LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE

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1 LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE REFERENCE NOTE. No. 8/RN/Ref./2015 For the use of Members of Parliament Not for Publication Make in India The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of the information as it is based on the sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views contained in the note/collection.

2 Make in India campaign Make in India is the BJP-led NDA government's flagship campaign intended to boost the domestic manufacturing industry and attract foreign investors to invest into the Indian economy 1 and to develop India as a hub for manufacturing, design and innovation. The Make in India initiative has its origin in the Prime Minister s Independence Day speech where he gave a clarion call to Make in India and Zero Defect; Zero Effect policy 2. He launched the campaign in September 2014 simultaneously in the Capital of all States and in several Indian Embassies/High Commissions where time-zones permitted. with an intention of reviving manufacturing businesses and emphasizing key sectors in India amidst growing concerns that most entrepreneurs are moving out of the country due to its low rank in ease of doing business ratings 3. The Make in India initiative also aims at identifying select domestic companies having leadership in innovation and new technology for turning them into global champions. The focus will be on promoting green and advanced manufacturing and helping these companies to become an important part of the global value chain 4. The Make in India Vision Manufacturing currently contributes just over 15% to the national GDP. The aim of this campaign is to grow this to a 25% contribution as seen with other developing nations of Asia. In the process, the government expects to generate jobs, attract much foreign direct investment, and transform India into a manufacturing hub preferred around the globe. The logo for the Make in India campaign is an elegant lion, inspired by the Ashoka Chakra and designed to represent India's success in all spheres. The campaign was dedicated PIB Release dated Op.cit, 4 PIB Release dated

3 -2- by the Prime Minister to the eminent patriot, philosopher and political personality, Pandit Deen Dayal Upadhyaya who had been born on the same date in Sectors in focus For the Make in India campaign, the government of India has identified 25 priority sectors that shall be promoted adequately. These are the sectors where likelihood of FDI (foreign direct investment) is the highest and investment shall be promoted by the government of India.On the campaign launch, the Prime Minister Mr. Modi said that the development of these sectors would ensure that the world shall readily come to Asia, particularly to India where the availability of both democratic conditions and manufacturing superiority made it the best destinations, especially when combined with the effective governance intended by his administration. 25 identified sectors are as under 5 : Automobiles Food Processing Renewable Energy Automobile Components IT and BPM Roads and highways Aviation Leather Space Biotechnology Media and Entertainment Textiles and garments Chemicals Mining Thermal Power Construction Oil and Gas Tourism and Hospitality Defence manufacturing Pharmaceuticals Wellness Electrical Machinery Ports Electronic Systems Railways Manufacturing sector as a whole and growth of medium and small enterprises in particular are two pressing factors which have direct impact on implementation of the campaign into reality. 1. Status of Manufacturing Sector in India The Centre s plan to push through the Make in India scheme to transform India into a global manufacturing hub may face an uphill challenge as some of the country s largest states including Madhya Pradesh, Uttar Pradesh and Maharashtra have witnessed a decline in manufacturing sector growth despite witnessing healthy economic expansion. Data available with the Reserve Bank of India shows that contribution of the manufacturing sector in each of 5

4 -3- these states has declined while services and agriculture and allied activities are the main contributors to the Net State Domestic Product (NSDP) as indicated in following table: MANUFACTURING AS PERCENTAGE OF NSDP STATE PARAMETER Uttar Pradesh NSDP Andhra Pradesh Manufacturing NSDP 11.03% % % % % % Madhya Pradesh Manufacturing NSDP 10.29% % % % z % Maharashtra Manufacturing NSDP 12.84% % % % % % West Bengal Manufacturing NSDP 19.36% % % % % % Manufacturing 8.91% 8.94% 9.29% 8.26% 8.08% 7.87% The above table shows new trend in the manufacturing field in recent years as under: In large States such as Uttar Pradesh, Madhya Pradesh and Maharashtra manufacturing is no longer a major contributor to NSDP Both Uttar Pradesh and Madhya Pradesh saw a significant contribution from agriculture to the NSDP In Maharashtra, home to the largest number of factories, the share of manufacturing in NSDP has dropped to 16.46% in from 19.36% in As a whole, in , manufacturing sector contracted 0.7 per cent and pulled down the GDP growth rate to less than five per cent 6. The Government is committed to improve the physical infrastructure. Development of dedicated freight corridors and investment in improving our ports and airports are underway. These corridors would house Industrial agglomerations along with smart cities to create world class infrastructure with state-of-the-art technology and high-seed communication.. The private sector would be playing a significant role in these developmental works. Government is taking 6 Indian Express, New Delhi, dated

5 -4- effort to equip the working age population with the right kinds of skill so that the manufacturing sector finds them employable. One of the first decisions that the new Government has taken is to set up a separate Department of Skill Development and Entrepreneurship 7. In this direction, some more initiatives have been taken to revitalise the industrial sector in general and manufacturing sector in particular: The process of applying for Industrial License and Industrial Entrepreneur Memorandum has been made online on the e-biz website 24*7; A vast number of Defence items have been de-licensed; The validity of Industrial license has been extended to three years; With a view to providing flexibility in working hours and increased intake of apprentices for on the job training, the Government has decided to amend a number of labour laws; An advisory has been sent to all Departments/ State Governments to simplify and rationalize regulatory environment which includes: on-line filing of all returns in a unified form; no inspection without the approval of the Head of the Department, etc 8. So, Make in India program intends to bolster manufacturing in India by the activities shown in Box-1 9. Box - 1 Improving Ease of Doing Business by business process re-engineering use of technology; Opening up of new sectors for FDI, de-licensing and deregulation; Introduction of new and improved infrastructure through industrial corridors, industrial clusters and smart cities; Skilling the labour force; Strengthening IPR infrastructure to nurture innovation; and Building a new mind set in government to partner industry instead of working as a regulator in economic growth of the country. 7 PIB Release dated Ibid 9 Lok Sabha Starred Question No. 86 dated

6 -5- Forecasting a revival in industrial activities from next fiscal, a recent report by Dun and Bradstreet has said that measures taken by the Centre and states to develop infrastructure and the industrial sector could take some time to yield results 10. In future, concerted efforts need to attract investments into manufacturing from India s large and growing market for everything from mobile phones and LED TVs to steel, chemicals and power equipment no doubt makes it a compelling place for producing stuff that can be directly sold here. A step further by imploring investors to sell anywhere (including abroad), but manufacture here. Rising labour costs in China only reinforces such optimism about India emerging as the world s next big factory Growth of Small and Medium Enterprises India s MSME sector has recorded more than 10 per cent growth in recent years despite the economic slowdown. MSMEs contribute nearly eight per cent to the national GDP, employing over eight crore people in nearly four crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports from India. Thus, the focus of the government on MSMEs at this juncture is justified given their potential for providing growth and employment. In view of the significance of the sector, the NDA Government had announced a number of measures in its first budget in July Some of the significant initiatives were: Box -2 Setting up of Rs.10,000 crore of venture capital fund Establishing a nationwide, district-level incubation and accelerator programme for encouraging entrepreneurship Establishing a network of Technology Centres; revising the definition of MSMEs for providing higher capital ceiling Friendly legal bankruptcy framework to enable easy exit A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery launching the Skill India movement for youth with an emphasis on employability and entrepreneurship 10 Indian Express, New Delhi, dated The Hindu Business Line, New Delhi dated

7 -6- In addition to the initiatives indicated above, a committee was also proposed to examine the financial architecture with a view to removing bottlenecks and creating new rules and structures for the sector. The government recently inaugurated a holistic, innovative and lowcost National Small Industries Corporation s online e-commerce shopping portal for buying and selling of products produced by MSMEs. Government support in undertaking research to help develop new products that are being produced by MSMEs could be very helpful and could illustratively showcase and promote their products such as Phulkari of Punjab, bamboo works of Assam and West Bengal, and cotton weaving of Tamil Nadu via galleries and museums 12. The Public Sector companies are important source of procurement from MSME as they have been mandated to procure 20% from MSMEs. They are being regularly monitored and are being helped by Vendor Development Programmes. The policy would become mandatory from 1st of April, 2015 and would contribute significantly to the growth of MSME sector in India 13. In the light of factors mentioned above, the Government has taken various measures for the success of Make in India campaign as under: a) INDUSTRIAL CORRIDORS First of all, some cities/regions identified to be developed as investment centres in the Delhi-Mumbai Industrial Corridor in partnership with the State Governments are:- (i). Ahmedabad-Dholera Investment Region, Gujarat; (ii). Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra; (iii). Manesar-Bawal Investment Region, Haryana; (iv). Khushkhera-Bhiwadi-Neemrana Investment Region, Rajasthan; (v). Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh; (vi). Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh; and (vii). Dighi Port Industrial Area, Maharashtra The Hindu, New Delhi, dated Lok Sabha Unstarred Question No dated Lok Sabha Starred Question No. 86 dated

8 -7- b) FOREIGN DIRECT INVESTMENT Recently the Foreign Direct Investment policy has been liberalized. 100% FDI under automatic route has been permitted in construction, operation and maintenance in specified Rail Infrastructure projects; FDI in Defence liberalized from 26% to 49%. In cases of modernization of state-of-art proposals, FDI can go up to 100%; the norms for FDI in the Construction Development sector are being eased 15. c) CHANGES IN LAWS Major changes proposed in various laws to overcome ministerial hurdles for the success of the campaign are 16 : Labour Reforms Land Acquisition Power and Coal Green Policing Banking The Department of Industrial Policy and Promotion (DIPP) has listed 20 labour laws and regulations that need to be changed. The Ministry of Rural Development has identified 19 recommendations for correction in the Land Acquisition (Amendment) Act, 1984 The Central Electricity Regulatory Commission has suggested denationalisation of coal sector. The Ministry of Environment and Forests has set up a panel to review the laws. The courts are pushing for a national green regulator. Finance Minister Arun Jaitely has outlined a requirement for Rs. 240,000 crore of fresh equity for capitalization of banks by d) THE MAKE IN INDIA WEBSITE A dedicated cell has been created to answer queries from business entities through a newly created web portal ( The back-end support team of the cell would be answering specific queries within 72 hours. The Make in India website highlights each of the 25 target sectors with statistics, reasons to invest, growth drivers, all policies relevant to investors and the individual sectors, government support, and opportunities for investors apart from showcasing the live projects that have been undertaken and FAQs 17. e) INVESTMENT SECURITY AND STABLE POLICY The Government is committed to chart out a new path wherein business entities are extended red carpet welcome in a spirit of active cooperation. Invest India will act as the first 15 PIB Release dated Make it Happen by Pranab Dhal Samanta, India Today, dated , p Op.cit,

9 -8- reference point for guiding foreign investors on all aspects of regulatory and policy issues and to assist them in obtaining regulatory clearances. The Government is closely looking into all regulatory processes with a view to making them simple and reducing the burden of compliance on investors 18. An Investor Facilitation Centre has been created under Invest India to provide guidance, assistance, handholding and facilitation to investor during the entire circle of the business. f) RED CARPETS FOR OVERSEAS INDIANS During the Pravasi Bhartiya Divas, held in Gandhinagar from January 7-9, 2015, the government plans to merge the Person of Indian Origin (PIO) and Overseas Citizen of India (OCI) cards, fulfilling a pledge that had made to the Indian community during Prime Minister s visit to the US in September, A panel set up by the finance ministry and co-chaired by the Department of Industrial Policy and Promotion (DIPP) is finalising the contours of the investment plan. For global Indians their non-repatriable investments could soon be treated on par with those by locals, free of any of the restrictions that otherwise apply to money that comes in from overseas. The measure is expected to help strengthen the government's plan to shore up flagging investment and boost the economy. According to official statistics, till date, NRIs have invested $4.7 billion through the FDI route in nearly 15 years since April 2000, only 2% of total investment. The Government is keen that people of Indian origin invest more in the country. Implementing the plan would essentially mean that overseas money could go into sectors closed to foreign investments such as ecommerce and multi-brand retail or those that have limits. Under the current policy, foreign investment includes FDI, investment by foreign institutional investors, foreign portfolio investors, qualified financial institutions, NRIs, American and global depository receipts, foreign currency convertible bonds and fully, mandatorily and compulsorily convertible preference shares/debentures. Within this overall policy, NRIs enjoy special treatment in sectors such as 18 PIB Released dated

10 -9- civil aviation, construction and development. In aviation, they can invest up to 100% while FDI is pegged at 49%. In construction and development, they can similarly invest up to 100% 19. While the government has announced a number of facilitating moves, the moot question remains will the global investor community bite? And if so, what sort of a manufacturing hub would India be? India can choose a growth trajectory based on manufacturing high-value items, and not simply fill in the space vacated by China. The agenda to improve competitiveness at this stage should include: Encouraging massive investments (both public and private) in Research and Development; Brining about legal reforms to ensure speedy judicial processes and especially aimed at protection of Intellectual property rights; Integrating financial markets and a single financial regulator to streamline activities; Introducing labour reforms to make the labour market more flexible; Simplifying regulations which affect the ease of doing business in India; Implementing the Goods and Service Tax with immediate effect and Increasing internet penetration countrywide. Lower-order factors such as governance primary education and health and so on, which bind India in a complex web of lower efficiency and productivity, need to be addressed urgently. However, these will eventually provide only diminishing returns. It is only innovation that can provide continued increasing returns 20. Make in India : Gujarat Now Model State Prime Minister s idea of Make in India seems to have been materialized in Gujarat. During the last three years, Gujarat has topped the list of States by contributing projects worth over Rs.100,000 crores in the manufacturing sector and has registered an investment of Rs. 49,616 crore in 2012, Rs. 15,478 crore in 2013 and Rs. 40,348 crore in October, So far, Gujarat has implemented 66 Industrial Entrepreneurs Memorandum (IEMs) worth 19 The Economic Times, New Delhi, dated 31 December The Free Press Journal, Mumbai, dated

11 -10- Rs. 40, 348 crore up to October Compared to Gujarat, Maharashtra could contribute only IEMs worth Rs. 5,437 crore during the same period. Across the country, in 2014 upto October, Gujarat accounts for 60 per cent of the total Rs. 67,600 crore manufacturing projects as, proactive approach of the State Government and speedy clearance encouraged private players to commission projects in time 21. Global Response to Make in India Campaign a) The new government at the Centre and its focus on infrastructure are bringing new investors to India. IFC Asset Management ( IFC AM), a subsidiary of World Bank's investment arm International Finance Corporation (IFC), raising a $1-billion Asia Growth fund, is actively exploring investment opportunities in the country. Greenfield infrastructure projects, including renewables and also the projects that work to enhance access to finance in India, will be among the key focus areas of the new fund 22. b) DCNS French Weapon Manufacturing Company is willing to set up factories in India but want more clarity on the new policy initiative. DCNS is already shaping its marketing strategy for Make in India for Rs. 16,000 crore deal for a amphibious warfare ships called Landing Platform Docks. DCNS is also eyeing the P-751 under which six submarines will be built in India at a cost of about Rs. 50,000 crore. The French firms will be bidding for Rs. 15,570 crore proposal to acquire 814 artillery guns. Nexter has already tied up with Larsen and Toubro and Ashok Leyland to produce the 155m/52 calibre mounted gun system being called Indian Caesar 23. c) Make in India campaign has got the attention of several infrastructure and engineering multinationals including GE and ThyssenKrupp, but they are waiting for the initiatives to improve business environment on the ground before bringing in big investments The Pioneer, New Delhi, dated 4 December The Business Standard, New Delhi, dated 20 November The Pioneer, New Delhi, dated 29 December The Economic times, New Delhi, dated 26 November 2014

12 -11- d) Alibaba Group Holding Limited (a Chinese e-commerce Company that provides consumer to consumer business via web portal) is keen to invest more in India which already raised $25 billion in a record initial public share offering in September Criticism and Concerns The NDA government's Make in India campaign has till early October attracted INR 2000 crore worth investment proposals. The campaign has, despite this, found its fair share of critics. Labour reforms and policy reforms which are fundamental for the success of the Make in India campaign have not yet been implemented. A number of layoffs in companies such as Nokia India cast long shadows over the campaign. A number of technology based companies have not been enthused by the campaign launch and have professed to continue getting their components manufactured by China 26. It will, however, take more than simple slogans to convince a Samsung, Hitachi or Haier to make things in India that they are largely importing now. There are two broad sets of impediments here. The first is the lack of reliable power, roads, water and other infrastructure, which nullifies much of the inherent competitive advantages in manufacturing out of India. The second is the web of domestic regulations pertaining to labour, taxation, land acquisition, environment and other statutory clearances. Navigating through these is both time-consuming and costly, which also explains why India ranks 134th among 189 economies in the World Bank s Ease of Doing Business ratings. Realizing the Make in India dream would require the Government to address both the hard infrastructure and soft regulatory issues. The fact that many of these fall under the domain of the States poses an even harder challenge 27. In order to partners with industry in economic development of the country Government shall act as a facilitator and not a regulator. Conclusion The Prime Minister s new economic doctrine will work only if India is sincerely wedded to a strong self help philosophy to become a global leader in manufacturing. Unfortunately, that spirit seems to be lacking among most principal stakeholder, industry, bureaucracy and 25 Financial Express, New Delhi, dated 27 November Op.cit., 27 The Hindu Business Line, Delhi,

13 -12- legislators. To ensure that Make in India becomes a reality, there is an urgent need to imbibe the spirit of Indianness and a sense of nationalism among our people that put the nation s macro vision before personal micro objectives 28. And to become a manufacturing nation, India has to quickly move beyond rhetoric to create a clear strategy and favaourable policy environment for manufacturing to take off The Free Press Journal, Mumbai, dated 19 November The Hindu, New Delhi, dated