Anil Swarup Column: Evaluating the hits and the hype around ‘Make in India’

Anil Swarup

By Anil Swarup–

(Anil Swarup is a former Education Secretary and Coal Secretary in the Government of India. He is also a renowned author. The views expressed in this article are his own)

Amidst India’s modern economic saga, ‘Make in India’ stands as a resplendent thread, weaving progress and aspiration, since its introduction on September 25, 2014 (see picture above), to strengthen India’s economic landscape. However, with the pull-out of Foxconn’s $19 billion semiconductor joint venture with Vedanta last July (Foxconn announced a semiconductor JV with HCL in January 2024) and the latest debates on the program, it is worth examining its impact.

Against the backdrop of India’s 142nd position among 189 countries in the World Bank’s Ease of Doing Business Report (2015), Make in India was introduced to foster a ‘business-friendly’ environment and revolutionize the ease of conducting business.

The program focuses on 27 sectors, and it prioritizes streamlining the business environment with its four main pillars of New Processes, New Infrastructure, New Sectors, and fostering a New Mindset. Through initiatives like the Production Linked Incentive (PLI) Schemes, PM Gati Shakti & National Logistics Policy, The National Industrial Corridor Program, and the Start-up ecosystem, it sought to realize India’s aspiration of becoming self-reliant, enhancing manufacturing capabilities, and bolstering exports.

Evaluating The Objectives

The program had three clear objectives — boost the manufacturing sector’s growth rate to 12-14% annually, create 100 million manufacturing jobs by 2022, and raise the manufacturing sector’s GDP contribution to 25% by 2025 (originally set for 2022).

However, the initiative faltered in achieving these ambitious goals with a growth rate of manufacturing averaged 4.5% from 2014-2021; a drop in the share of manufacturing from 16.3% of GDP in 2014-15 to 14.3% in 2020-21, falling significantly short of the targeted 25% contribution by 2022.

Even before the pandemic, the share stagnated at 15%. Further, manufacturing sector employment in 2020-21 saw a sharp decline, reducing to almost half of what it was five years ago — from 51 million to 27 million, as reported by the Centre for Monitoring Indian Economy (CMIE) and the Centre for Economic Data and Analysis (CEDA).

The report also indicates a concerning trend of a rise in agriculture sector employment, coupled with a decline in manufacturing jobs, which clearly points to disguised unemployment, in the absence of opportunities in the manufacturing sector.

Several Initiatives, Few Achievements

According to the Ministry of Commerce & Industry’s document posted by Press Information Bureau (PIB) on September 24, 2022, the program boasts “path-breaking” reforms in the past eight years. The emphasis lies on increased FDI inflow and improved Ease of Doing Business ranking.

Among the various initiatives, it highlighted the significance of the PLI scheme across 14 manufacturing sectors in strengthening domestic production, developing resilient supply chains and fostering export potential. Additionally, it points out the government’s initiative of a $10 billion incentive scheme to build a semiconductor, display, and design ecosystem in India, National Single Window System (NSWS), a single digital platform for investors for approvals and clearances, and One-District-One-Product (ODOP) to promote indigenous products.

The document also sheds light, among all the government’s initiatives, on the data-set of actual growth achieved in the toys industry, witnessing a remarkable 70% reduction in imports to $110 million. Simultaneously, toy exports recorded a staggering 636% growth in April-August 2022 compared to the same period in 2013.

Despite numerous initiatives, though, India’s trade balance of goods has plunged from negative $140.22 billion to negative $269.87 billion, according to Statista.

Hits Or Hypes

The government touted a big jump in the Ease of Doing Business ranking to 63rd in 2019 from 142nd in 2014 as a success of Make in India. However, the much-sought-after component of success was halted by the World Bank due to data irregularities in 2018 and 2020 reports. Thus, India’s rank among the top 10 economies showing ‘The Most Notable Improvement in the reports released in 2017, 2018, and 2019 cannot be relied upon.

Additionally, in a research paper titled ‘Did Raising Doing Business Scores Boost GDP?’ published in the Journal of Comparative Economics in May 2023, the two authors document that improvement in the Ease of Doing Business rankings was accompanied by a negative impact on the country’s GDP.

Additionally, they also did not find much evidence of a positive effect in the years following the improvement in rankings. This further casts doubt on measuring the success of the program by relying substantially on this ranking.

Second, another much sought-after component of the government’s boasting to showcase the program’s success is the substantial growth of foreign direct investment (FDI) inflow from $45.15 billion in FY 2014-15 to $83.6 billion in FY 2021-22. However, data show otherwise.

According to a report by Indian Ratings and Research (IRR), despite a significant surge in FDI inflow, it remains skewed towards the service sector rather than manufacturing. It highlights that the FDI in the service sector increased to $153.01 billion from April 2014 to March 2022, while FDI in manufacturing only increased to $94.32 billion during the same period.

This indicates that the government’s efforts to attract more investment in manufacturing through Make in India have not fully balanced the inflow towards the manufacturing sector. Additionally, the IRR report also points to a highly clustered nature of FDI distribution, with just four states (Maharashtra, Karnataka, Gujarat, and Delhi) attracting a substantial 83% of the total FDI inflow from October 2019 to March 2022. The remaining states received significantly lower FDI, creating regional inequality and disparities in employment and income across India.

Research also points out the ground realities of the actual number of days it takes to get an operating license or construction permit. A study titled ‘Unmaking Make in India: Weak Governance, Good Deals, and Economic Impact‘, published in Economic and Political Weekly (EPW) in 2020, found that de facto deals, not de jure rules, characterize the business-state relationship in Indian states.

The study finds that some firms receive licenses and permits faster than officially stated, and surprisingly, these quick approvals go to the least productive firms. This further raises concerns about the efficacy of the Make in India program, as weak governance and informal deals seem to affect the institutional environment.

Furthermore, the recent push on indigenous defense equipment manufacturing and making India a net exporter of arms needs to be accessed in the larger context of India’s position globally. Impressively, India’s defense exports have surged 10 times in the last six years, reaching an all-time high of ₹15,918 crore in FY 2022-23, showing significant growth. However, the country’s share in arms exports remains minimal, not ranking among the top 25 countries.

Rather, India stands as the largest importer of defense equipment, accounting for 11% of global arms imports between 2018 and 2022, according to the latest Stockholm International Peace Research Institute’s (SIPRI) report.

What Next?

While some achievements are worth celebrating, the overall impact of the Make in India program fell far short of its ambitious objectives of boosting manufacturing, creating millions of jobs, and increasing the sector’s GDP contribution. To truly harness the potential of Make in India, the government must go beyond mere announcements of initiatives and focus more on robust implementation.

While the introduction of various initiatives under Make in India is commendable, their impact depends heavily on how they are executed at the grassroots level. Further, placing greater emphasis on key performance indicators aligned with the programme’s core objectives will provide a more accurate assessment of its impact. Make in India must transcend from a mere vision to a tangible reality.

(Written in collaboration with Kartikey Singh)

Related posts