Back to the drawing board
Despite the ambitious ‘Make in India’ initiative, India faces many roadblocks on its way to fulfilling its potential as a global manufacturing hub
India's economic growth target faces a new challenge. The manufacturing sector is not growing. There is no new large investment in manufacturing in recent years. Nor there are signs of new initiatives from the existing companies and business houses to expand manufacturing activities. Even foreign direct investments (FDI) in this vital sector have slowed down. Lately, affected by the challenging business scenario, Honda Cars, India's fifth-largest passenger vehicle manufacturer, had shut down its manufacturing unit at Greater Noida in Uttar Pradesh. The Prime Minister's favourite 'Make in India' programme does not seem to be working.
The current year's negative economic growth due to the COVID-19 pandemic has further choked the manufacturing sector. When the project was launched by the Prime Minister in September 2014, the share of manufacturing in India's gross domestic product (GDP) was as little as 15 per cent. Five years later, in 2019, its share in the country's GDP dropped further to 14 per cent, as per the government's economic review. Clearly, the 'Make in India' programme has failed to achieve its desired objective
In the website — pmindia.gov.in — it was explained that "since years, policy-makers have been debating how to give an impetus to manufacturing in India and make India a Global Manufacturing Hub. But it is Narendra Modi, who within a matter of months, launched the 'Make in India' campaign to facilitate investment, foster innovation, enhance skill development, protect intellectual property & build best in class manufacturing infrastructure." Paradoxically, the campaign seems to have failed to generate interest among investors, local or global.
Indian business houses simply don't have enough surplus funds and access to new manufacturing technologies to drive the growth in this field. Most of them are fighting to retain their local market in the face of foreign competition. Bolstered by FDI, the automobile industry, a major driver of the manufacturing sector, showed a very impressive growth between 1995 and 2015. However, it now seems to be struggling to weather stagnation and poor sales. The automobile industry attracted USD 24.21 billion in FDI over the last two decades
Of the country's top 10 passenger vehicles (PV) manufacturers, as many as eight are foreign companies. They are Maruti Suzuki, Hyundai, Honda, Toyota Kirloskar, Renault, Nissan, Ford Motors and Volkswagen India. The only two Indian companies in this grouping are Mahindra & Mahindra and Tata Motors. In FY19, Maruti Suzuki's passenger car market share was 51.3 per cent and that of Hyundai's 17.6 per cent as against Mahindra's share of 6.5 per cent and Tata Motors' 4.8 per cent.
The manufacturing sector covers a vast area, comprising 42 sub-categories, from agricultural machinery to aircraft engine and parts manufacturing, metals and engineering products and others such as chemicals, cements, ceramics, construction equipment, electronics, glass making, home appliances, white and brown goods. India manufactures them all. Factory production has a long history in the country. Yet, the sector is performing well below its potential. The Make-in-India push was aimed at encouraging the manufacturing industry to exploit its true potential.
Unfortunately, the massive spread of the services sector ignited by factors such as low-risk, quick return on investment, easier entry and exit routes and flexible employment rules seems to have come in the way of the growth of the manufacturing sector. The services sector has become a key driver of India's economic growth, contributing nearly 55.40 per cent to India's Gross Value Added (GVA) at FY20 prices. Nearly, 60 per cent of India's GDP is said to be driven by domestic private consumption. The import-led country's consumer market is the world's sixth-largest. India ranked as the world's ninth-largest importer with the total value of merchandise import of USD 479 billion in 2019.
The country's nearly unbridled imports regime has, in a way, impacted the growth of the domestic manufacturing sector. Despite several positive attractions, India failed to become a global manufacturing hub of any consequence. The Make-in-India programme listed three major objectives. They are: to ensure the manufacturing sector's growth rate to 12-14 per cent per annum; raise the sector's contribution to GDP to 25 per cent by 2025; and create 100 million additional manufacturing jobs in the economy by 2025. Going by the current trend, these goals now look pretty lofty.
Entrepreneurs in manufacturing need a different mindset. They should see them as long term players, always ready to excel and become a competitive force to reckon with. Despite the local and global competition, several Indian manufacturing companies have grown over the years to become giant enterprises. Some of them certainly deserve a mention. They include UPL Limited, UltraTech Cement, MothersonSumi Systems, Larsen & Toubro, JSW Steel, Grasim Industries, Maruti Suzuki, Mahindra & Mahindra, Hindalco Industries, Tata Steel and Tata Motors. UPL, manufacturing agrochemicals, is the world's fifth-largest in its field with presence in 130 countries
UltraTech Cement is present in the UAE, Bahrain, Bangladesh and Sri Lanka. Motherson, a joint partnership firm with Japan's Sumitomo Wiring system, is a leading player in the automotive industry. Tata Steel, India's largest steelmaker, is also the second-largest in Europe. L&T was ranked among the world's best employers for 2018. The list, based on Forbes' Global 2000 rankings of publicly traded companies in 60 countries, placed L&T at No. 22, making it the highest-ranked Indian firm across all sectors. India needs many such companies.
Interestingly, the manufacturing sector in several Asian economies is expanding at a pace faster than India's. The share of manufacturing in China's GDP is 29 per cent. China's economy is almost five times larger than India's. Other Asian countries having a larger share of manufacturing in GDP than India's include South Korea (25.38 per cent), Japan (20.75 per cent), Thailand (27 per cent), Vietnam (16 per cent), Indonesia and the Philippines (19 per cent), Singapore (20 per cent) and Malaysia (21 per cent). It may be high time for the government to thoroughly review its industrial policy and take measures to ensure that India does not miss its revised target to raise the manufacturing industry's share in its GDP to 25 per cent by 2025.
Views expressed are personal