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Make-in-India? Pitch perfect, but slow on implementation

It has been one year since Narendra Modi-led NDA government assumed office. dna, in a series of reports starting today, takes a look at the achievements clocked in by this government as well as where all it failed to make a mark

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Twenty-four foot LED screen, an invitation card with QR (quick response) code, a Facebook page, simultaneous telecast in embassies across the world – the Make-in-India launch at Vigyan Bhawan on September 24 last year was unlike what usually goes for a sarkari function. Speaking at the launch, prime minister Narendra Modi called 'Make-in-India' his government's "lion's step", a reference to its logo.

In the eight months since, the PM has pushed the message among businessmen in India and abroad at every opportunity. "I have come to say to you Make-in-India. The 5F formula - from farm to fibre to fabric to fashion to foreign!" he told a delegation of Chinese CEOs on his recent trip to the country. "India is ready to welcome the whole world with open arms," he told the Germans at Hanover Messe in April.

The logic, as the PM has clarified several times, is simple – India needs to rejuvenate its manufacturing sector, which has been in sharp decline over the decades, to transform its economy and hasten the pace of job creation.

But nearly eight months down the line, how far has Modi succeeded?

Going by data from Department of Industrial Policy and Promotion (DIPP), the office under the union commerce ministry that oversees Make-in-India, the number of IEMs (industrial entrepreneurs memorandum) filed dipped from 2,365 in 2013 (calendar year) to 1,801 in 2014.

The value of proposed investments came down from Rs.529,828 crore to Rs.404,339 crore in 2014 – nearly 24% lower. The proposed new employment opportunities that these industrial units promised to generate also saw a significant drop from 10,48,207 in 2013 to 4,43,122 in 2014.

The trends were not encouraging for the first four months of 2015 either – only 452 IEMs with a proposed investment of Rs.87,393. Of these, as many as 202 IEMs with proposed investments of Rs.45,328 crore were filed in the month of April alone.

This is a revealing statistic since IEM is a key document that all businesspersons who want to set up an industrial unit must file with the DIPP. Thus, a drop in IEMs reflects, prima facie, how little Indian industry has been enthused by Make-in-India. This, despite the government considerably easing the process of doing business, by making the filing of industrial licences and IEM online, 24×7, through an eBiz portal, which functions as a single-window portal for getting government clearances.

According to D K Srivastava, chief policy advisor, EY India, Make-in-India does not seem to have had "any signs of tangible take-offs". "Expectations were high when the government came to power and sweeping, broad reforms were expected. But the government seems to be looking at narrow targets. It has deemphasized the services sector, which creates more jobs with lesser investment, and focused on manufacturing where the ratio of investment to jobs is much lower."

Sumit Majundar, president of Confederation of Indian Industry (CII), is not worried. "You can't expect to get results so soon after a policy change. Besides, there is the hangover of the previous regime."
However, foreign direct investment (FDI) – or as the PM said with his characteristic verbal flourish "first develop India" – another important plank of Make-in-India shows some reason for cheer with a significant jump in inflows.

In August 2014, within months of taking charge, the Modi government had allowed 100% FDI through the automatic route in medical devices and railways infrastructure, and eased norms for the construction sector. The FDI cap on insurance was raised to 49% from 26%. In the defence sector, 26% FDI was allowed in the automatic route, 49% subject to government approvals, and beyond with the approval of the CCS (Cabinet Committee on Security).

DIPP figures show that cumulative FDI inflows in last financial year up to February were Rs.175,886 crore, which was 40% more than what it was for the period the year before – the comparison for February 2015, the last month for which figures are available, shows as even more startling jump of 85%, over FDI inflows in February 2014. Among the sectors where the jump in FDI inflow was most significant were automobiles, trading, telecom, pharmaceuticals and non-conventional energy.

Some sectors like construction development and earth moving equipment saw a drop. Defence – a focus area forMake-in-India with Modi reiterating how domestic arms manufacturing was needed to help reduce India's dependence on exports – also saw a drop in FDI from Rs.4.45 crore during 2013-14 to Rs.0.48 crore during last financial year up to February.

May, however, has seen a flurry of activity with the government clearing proposals worth over Rs.14,600 crore.

According to Srivastava, the problem with Make-in-India lies with a basic confusion at its heart. "Is the focus export promotion or import substitution? With the MAT (minimum alternate tax) fiasco and the land acquisition bill held up, the signals are mixed. At the ground level, industries will only invest if they see consumption picking up, and that has not happened. Given the repressed sentiments in the export markets, the companies are already saddled with excess capacity; they will not make fresh investments until their inventories clear. The budget also did not show any promise and the Niti Ayog has not come up with a single vision paper or broad strategy."

SV Sukumar, partner and head strategy and operations practice, KPMG India, is more optimistic. "The government has tried to do some things at the policy level, but it has not had any effect on the ground.

Make-in-India may have made the world look at India with positive eyes but international investments are long-term decisions. The private sector is wary of investing as it has already burnt its fingers – it is only if the government begins investing in infrastructure that the economy will start looking up with the spiralling effect it will have on the commodity and transport sectors."

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