to chart out plans to give special sops and privileges to these sectors.

India must also encourage high-tech imports, research and development (R&D) to upgrade ‘Make in India’ give edge-to-edge competition to the Chinese counterpart’s campaign. To do so, India has to be better prepared and motivated to do world class R&D. The government must ensure that it provides platform for such research and development.

India is ranked 132nd out of 185 economies in Doing Business 2013 by the World Bank. India’s restrictions on foreign equity ownership are greater than the average of the countries covered by the Investing Across Sectors indicators in the South Asia region and of the BRIC (Brazil, Russian Federation, India, and China) countries.

India imposes restrictions on foreign equity ownership in many sectors, and in particular in the service industries. Sectors such as railway freight transportation and forestry are dominated by public monopolies and are closed to foreign equity participation. With the exception of certain activities specified by law, foreign ownership in the agriculture sector is also not allowed. These restrictions need to be eased for making India better place for doing business.

Infrastructure tops the list of most surveys on doing business in India. In particular, chronic deficiencies in transportation and power impose prohibitive costs and lower business competitiveness.

Multiple enterprise surveys have identified electricity as the biggest constraint. Further, India lags behind on every measure of transport connectivity. Though there have been considerable recent successes spurred by private participation, much needs to be done. However, introduction of UDAY scheme is a good step in this regard.

Sound macroeconomic policies are necessary to create a low-inflation, low-interest rate and high-growth environment that is essential for the country’s global manufacturing competitiveness. Given the huge size and vast diversity of the country, a diagnostic for each state may be a more prudent strategy.

In any case, instead of big-bang reforms, sustained efforts in multiple directions, which cumulatively generate large effects, are required to relax these constraints so that we can realise the goal of making in India.

In Sum Challenges to Make in India can be described in the following heads:-

1. Skill-employment gap
2. Shrinking global economy and negative investor sentiments
3. Even after the big push , the program is yet to show turn around results due to the aforementioned factor
4. Land acquisition problems and environmental impact assessment issues
5. Automation vis-a-vis employment
6. Challenges before small and medium scale industry is unique as they don;t have the competitive advantage to compete in global scale
7. Few industries such as solar manufacturing are at their nascent stage requiring protection and challenges of geopolitics emanating from protectionism.
8. Policy and statutory challenges