Make in India – Key to Revival of Economy

Make in India campaign was launched by Prime Minister Sh. Narendra Modi on Sep 25, 2014. The key objective of Make in India campaign is to invite businesses not only in India but across the world to invest & manufacture in India. The purpose of Make in India campaign is

(a) Job Creation

(b) Economic Development

(c) Global Recognition

Indian economy is going through bad phase. In past, i wrote an article on Why India is heading towards Recession. Clouds of recession are still looming large. Current euphoria is because of election of Mr Modi and stable Govt in India. Sweeping economic reforms are need of hours to pull back economy from clutches of Recession. It is commendable that in such a short span, Modi Government has identified the reasons why economy is in bad shape. At the same time Govt has taken right steps to bring Indian economy back on track.  Make in India campaign is Right Step in Right Direction. Make in India is recognized globally and has featured in “100 Most Innovative Global Projects”. Make in India initiative aims to correct the composition of Indian GDP which is the root cause of recession. Currently India’s GDP is heavily tilted in favor of service sector.

3 sectors which contribute to GDP of any country are (a) Agriculture (b) Industry / Manufacturing & (c) Services. Current contribution of these sectors in Indian Economy are as follows

( a) Agriculture: 28%

(b) Industry / Manufacturing: 16% (Lowest)

(c) Services:  56% (Highest)

It is clearly visible that our economy is over dependent on Services sector.

Lessons from World Economy

It is not only about Indian Economy but for that matter if you observe that any world economy with over dependence on Services sector are in deep trouble. Contribution of Services sector in GDP of major world economies are as follows

(a) USA: 76%

(b) China: 43%

(c) Japan: 74%

(d) Germany: 71%

(e) France: 80%

(f) UK: 77%

Except China, all these countries are struggling to revive their economy. Recently quite surprisingly Japanese economy falls into Recession. Chinese economy maintained fine balance between Services and Industrial /  Manufacturing Sector. Contribution of Industrial sector is 47% to Chinese GDP  & Services Contribute 43%. Because of meticulous fine balance, Chinese economy is stable and growing at healthy rate. It can be concluded that common reason for world wide economic recession is over dependence on Service sector.

Why Indian Economy is in Recession

Post liberalization, subsequent Indian Governments focused extensively on Services sector. IT and BPO services were poster boys of economic liberalization. Service sector only generated employment for skilled workforce whereas low skilled workers were completely marginalized. Every year approx 12 million people are added to existing pool of workforce and overwhelming majority is either unskilled or low skilled workers due to urbanization. Service sector employ only skilled workers. There was no road map in place for these low skilled workers post liberalization. Therefore over dependence on Service Sector is responsible for ill state of an Indian Economy and unemployment.

Make in India – Thrust to Industry / Manufacturing Sector

Make in India initiative is an honest attempt to revive the fortunes of Industry / Manufacturing sector. Revival of Industry sector is key to revival of Indian economy. In short, we need to increase the contribution of Industry / Manufacturing sector in Indian GDP.  It doesn’t mean that Government will loose focus in Service sector. Digital India will help to maintain contribution of Service sector but manufacturing / industry sector has to grow at much faster pace to out-pace service sector. It is not an easy task. Government should target to increase contribution of Industry / manufacturing from existing 16% to 35% in next 5 years. Make in India will help to achieve this goal but it comes with its own set of challenges. Manufacturing is capital and resources intensive sector which will require conducive environment for business. Labour issues will be major hurdle which the govt is trying to handle through labour reforms. Besides this, a major push is required to upgrade infrastructure of country. Govt has also set up 10,000 Crore start up fund to encourage entrepreneurship. Basically objective is to create ecosystem of small industries in periphery of manufacturing hub similar to Maruti model. Government will provide all the approvals under Make in India initiate in a time bound manner through single online portal.

Advantages of Industry Sector over Services Sector

Make in India initiative will help in achieving following goals

1. Employment for Low skilled workers: As majority of workforce in India is low skilled therefore Make in India initiative will provide large scale employment opportunities for this particular segment. Make in India will generate millions of jobs.

2. FDI: Whether we love it or hate it but fact of the matter is that India has huge dependence on FDI to keep economy alive. As i mentioned industry / manufacturing is capital intensive industry therefore Make in India will attract huge inflows of FDI. FDI inflow will help to revive Indian economy.

3. Small and Medium Enterprises: Any manufacturing hub need supply of parts which is boon for SME’s. Make in India will help to generate indirect employment through SME’s.

4. Reduce Trade Deficit: Compared to Service sector, Industry / Manufacturing sector has multiplier effect on Exports which will help the government to wipe off India’s trade deficit. Reduction in trade deficit will have large scale positive impact on the finances and economy of the country. It will stop devaluation of currency and increase sovereign rating which in turn will attract more FDI. FDI inflow is cyclic chain with positive ripple effects.

5. India as Consumer Market: India is one of the largest market in world which cannot be ignored by developed economies. Any company investing in India under Make in India initiative will directly get access to huge market of 125 Cr people. This advantage is not available for investment in service sector e.g. India is not a big market for IT services, it is mostly outsourced from USA.

6. Lets start with Defence: For the success of any initiative, it is crucial to set up an example to showcase. India is big market for defence equipments. Thanks to China and Pakistan :). Big manufacturing projects related to Defence will set a right tone and environment for Make in India initiative to take off.

Let’s hope that Make in India initiative will be a great success. Make in India will help the Indian economy to come out of shadow of recession. Over dependence on service sector is suicidal and i hope Make in India will break this inhibition that India cannot become manufacturing power house competing China. I am confident that Make in India will MODIfy India. You can post your comments & suggestions through following comments section.

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