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Indian Economy

Make in India, why did it fail

Modi

In his first speech to the Parliament after his resounding victory, and in the run up to the budget to be presented on 5th July, the Prime Minister spoke about a few sectors of the economy that need focus. About manufacturing and his flagship ‘make in India’ program, he said that a ‘lot of fun has been made of make in India. But can someone deny that there should be make in India, in this country? We have 250 years of experience in making weapons. When it became independent, India had 18 ordnance factories. China had zero, no experience, no factories. Today China exports arms and ammunition all over the world and we are the world’s biggest importer. We have to bring our country out of this.’

The Prime Minister is right when he says that a lot of fun has been made of ‘make in India’ and that we cannot deny that it should be there in India. Before we analyse the reasons for this, let us recapitulate what this pet flagship programme of Mr. Modi is all about. Make In India is a kind of swadeshi movement, that seeks to make India into a global manufacturing hub. It was launched in September 2014, in the early days of the Modi 1.0 regime and seeks to focus on 25 sectors of the economy. Its object is to encourage domestic and foreign companies to manufacture their products in India, with dedicated investments in manufacturing. The sectors of focus included automobiles, auto components, aviation, biotech, chemicals, construction, defence manufacturing and exports, electronics, food processing, ports/shipping, railway tourism,  etc.

It was a most appropriate flagship program, because if it had succeeded it would have taken the Indian economy into a much higher orbit. It would have resulted in a surge in fresh investments, rapid build up of jobs, improvement of our skill base, increase in exports, a faster growth of our GDP, much increased collection of taxes, a faster build up of infrastructure, increase in household income and consumer spending, a significant improvement in government finances, and a much better integration and elevation of India into the global economy. All these would have been the natural benefits to the Indian economy and its society, if this flagship initiative of Mr.Modi had taken off successfully. Apart from being the back office of the world, India would have also become the factory of the world, which is anyway fed up with China and is seeking alternate manufacturing hubs.

But this program which was announced with much fanfare in September 2014, did not really take off, every state government formulated its own version of the ‘make in India’ program,  to attract investments and many a large corporates announced large investments in new manufacturing projects that never did take off. The reason was that this announcement remained a paper initiative of the Modi government and was never really implemented the way it ought to have been. It failed because it was yet another loud promise with poor execution, with a yawning gap between the promise and the performance. What happened was that no suitable ecosystem was created at the ground level, such as to make an investor feel confident about the safety and profitability of his investment. With a poor investing and operating environment, confidence was missing and no new projects took off as were promised.

What happened after September 2014, actually crushed the MSME sector and decimated consumer demand. Industries suffered due to many reasons, which included the terror angel tax on start ups, complicated GST, huge increase in compliance costs under various laws, cash flows, stuck in delayed IT and GST refunds, unwillingness of banks to give loans, untamed corruption, an insensitive bureaucracy and red tapism, demonetisation, unresolved NPA crisis, stalled reforms, etc. It led to the failure of this flagship program of the Modi government, as is reflected in falling GDP growth, factory closures, dip in corporate profits and tax collections, rising unemployment, languishing investments, erosion in consumer and investor confidence, falling industrial growth, unmoving exports etc. and while our manufacturing base did not take off, that of countries like Vietnam, Bangladesh, Korea, Indonesia etc. did. The PM is right, when he says that we have to bring our country out of this, but that needs ground level action by the government, which has been missing.

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