Over four years ago, the Modi government launched the Make in India campaign to lure foreign manufacturing companies. What has it achieved?
Atypical economy
The Indian economy has developed atypically over the past thirty years. Usually, countries develop agriculture first, then manufacturing and then services, but India is taking the opposite route. From the moment India opened its economy to the outside world in 1991, the country grew into a hotspot for software development and business process outsourcing. In other words, services. Meanwhile, Indian agriculture and manufacturing lagged far behind. In the financial year 2013-14, the Indian manufacturing industry even showed negative growth.
Attractive manufacturing country
Sufficient reason for the Indian Prime Minister to launch a large-scale Make in India campaign in 2014 with the aim of transforming India into an attractive manufacturing country. By eliminating unnecessary laws and regulations and all kinds of incentives, India wants to attract international companies to manufacture in India. The aim is to create employment, especially for unskilled Indians. "I want to tell the people of the whole world: Come, make in India," Prime Minister Modi said during his Independence Speech on 15 August 2014. "Come and manufacture in India. Go and sell in any country of the world, but manufacture here. We have skill, talent, discipline and the desire to do something. We want to give the world an opportunity to come make in India."
Why manufacture in India
Apart from the reforms and incentives discussed in more detail below, Indian ministers and officials never miss an opportunity to stress how interesting it is to produce in India. They point, of course, to the abundance of labour which, even compared to China, is cheap. India's young labour force - the average age is 27.6 years - which is relatively well educated and speaks English, is also an important argument for attracting foreign manufacturing companies to India. Finally, unlike China, India is known for its high-quality production.
Relaxed FDI legislation
The Make in India campaign covers as many as 25 sectors: automotive, aerospace, chemicals, IT & Business process management (BPM), pharmaceuticals, construction, defence manufacturing, electrical machinery, food processing, textiles and garments, ports, leather, media and entertainment, wellness, mining, tourism, railways, automotive components, renewable energy, biotechnology, space, thermal power, roads and highways and electronic systems. So pretty much everything. Foreign investors who want to invest in any of the above sectors no longer need permission from the Reserve Bank of India and/or the Indian government. This is known as the automatic route for FDI, as opposed to the approval route, for which specific permission has to be obtained. The automatic route, of course, saves companies a lot of time and bureaucratic hassle.
Wide-ranging reforms
Apart from the relaxed FDI legislation, the Indian government has implemented numerous other reforms to attract foreign manufacturing companies to India, such as eliminating the minimum capital requirement for start-ups, introducing online portals (like eBiz, Sharam Suvidha), shorter and digital procedures for starting a business and introducing e-visas. In addition, several laws have been passed in recent years that benefit almost all sectors. The Goods & Services Tax Bill and the Direct Taxes Code Bill, for example, lead to greater transparency and uniformity for foreign investors. But the most important law in this regard is the Land Acquisition Bill which promotes the twin goals of social justice and industrial development.
Incentives
The Indian government not only makes it easier to produce in India, but also cheaper. Here are some of the incentives:
Sector-specific incentives: To encourage electronics manufacturing in India, the central government offers a subsidy of up to 25% for a period of 10 years.
The government provides an additional 15 per cent depreciation allowance for manufacturing companies that invest more than 1 billion rupees (nearly $15 million) in factories and machinery.
There are various incentives under the Income Tax Act, including, for example, deductions equal to 30% of additional wages paid to new regular employee employed by a company with more than 50 employees.
Export Incentives: Under the foreign trade policy, exports have been provided with various incentives such as duty drawback, tax waiver schemes on inputs used in the export product, etc.
Incentives at the state level: Each state offers specific incentives for industrial projects. Some of the states also have separate policies for different sectors and special incentive packages for mega-projects.
Results
The relaxation of FDI rules saw India receive over USD 150 billion in FDI (Foreign Direct Investment) between April 2014 and February 2018. According to a report by the investment bank UBS, this will increase to USD 75 billion a year over the next five years, some of which is investment in the Indian services sector, such as the merger of Vodafone and the Indian telecom provider Idea and the high-profile multi-billion dollar takeover of e-commerce platform Flipkart by the US company Wallmart. In addition, Ikea and Apple, among others, knocked at the door to start manufacturing in India. In the long-awaited first Indian Ikea that opened in Hyderabad in August, 20% of the assortment is made in India. Ikea will steadily increase local production to 50% over the next few years. Apple wants to produce their new iPhones in India, but then sales in India will have to take off.
Production hubs
The following production hubs have attracted large foreign companies in recent years:
Greater Noida (Uttar Pradesh)
India's top auto manufacturing hub. Its location and connectivity, on the outskirts of the capital New Delhi, has attracted major international companies such as Yamaha, Honda Siel Cars and LG Electronics India.
Nashik (Maharashtra)
Located about three hours drive northeast of Mumbai, has electrical and automobile component industries. This location is well connected with two roads and runways, but does not have an airport.
Manesar (Haryana)
About an hour's drive south-west of New Delhi. Manesar is a favourite auto parts manufacturing centre. It is well connected by roads and railways. Infrastructure reform is underway to increase production capacity.
Hospet (Bangalore)
Located in southern India about five hours drive north from Bangalore. Hospet is an important centre for the production of steel and iron. The city has recently attracted huge investments that will undoubtedly increase its production capacity.
Aurangabad (Maharashtra)
Located about six hours drive east from Mumbai is the manufacturing hub for major pharmaceutical companies.