Has the Make in India program been successful in altering the constituents of the Indian economy?

Every economy comprises 3 constituents namely the agriculture, industry, and services sector. Make in India campaign was launched in 2014 with the target of boosting India's manufacturing sector that in turn would have altered the constituents of the Indian economy. However, as things stand today, there has not been a visible shift in trends for the constituents of the Indian economy. The trends for 3 constituents namely agriculture, industry & manufacturing, and services have remained the same even after the launch of the Make in India project.

In 2017, the Agriculture sector contributed 15.4% to India's GDP, the industry & manufacturing contributed 23% (approximately 16% comes from manufacturing and the remaining 7% from other industries), whereas the services contributed 61.5% to India's GDP.

While the percentage of the agriculture & allied sector has fallen gradually, and the percentage of the services sector has gone up gradually, however, the percentage of the industry & manufacturing sector has remained the same for the past many years in India.

In fact, from the period 2000-01 to 2013-14, the trend has been like this.

The contribution of the agriculture & allied sector to India's GDP has been gradually falling since 2000-01. The agriculture & allied sector contributed 22.36% to India's GDP in 2000-01. And by 2013-14, the contribution of the agriculture & allied sector had come down to 13.94% of India's GDP.

The contribution of the services sector to India's GDP has been gradually going up since 2000-01. The services sector contributed 50.49% to India's GDP in 2000-01. And by 2013-14, the contribution of the services sector had gone up to 59.93% of India's GDP.

The contribution of the industry including the manufacturing sector to India's GDP has been almost constant since 2000-01. The industry including the manufacturing sector contributed 27.25% to India's GDP in 2000-01. And by 2013-14, the contribution of the industry including the manufacturing sector was 26.13% of India's GDP.

The contribution of the manufacturing sector alone to India's GDP has also been almost constant since 2000-01 despite the launch of Make in India policy. The manufacturing sector alone contributed 15.46% to India's GDP in 2000-01. And by 2013-14, the contribution of the manufacturing sector alone was 14.94% of India's GDP.

These trends continue until now in the fiscal year 2019-20.

In comparison, in the case of China, In 2017, the Agriculture sector contributed 8.3% to China's GDP, the industry & manufacturing contributed 39.5% to China's GDP, whereas the services contributed 52.2% to China's GDP.

In the case of the advanced economies, the services sector contributes upward of 75% to the GDP. However, it should be noted here that all these advanced economies are high-income countries and therefore Indian economy can't be compared with these economies at this stage of India's development.

Even in the case of South Korea, in 2017, the Agriculture sector contributed 2.2% to South Korea's GDP, the industry & manufacturing contributed 39.3% to South Korea's GDP, whereas the services contributed 58.3% to South Korea's GDP.

Therefore, it is clear that for India to grow economically and generate millions of jobs, the contribution of the industry & manufacturing sector has to grow from the current 23% of the GDP to about 35% of the GDP. The contribution of the Manufacturing sector alone would have to grow from the current 16% of the GDP to 25% of the GDP.

However, it's been 6 years since the launch of the Make in India project and yet things have not improved. The industry & manufacturing sector continues to move linearly with the overall economic expansion.

The time has come to involve manufacturing entrepreneurs in the formal policy-making roles in order to draft comprehensive manufacturing policies for the country. Without a robust manufacturing policy and the supporting technical infrastructure, the industry & manufacturing sector can not grow fast. Bureaucrats and economists don't possess the subject knowledge and therefore asking them to draft manufacturing policies for the country is actually asking them a lot. Let's hope, manufacturing entrepreneurs are brought in policymaking roles to revive India's industry & manufacturing sector.

The Information Technology sector has been a success story in India, why can't the manufacturing sector be?

The services sector contributes nearly 61.5% to India’s GDP. The services sector has become the mainstay of the Indian economy. Despite the launch of the Make in India initiative in 2014, the manufacturing & industry sector contributes only 23% to India’s GDP. Whereas the agriculture sector contributes 15.4% to India’s GDP. As can be seen from the graph below, the share of the services sector is higher for the high-income countries barring China. In the case of China, the manufacturing & industry sector contributes nearly 40% to the Chinese GDP. However, India’s services sector has grown despite the lack of growth in the manufacturing & industry and agriculture sectors.

The IT/ITeS segments generate a bulk of the revenues for the overall services sector in India. As per the NASSCOM report, India’s information and technology sector recorded a growth of 7.7% with revenues of 191 billion US$ in the Fiscal year 2020. The sector also added 205000 new jobs in the fiscal year 2020. The sector has the potential to reach 350 billion US$ in revenues by 2025. By the year 2016, the sector had generated 3.7 million direct jobs and 10 million indirect jobs. The sector is poised to generate a total of 7 million direct jobs and 20 million indirect jobs by the year 2025. These are all impressive numbers.

Besides the IT/ITeS segment, healthcare and tourism add substantially to the overall services sector in India. And then, space, transportation, logistics, and other services form the core of the overall services sector in India.

• Why has the services sector grown and the manufacturing sector has lagged behind in India?

One reason could be entrepreneurship in India. The Indian entrepreneurs have built the entire services sector on their own with very minimal support from the state. In other words, the services sector required very minimal state support and therefore the sector has grown in India. However, wherever state support is necessary, those sectors have not done well in India. For example, manufacturing & industry definitely require state support and as can be seen from the above graph, the manufacturing & industry sector has not done well for a low-income country like India. Manufacturing contributes 16% to India's GDP out of the total of 23% contribution of the combined manufacturing & industry sector. The Indian policymakers have been looking to increase the share of the manufacturing sector from the current 16% to 25% to India’s GDP. And yet, the manufacturing sector has not grown. Make in India program was launched in 2014 with this sole objective, and yet, results are nowhere to be seen.

A low-income country like India can not move to the middle-income level unless and until the manufacturing & industry sector grows. India may not be able to replicate China’s numbers, however, it goes without saying that the manufacturing & industry sector needs to grow in India not only to boost India's economic growth but also to generate millions of jobs that India needs badly.

The Indian entrepreneurs have developed the services sector on their own. It’s time Indian entrepreneurs are encouraged to grow the manufacturing & industry sector as well. Since the manufacturing & industry sector requires state support in terms of developing the technical infrastructure in the country, therefore, Indian entrepreneurs shall not only be encouraged to grow the manufacturing & industry sector but also be encouraged to frame policies for the Make in India project. 

It is now certain that bureaucrats and economists can’t understand the technicalities of a hard subject such as manufacturing & industry. Therefore, it is beyond the scope of the bureaucrats and economists to frame policies for the manufacturing & industry sector. The need of the hour is to involve entrepreneurs in the policymaking roles when it comes to the Make in India initiative. Without involving entrepreneurs in the formal policymaking roles, it would be difficult to frame good policies and develop the necessary technical infrastructure for the manufacturing & industry sector.

The data pertaining to the services sector highlight that whenever the sector was left to its entrepreneurs, that sector grew tremendously. The IT/ITeS sector further strengthens this argument. The manufacturing & industry sector can become a growth sector for the Indian economy in the coming years provided entrepreneurs are making the policies for this sector. Will this happen?

Manufacturing a car is easy while manufacturing a toy is difficult in India? Why?

In a group discussion recently, this question came up. How the hell car making in India is easy whereas toy making is so difficult? How come India is able to produce cars and bikes of great quality and yet why can’t India manufacture simple plastic toys? Despite the launch of the Make in India project in 2014, why are our markets flooded with Chinese toys? 

For most people including the general public, media, economists, bureaucrats, there seems to be no answer to this dichotomy. However, a person working in the manufacturing sector understands the reasons behind this.

Firstly, for the general public, media, economists, bureaucrats, the overall perception is that manufacturing is one sector. However, this perception is so far from reality. Manufacturing comprises subdomains. However, it’s unfortunate that these very economists and bureaucrats then go on to make policies for the manufacturing sector as a whole including the framing of Make in India policy. It is evident that these economists and bureaucrats have no understanding of an extremely hard and technical subject such as manufacturing. 

For the sake of simplicity, manufacturing can be divided into 2 subdomains namely top-down manufacturing and bottom-up manufacturing. The Make in India policy could not differentiate between these 2 approaches as well.

Car manufacturing comes under the ambit of top-down manufacturing whereas toy manufacturing comes under the ambit of bottom-up manufacturing.

In a typical top-down manufacturing approach, a large company, let’s say an automobile company looks at the demand for cars and the size of the sector in India. Having gathered this market insight, this automobile company then decides to manufacture the cars in the country. This company brings in capital, technology and sets up a plant and starts manufacturing the cars. This car manufacturing company sets up the entire plant including the tool-room, production line, assembly line, etc. 

Once this car company sets up operations, the component manufacturing companies come up to supply different parts and components to this car company. Different parts and components such as brake system, clutch system, gear system, suspension, piston, flywheel, nuts/bolts are produced by many component manufacturing companies. As the demand for cars grows and the overall size of the car industry becomes large, then other car making companies set up plants. The component manufacturing companies supply parts and components to all these car manufacturing companies. The whole ecosystem evolves and the country becomes a car manufacturing hub. All of this happens not because of the Make in India policy, but because of the demand and the size of the Indian market.

India’s total manufacturing output in 2018 was nearly 403 billion US$. And approximately, 50% of this total manufacturing output came from the automobile sector alone.

On the other hand, in a typical bottom-up manufacturing approach, an idea originates in an entrepreneur’s mind. The idea could be anything. The idea to produce toys, souvenirs, sculptures, plastic goods, etc. Kindly note, no big company will produce these simple common household goods. Only an entrepreneur can take the plunge and test the idea. However, as soon as the entrepreneur decides to produce these goods in India, then, he or she is faced with the challenges of Tool-room, production, assembly. An entrepreneur does not have resources or money to set up all these facilities. He or she needs access to these world-class facilities. And there are no world-class facilities in India. Under the Make in India initiative, the policymakers could not identify the need to provide support to entrepreneurs.

In a top-down manufacturing approach, a large company could set up all the facilities such as the tool-room, production line, assembly for its operations. This requires a huge amount of investment. However, in a bottom-up manufacturing approach, the entrepreneur does not have access to all these facilities. Only the state or the government of the day can facilitate the development of these world-class facilities in partnership with private players. And since India lacks these world-class facilities, an entrepreneur becomes a trader instead of becoming a manufacturer. He or she starts buying these simple common household goods from China and then selling them in India.

Therefore, when it comes to the top-down manufacturing approach, the demand and the overall size of the market matters. A large company will gather this information and set up operations. The state or the government of the day does not provide any support other than granting approvals. Well, this large company does not actually need any state support. This company has all the resources, money, technology to produce goods, be it cars, washing machines, mobiles, bikes, etc.

However, when it comes to the bottom-up manufacturing approach, the entrepreneur needs access to world-class facilities. And this is where the state or the government needs to step in. However, since there is no support in India, the entrepreneur becomes a trader. And Indian markets get flooded with the Chinese goods including the simple plastic toys.

Therefore, the question is, can India produce toys in India? The answer is yes, provided, instead of economists and bureaucrats, manufacturing entrepreneurs are involved in the 'Make in India' policymaking committee.

Is Foreign Direct Investment coming to India going into the Make in India program?

Make in India initiative was launched to boost India’s manufacturing sector. The idea was to encourage Indian entrepreneurs as well as global supply chains to set up manufacturing units in India. Did the program succeed? Did Foreign Direct Investment come into India’s manufacturing sector? 

First of all, let’s have a look at the amount of Foreign Direct Investment that’s coming into India. Since the beginning of 2010s, as per the world bank data, India has received Foreign Direct Investment (FDI) in the vicinity of 30 to 40 billion US$ per year. 

In 2010, India received the FDI totaling 27.4 billion US$. In 2011, it was 36.5 billion US$. In 2012, it was 24 billion US$. In 2013, it was 28.15 billion US$. In 2014, it was 34.58 billion US$. In 2015, it was 44.01 billion US$. In 2016, it was 44.46 billion US$. In 2017, it was 39.97 billion US$. And in 2018, it was 42.12 billion US$.

However, FDI when measured as a percentage of GDP tells a different story. In 2010, India received FDI equivalent to 1.64% of India’s GDP. In 2011, this FDI number was 2% of the GDP. In 2012, it was 1.31% of India’s GDP. In 2013, it was 1.52% of India’s GDP. In 2014, it was 1.7% of the GDP. In 2015, it was 2.09% of the GDP. In 2016, it was 1.94% of the GDP. In 2017, it was 1.51% of India's GDP. And in 2018, it was 1.55% of the GDP. Therefore, FDI in terms of percentage of GDP has not changed much since the 2010s.

Having got the numbers for the FDI, Let’s now understand where this FDI is being deployed. In other words, which are the sectors that received the most of the FDI money. 

As per the data released by the Department for Promotion of Industry and Internal Trade (DPIIT), In the fiscal year 1 April 2019 to 31 March 2020, the services sector received the highest amount of foreign inflows at 7.85 billion US$. The computer software and hardware sector received foreign inflows worth 7.67 billion US$. The telecommunications sector garnered 4.44 billion US$ worth of foreign inflows. The trading sector got 4.57 billion US$ worth of foreign inflows. The automobile sector got 2.82 billion US$ worth of foreign inflows. It was followed by the construction sector at 2 billion US$. And then, the Chemicals sector received foreign inflows worth 1 billion US$. 

This has been the pattern of FDI in India since the 2010s. Therefore, as is clearly evident from the above data, the manufacturing sector continues to lag behind even when it comes to garnering the FDI. And there is no surprise, since the launch of the Make in India program in 2014, India’s trade deficit with China has increased as shown in the graph below. If FDI was going into the Make in India program, then, surely, India's trade deficit with China would not have increased so much from the 2014 to 2018 period.

Year	India's exports to China in Billion US$	India's Imports from China in Billion US$	Trade Imbalance in Billion US$
2014	16.41	54.24	-37.83
2015	13.39	58.26	-44.87
2016	11.75	59.43	-47.68
2017	16.34	68.1	-51.76
2018	18.83	76.87	-58.04
	(Source: General Administration of Customs, China)

Therefore, the question that needs to be asked is why hasn’t India’s manufacturing sector been able to receive the FDI?

There are many reasons for it. However, the principal reason is the lack of manufacturing infrastructure in the country. Even though the Make in India project was launched in 2014, however 6 years down the line, the manufacturing sector still lacks the necessary manufacturing infrastructure. 

Point to be noted here is that the manufacturing infrastructure is different from the roads, ports, electricity, railways which fall under the category of physical infrastructure. Manufacturing is a long and hard game, and it needs state support in terms of high-quality manufacturing infrastructure. With the presence of manufacturing infrastructure, the local entrepreneurs would become manufacturers instead of becoming traders. Once the manufacturing infrastructure is in place, the global supply chains will also start to move to India. No one will have to persuade them to come to India and set up plants in India. They will set up plants on their own. Build the necessary manufacturing infrastructure and local entrepreneurs as well as global supply chains will be tempted to manufacture in India.

Indian businesses won’t be importing simple common household goods from China. Instead, these goods will be produced in India. And after having served the Indian market, the Indian entrepreneurs will be encouraged to export globally-competitive goods to the USA, Latin America, and Europe.

Therefore, it’s high time, Indian policymakers first identify the need to develop the manufacturing infrastructure in the country. And then develop that manufacturing infrastructure. Make in India policy must involve manufacturing entrepreneurs in the formal policy-making roles so that a necessary impetus can be given to building the manufacturing infrastructure on a war footing.

What are some items that are mostly imported from China but can be profitably manufactured in India itself?

Let’s first understand the current situation of manufacturing in India by analyzing the data. As per the world bank data, despite the launch of Make in India program in 2014, India’s manufacturing output in 2018 was 403 billion US$. Point to be noted is that in 2018, China's manufacturing output was 10 times the size of the Indian manufacturing output. In 2018, Chinese manufacturing output stood at a massive 4.003 trillion US$.

Now, let’s again come back to India. Out of this 403 billion US$ of manufacturing output, nearly 50% is generated by the auto sector. Therefore, if we take out the auto sector, then, despite the initiation of the Make in India policy in 2014, India’s manufacturing output in other areas is minuscule for a country with a population size of 1.35 billion.

Therefore, we end up importing simple common household goods from China. Goods like toys, plastic goods, Diwali Lights, electrical items, electronic items, souvenirs, etc. etc. The list of products that we import from China is endless thereby resulting in a massive trade deficit of 60+ billion US$ with China. That’s huge, 60+ billion US$ means approximately 4.5 Lacs Crores Rupees on a yearly basis. If we make all these goods in India itself rather than importing these goods from China, then, that surely will generate Lakhs or Crores of jobs in the country. So, why are not we making these simple common household goods in India given that the very purpose of the Make in India campaign was to boost India’s manufacturing? What is the problem?

Let’s understand this by taking a simple item like a plastic toy that is sold in India but is made in China. Why don’t Indian manufacturers make these simple plastic toys in India itself? To answer this, let us first understand the technical aspects of toys. A typical plastic toy comprises a shape (it could be an animal form, or doll, or human form, etc.). Once the shape or form is defined, then, battery or other accessories are fitted in the toy. It’s so simple and basic.

Now, let’s get going. To make the shape or form of the toy, an Indian manufacturer, or any manufacturer across the world would have to first develop the mold of that shape or form. This is the first step. Well, the first step is the 3D design in the computer, but the first real manufacturing step is the development of the mold to get the shape or form of the toy that we want to manufacture. This mold development step in India takes at least 5-6 times more time than what it takes in China. The Make in India program too failed to focus on these simple basic technical aspects of manufacturing in India. So, when mold development takes a huge amount of time, then, it is clearly understandable that the cost of the final product will rise. Besides the cost, the quality of the mold produced is inferior to what is produced in China. Now, when the shape or form of the toy is not only expensive to make in India but also inferior in quality, then, who will buy the final toy? Therefore, instead of making a simple plastic toy in India itself, our entrepreneurs have no choice but to bring the same toy from China and then sell that toy in India.

The second step in the manufacturing of this toy is getting the other parts. Parts such as the battery, and other accessories. It is true, we have to source these parts from other vendors. And since, when we ourselves are facing the challenges in manufacturing the shape or form of the toy in India, then, it is given that other manufacturers are also facing the same challenges to manufacture batteries and other accessories in India. The Make in India policy framework does not support bottom-up manufacturing and therefore all small scale entrepreneurs and MSMEs face similar challenges. Therefore, even if we are able to develop the shape or the form of the toy, then, it is inevitable, we will end up sourcing some parts from China. Maybe a battery or maybe other accessories. But surely, we would have to rely on China.

The third step is ‘assembly’. Now that you have the mold to make the shape or the form of the toy. And you also have the other necessary parts to make the complete toy. The next step is the assembly. Automating the assembly line would require a huge amount of money, therefore, a small scale entrepreneur or the MSME that decides to make the toys in India would deploy manpower to do the final assembly of the toy. However, manpower in India is not properly trained, therefore, it can take months before the assembly line is perfectly fine-tuned. And no entrepreneur in India wants to wait for months before getting the desired high-quality toy. Therefore, most people would instead bring goods from China and then sell them in India. The Make in India initiative does not give the right tools for entrepreneurs to make goods in India itself.

Therefore, unless and until Make in India policy focuses on boosting and promoting small scale entrepreneurs and MSMEs, we would continue to source simple common household goods from China. Entrepreneurs shall be involved in the final draft of the Make in India policy. The policy shall encourage India’s entrepreneurs and MSMEs. The current policy only focuses on attracting global companies to India. And no global company makes simple common household goods. These simple common household goods can only be made by Indian entrepreneurs and MSMEs. But at the moment, there is no policy support to these entrepreneurs and MSMEs. And therefore, we continue to source simple common household goods from China.

India can beat China by beating them in Manufacturing

India China border face-off has resulted in protests across the country. People are angry and justifiably so. People across the country are showing their anger in various forms, by uninstalling the Chinese Apps such as Tik Tok, by calling for a ban on the Chinese products, by boycotting the Chinese products. Therefore, let’s look at the impact of such calls of ban or boycott on the Chinese economy as well as on the Indian economy.

• Impact of India’s ban or boycott of the Chinese goods on the Chinese economy:

China is a large economy. As per world bank data, the Chinese economy is the second-largest economy in the world with a nominal GDP of 13.608 trillion US$ in 2018 (measured in Current US$). China is also a manufacturing superpower with a manufacturing output of 4.003 trillion US$ in 2018 (Current US$). What does it mean? It means manufacturing contributes approximately 29.42% (4.003/13.608) to the Chinese economy.

Let’s also consider the global manufacturing output in the same period. In 2018, the global manufacturing output was 14.17 trillion US$ (Current US$). Chinese manufacturing output was 28.25% (4.003/14.17) of the total global manufacturing output. That’s humongous. The USA is second in this list, but far behind China.

Now, let’s dig deeper. China mainly exports a variety of manufactured goods to countries across the world. As per the world bank data again, the Chinese exports contributed 19.51% to the Chinese economy in 2018. What does it mean? It means China exported approximately 19.51% x 13.608 = 2.655 trillion US$ worth of manufactured goods. Now, 2.655 trillion US$ worth of manufactured goods is a huge number. No country in the world exports such a large volume of goods.

Now, let’s come back to India. India China bilateral trade in 2018 was 95.7 billion US$. China exported approximately 76.87 billion US$ worth of goods to India in 2018. India exported approximately 18.83 billion US$ worth of goods to China in 2018. Therefore, in 2018, India’s trade deficit with China was 58.04 billion US$.

Now, let us suppose, Indians completely boycott the Chinese goods. Therefore, China will take a hit of 76.87 billion US$. China’s total exports will fall from 2.655 trillion US$ to 2.578 trillion US$. This will surely have an impact on the Chinese exports and Chinese manufacturing sector along with some allied industries such as logistics. But think hard, will this fall from 2.655 trillion US$ to 2.578 trillion US$ really derail the Chinese economy? The answer is No.

• Now, let’s assess the Impact of India’s ban or boycott of the Chinese goods on the Indian economy:

Again, going back to the world bank data, we find that India’s nominal GDP in 2018 was 2.719 trillion US$ (Current US$). And India’s manufacturing output in 2018 was 403.05 billion US$. What does it mean? India’s nominal GDP was 1/5 (2.719/13.608) of China’s GDP in 2018. And despite the launch of the Make in India campaign in 2014, India’s manufacturing output was still 1/10 (403.05/4003) of China’s manufacturing output in 2018.

Indian exports were 19.74% of India’s GDP in 2018. In other words, 19.74% x 2.719 trillion US$ = 536.73 billion US$. Out of these 536.73 billion US$, India exported 18.83 billion US$ of goods (mainly raw material) to China. Therefore, if the bilateral trade stops completely between the two nations, then, Indian exports would be 536.73 - 18.83 = 517.17 billion US$. This fall in exports won’t derail the Indian economy either.

However, the Indian companies that sell products domestically, as well as export goods worldwide, may take a hit. How? These companies depend on Chinese suppliers for various parts. India imports a variety of manufactured goods from China. Some of them are components for automobiles and smartphones, telecom machinery and equipment, APIs for the Pharma sector, other Chemicals, plastic & other metallic goods, machinery & tools for the construction sector.

All these sectors are India’s sunshine sectors. These sectors have not only created millions of jobs in India but also have contributed to the Make in India initiative. Take the case of an Auto company from Pune. The company exported nearly Rs 15000 Crores worth of products across the world. The company and its component suppliers sourced some parts from China worth Rs 1000 Crores. If we boycott or ban the Chinese products, won’t it have a negative impact on this large Indian Automaker? Take the case of the Pharma sector. India’s pharma industry is the third-largest pharma industry in the world. India pharma industry imports approximately 65% of APIs (Active Pharmaceutical Ingredient) from China. There are cases after cases of many Indian sectors being dependent on China. Any disruption will result in shortages and there will be a negative impact on various Indian sectors. Do we want that? Do we want to hurt our businesses? I guess, No.

• Therefore, what’s the way out? How can India teach a lesson to China?

It is possible by becoming a manufacturing hub.

"However, manufacturing is a hard and long game and India can’t become a manufacturing hub in a year or two".

It takes 8-10 years of constant policy support as well as capital along with infrastructure development. India needs to prepare for it now. Therefore, Instead of calling for a ban or boycott of the Chinese products, what we as people of India need to do is urge or put pressure on the government of the day to formulate manufacturing friendly policies in the country. Let the Chinese products come into India. However, side by side, we continue to develop our manufacturing sector and give a much-needed boost to the Make in India program.

For decades, we have been hearing about the need to grow the manufacturing sector. However, as things stand today, our manufacturing sector has not taken off. There is no point blaming this government or that government for the lackluster performance of the manufacturing sector in India. Make in India program was also launched to address the lackluster performance of the manufacturing sector. But things have not taken off. Involving talented manufacturing entrepreneurs in the policymaking roles will certainly help India in becoming a manufacturing powerhouse. Bureaucrats and economists can’t understand the technicalities and nuances of the manufacturing sector. Therefore, the government of the day must involve manufacturing entrepreneurs in the formal policymaking role.

We can’t beat China in the short term. If we try to ban or boycott the Chinese products, then, we will actually end up harming ourselves. However, we can beat China in the long-term by beating them in the manufacturing space. It’s a long game. But it must begin now.

Is Make in India a success?

Prime Minister Modi recently highlighted the importance of ‘self-reliance’ or 'atmanirbhar bharat abhiyan'. He further stressed that the Coronavirus pandemic forces us to become ‘self-reliant’ or 'atmanirbhar'. These words could not have been more true for India’s manufacturing sector, and Make in India program in particular. It is the right time for India to become self-reliant for manufactured products. Will his government act and develop the necessary manufacturing infrastructure in order for India to become self-reliant in the manufacturing sector? Can we boost our manufacturing output from the current 403 billion US$ to 2 trillion US$ in the next decade? It’s a long and arduous journey, but the journey must start now.

As per the world bank data, India’s manufacturing output in 2018 was 403.05 billion US$ (current US$). Whereas China’s manufacturing output in 2018 was 4.003 trillion US$ (current US$). In other words, China’s manufacturing output is nearly 10 times the size of the Indian manufacturing output. With nearly identical population size, India can not afford to be lagging behind in the manufacturing sector.

It is very well established that construction, infrastructure, and manufacturing sectors are the biggest employment generators in any given economy.

The construction sector is a cyclical sector and is currently at its nadir with many stuck projects and consumer confidence at an all-time low. The infrastructure sector has its own challenges pertaining to land and capital. Therefore, focus on the manufacturing sector or enhanced focus on the Make in India initiative at this stage of time will not only give a boost to India’s GDP growth rate but will also generate formal employment at a massive scale besides making India self-reliant. The timing is crucial because of the following 2 reasons:

1. Wages are rising in China since 2006 and therefore companies across the world are looking to develop supply chains in other low-income countries. As we all understand, Production is directly proportional to capital and labor, therefore, there is a massive opportunity for shifting supply chains to countries where labor rates are relatively low.
2. Coronavirus pandemic can be a trigger point for companies across the world to look for an alternative other than China.

However, it will be a herculean task for other low-income countries including India to tap into this opportunity because of the lack of Preparedness. Therefore, the question that arises is how can India prepare itself to tap into this opportunity? This is possible by developing the manufacturing infrastructure in the country. Only manufacturing entrepreneurs understand the various elements of the manufacturing infrastructure which is completely different from the physical infrastructure such as electricity, roads, ports, railways, etc.

Before focusing on the need to develop the manufacturing infrastructure, we as a society need to distinguish between the ‘top-down manufacturing approach’ and the ‘bottom-up manufacturing approach’.

In a top-down manufacturing approach, a large company (domestic or multinational) sets up a plant and then ancillary units come up to supply different parts to this large company. India’s auto sector is an example of the top-down manufacturing approach. This approach is also known as capital intensive manufacturing. Robots and hi-tech machinery are deployed to manufacture products. Therefore, employment generation in this kind of manufacturing approach is limited.

On the other hand, in a bottom-up manufacturing approach, an entrepreneur comes up with an idea to manufacture a product. This idea could be about anything such as toys, electrical items, souvenirs, electronic items, common household goods, etc. However, an Indian entrepreneur does not manufacture these goods in India and instead source these goods from China. No wonder, our trade deficit with China is rising year after year. Why can’t an Indian entrepreneur manufacture these goods in India itself? The answer lies in the lack of manufacturing infrastructure that we just talked about.

Without proper manufacturing infrastructure in place, it becomes difficult for an entrepreneur to manufacture simple common household goods in India itself. So, what are the elements of the manufacturing infrastructure that India needs to develop in order to tap into this big manufacturing opportunity? Here is a list based on the ground experience of entrepreneurs working in the manufacturing sector in India:

1. Involvement of startup entrepreneurs in the policymaking process for the manufacturing sector
2. Development of the tool-room technologies across India
3. Development of the concept of ‘manufacturing society’ to grant approvals at a faster rate and to achieve economies of scale
4. Financial support to manufacturing entrepreneurs
5. Enhanced focus on the technical skill development programs across India

The above 5 elements form the nucleus of the manufacturing infrastructure. Each and every single element is a study in itself and therefore it is beyond the scope of this article to explain these 5 elements in detail. With the manufacturing infrastructure in place, an Indian entrepreneur will be encouraged to manufacture goods in India itself rather than trading the same goods from China. India’s trade deficit with China is in excess of 60 billion US$. In other words, nearly 2% of India’s GDP. The manufacturing of these goods within India itself will propel India’s yearly GDP growth rate by 2%. Moreover, Indian entrepreneurs after having tasted success at home will be much more confident to export globally-competitive goods to the USA, Europe, Latin American markets.

Additionally, with this manufacturing infrastructure in place, companies across the world will be encouraged to shift supply chains to India thereby further boosting the Make in India program. The bottom line is, ‘we as a society will be competing on our strengths rather than the extraneous factors originating in China’.

What is the current state of the manufacturing sector in India and how does the Indian manufacturing sector compare with the rest of the world?

As per the world bank data, the world manufacturing output, value-added (in current US$) stood at 14.17 trillion US$ in 2018. And India's manufacturing output, value-added (in current US$) stood at 403.05 billion US$. In other words, India's manufacturing output, value-added (in current US$) was 2.84% of the world's manufacturing output, value-added (in current US$).

China, which has come to be known as the world's factory contributed nearly 28.25% to the world's manufacturing output, value-added (in current US$). Overall, Chinese manufacturing output, value-added (in current US$) stood at nearly 4.003 trillion US$ in the year 2018. The Chinese nominal GDP in 2018 was 13.608 Trillion US$ (Current US$). Therefore, manufacturing contributed nearly 29.42% to the Chinese economy. Chinese exports were 19.51% of the Chinese GDP. Or in other words, China exported approximately 2.655 trillion US$ worth of Goods.

Here is a chart showing the top 10 countries by share of world manufacturing output in 2018:

As can be seen from the above chart, the Chinese manufacturing output was nearly 10 times the Indian manufacturing output in 2018.

With nearly the identical population size, China has clearly taken a massive lead over India when it comes to the manufacturing sector.

And since 2014, India's manufacturing output has slowed down considerably. While from 2004 to 2014, India's manufacturing output grew at a CAGR of 10.59%. And since 2014 when the Make in India program was launched, the manufacturing output grew at a CAGR of 7.02%.

During the same period, the Chinese manufacturing output grew at a CAGR of 17.68% from 2004 to 2014. And since 2014, the Chinese manufacturing output grew at a CAGR of 5.89%.

The Chinese manufacturing output has slowed down from the period of 2004 - 2014 to 2014 - 2018 because of rising wages in China. It is clearly understandable.

However, what explains the slowing down of India's manufacturing output from the period of 2004-2014 to 2014-2018? While Chinese manufacturing is slowing down due to rising wages in China, other emerging countries like Bangladesh, Vietnam, etc. have grabbed the opportunity to boost their manufacturing output. And India has lagged behind because of a lack of preparedness.

The government of India launched the Make in India program in 2014. However, the program just focused on top-down manufacturing approach. The automotive industry nearly contributes about 50% to India's domestic manufacturing output. However, automotive manufacturing is a top-down manufacturing approach. A large automotive company sets up a plant in India after assessing the demand and the size of the Indian market. Thereafter ancillary component manufacturing companies come up to supply different components to the automotive company. This approach is known as top-down manufacturing approach. Robots and high-tech machinery are used in this kind of manufacturing to produce final products. Therefore, employment generation is not high in this kind of manufacturing approach.

The Make in India program failed to focus on the bottom-up manufacturing approach. And no wonder, India's manufacturing output growth has slowed down since 2014. Simple common household goods are not manufactured in India. Instead, these goods are sourced from China. Indian entrepreneurs are becoming traders and not manufacturers. Simple common household goods such as Diwali Lights, Toys, Electrical items, electronic items, etc. that are consumed on a daily basis are not manufactured in India. No big company will make these products. Only a startup entrepreneur can manufacture these goods. However, there is no policy framework or manufacturing infrastructure to support this kind of bottom-up manufacturing in India. And no wonder, Indian entrepreneurs do not manufacture these simple common household goods in India.

It is high time the Make in India Program focuses on bottom-up manufacturing to boost manufacturing output in India. Given the population size in India, the Indian manufacturing output shall be close to 2 trillion US$ and not 400 billion US$. The focus on bottom-up manufacturing will not only generate employment on a large scale but also boost India's consumption and exports thereby giving a fillip to India's sagging economy.

Macro and Micro level solutions for India to achieve double-digit economic growth for the next 2 decades

Macro

The Indian economy has slowed down. And it has been slowing down for the last several quarters now.

India GDP Growth rate last 10 years:

Data Source: Ministry of Statistics & Programme Implementation

As can be seen from the above chart that the quarterly GDP growth rate is consistently falling since Jan - Mar 2018 quarter. In other words, the quarterly GDP growth rate numbers are falling for the last 7 quarters. This consistent fall in GDP growth rate for the last 7 quarters has raised the concern that problems in the Indian economy are structural and not cyclical.

• Therefore, what are these structural problems in the Indian Economy?

As we all know, the GDP comprises of 4 major components:
Economy E = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)
Here is the data for each of the 4 components of the Indian economy:

Exports as a percentage of GDP of India:

Imports as a percentage of GDP of India:

As can be seen from the above charts that the Consumption and Investment comprise roughly 90% of India's GDP. And Consumption is plateauing. Whereas Investment rates are falling consistently.

Therefore, at a macro level, the problems are identified. The problems are plateauing consumption and falling investment rates.

• Now, the question is, how can this trend of plateauing consumption, as well as falling investment rates, be reversed? 

One suggested solution is to give money in the hands of the people, especially rural people, in the form of PM Kisan, MNREGA, etc. The rural people with money in hand spend spontaneously thereby raising the consumption. However, is this solution really sustainable?

The other suggested solution is employment generation. This is a good idea as this will not only give a boost to consumption but also raise investment rates. Construction, infrastructure, manufacturing are 3 sectors that can certainly generate employment at a large scale.

• The construction sector though is going through a bad phase with many stuck and delayed projects. The union government has recently announced a stress fund to revive the construction sector. This is a step in the right direction. 
• The infrastructure sector is plagued with land acquisition issues. Within the infrastructure sector, roads, highways, railways have been given a special focus. The union government recently announced that 100 Lacs Crores worth of Infrastructure projects will be started in the next 5 years. However, both these sectors namely construction and infrastructure will take time to fructify. 
• The third sector that can generate employment at a large scale in India is the manufacturing sector. However, years after years, the manufacturing sector has not boomed in India.

Micro

The manufacturing sector has the potential to transform the Indian economy. Focus on the manufacturing sector and in particular on the Make in India initiative can set India on a path to achieve double-digit growth for the next 2 decades.

However, to boost the manufacturing sector in India, we need to differentiate between top-down manufacturing and bottom-up manufacturing.

Since 2014, the FDI inflows in India in absolute number terms have increased. However, FDI inflows as a percentage of GDP are below 2%. 

Moreover, FDI inflows go into various sectors of the economy. And even within the manufacturing sector, the FDI inflows go into the top-down manufacturing. 

In a top-down manufacturing approach, automation has resulted in a lack of employment generation. Robots and high-tech machinery are deployed to produce goods. 

Therefore, the bulk of the employment generation is only possible in bottom-up manufacturing. However, even the Make in  India program failed to focus on bottom-up manufacturing. And this is where our policymakers lack attention to details. Focus on bottom-up manufacturing will not only generate millions of jobs but also reduce India's trade deficit with China. Focus on bottom-up manufacturing will facilitate Indian entrepreneurs to manufacture simple common household goods in India rather than trading these goods from China. Simple common household goods such as toys, electrical items, electronic items, Diwali Lights, Plastic products can be easily manufactured in India. However, Indian entrepreneurs trade these goods from China. To support bottom-up manufacturing, the policymakers need to focus on developing manufacturing infrastructure in India. And this manufacturing infrastructure can be easily developed in a span of 2-3 years. All it needs is attention to detail. Now, the question that arises is 'How can this manufacturing infrastructure be developed'? Part of Government Spending (G) must be geared towards developing the manufacturing infrastructure. Once bottom-up manufacturing kicks-up in India, the private investment in the bottom-up manufacturing will rise regularly. However, the government needs to provide a trigger point.

Once this manufacturing infrastructure is in place, the Indian entrepreneurs will manufacture globally competitive common household goods in India. New manufacturing jobs will be created. This will not only boost India's own consumption but also give a boost to exports while reducing the imports from China.

Net-net, the Indian economy can boom by focusing on bottom-up manufacturing.

India China Economic Comparison

India and China were at the same per capita income in 1980. However, as things stand today in 2020, the Chinese economy has taken off whereas the Indian economy has lots of catching up to do.

As per the world bank data, In terms of nominal GDP in 2018, the Chinese economy in current US$ (13.608 Trillion US$) was 5 times the size of the Indian economy (2.719 Trillion US$).

As per the world bank data, In terms of PPP GDP in 2018, the Chinese economy (25.399 Trillion US$) was 2.42 times the size of the Indian economy (10.5 Trillion US$).

The gap between the Chinese economy and the Indian economy is massive. And it will take India several years to catch up with China.

However, how did this huge gap develop between the Chinese economy and the Indian economy? To understand this, we will rely on the numbers rather than rhetoric.

And here are the numbers:

Firstly, Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Therefore, let's get the data for each and every component of the economy for both India and China.

• Consumption (C):

As can be seen from the above charts, the Consumption as a percentage of GDP in 2018 for China was 38.68%. Whereas, the Consumption as a percentage of GDP in 2018 for India was 59.39%.

Another point to be noted is that in the case of the Indian economy, the Consumption as a percentage of GDP has always been higher than the consumption as a percentage of GDP for the Chinese economy.

• Investment (I):

As can be seen from the above charts, the Investment as a percentage of GDP in 2018 for India was 31.31%. Whereas, the Investment as a percentage of GDP in 2018 for China was 44.06%.

One can also observe that for the Chinese economy, the Investment as a percentage of GDP has always been higher than the investment as a percentage of GDP for India. There is almost a difference of 12-15% as a percentage of GDP between the Chinese economy and the Indian economy.

• Government Spending (G):

As can be seen from the above charts, government spending as a percentage of GDP for China in 2018 was 14.68%. Whereas, the government spending as a percentage of GDP for India in 2018 was 11.23%.

One can also observe from the above charts that government spending as a percentage of GDP for the Chinese economy has always been higher than that of the Indian economy.

• Net Exports (X):

We will analyze exports and imports for both the Chinese and Indian economies.

Exports:

As can be seen from the above charts, exports as a percentage of GDP for India in 2018 were 19.74%. Whereas, the exports as a percentage of GDP for China in 2018 were 19.51%.

However, it is also evident that with rising wages in China, Chinese exports are falling consistently since the peak of 2006.

Therein lies the opportunity for India to focus on its manufacturing sector especially on bottom-up manufacturing to expand its exports worldwide.

Imports:

As can be seen from the above charts, imports as a percentage of GDP for China in 2018 were 18.73%. Whereas, imports as a percentage of GDP for India in 2018 were 23.64%.

• Calculations:

Having gathered all the data, we can do simple calculations for both the Chinese and Indian economies.

E = C + I + G + X

For China in 2018:
E = 38.68 + 44.06 + 14.68 + (19.51 - 18.73)

For India in 2018:
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)

• Conclusion:

As can be seen from the above charts and calculations, the Chinese economy grew on account of higher Investment (I) and Government spending (G). The consumption as a percentage of GDP has always been lower for the Chinese economy than that of the Indian economy.

Therefore, it is no rocket science to understand from the above charts that for India to grow at 8 - 10% for the next 2 decades, the Indian policymakers need to make sure that both Investment (I) and Government spending (G) rise. The investment (I), as well as Government spending (G), must be geared towards supporting the manufacturing sector or Make in India program.

Focus on the manufacturing sector, especially on bottom-up manufacturing, is the need of the hour to achieve double-digit economic growth as well as to generate millions of jobs. When Investment (I) and Government spending (G) go into the manufacturing sector in India, then, it is highly likely that India's exports will also boom, thereby, giving a further boost to India's GDP.

How will electric vehicles affect the Indian economy and environment in general?

• Environmental impact of Electric Vehicles in India:

As the name suggests, Electric Vehicles consume electricity. The battery is charged for a period of 6-8 hours. So, electricity is the fuel in electric vehicles. However, let's look at the sources of electricity generation in India.

As of 31st March 2020, As per the Ministry of Power, Govt. of India, data, India's total electricity installed capacity is 370106 MW. Out of which 62.8% is generated by thermal fuels such as coal (54.2%), Lignite (1.7%), Gas (6.9%), Diesel (0.1%). Hydro contributes 12.4% to India's total electricity installed capacity. Nuclear contributes 1.9%. And Renewable energy sources contribute 23.5%.

Therefore, when 62.8% of electricity in India is coming from fossil fuels, then, won't that negatively impact the environment? Electric vehicles are brought in the market with the idea that they will reduce emissions. But, facts tell us that since 62.8% of all electricity generation in India is coming from fossil fuels, then, what will be the savings on the emissions front? And it is certain that no major country on earth would give up on its fossil fuels.

Secondly, it is clearly established that the process of manufacturing an electric car generates more CO2 than the process of manufacturing an IC engine car.

Thirdly, today's IC engines are highly efficient and there is continuous research & development going on to make them even more efficient.

Besides, the electric battery when discarded after years of use will result in a further environmental hazard. The discarded battery will end up in our lakes, rivers, and oceans, thereby poisoning the water bodies across India and negatively impacting marine life. When we can't recycle plastic and electronic waste, then, what is the guarantee that we will be able to recycle discarded batteries? Human beings must accept the fact that they are bad at recycling stuff unless there is an economic gain in the waste.

Therefore, given all the above factors, what's the fuss about electric vehicles? In fact, if we as a human race focus on improving the soil and reducing meat consumption, then, we might, in fact, take a concrete step towards tackling the issues of global warming. 

"Now, let's assess how will electric vehicles affect the Indian economy"?

Now, it's all right to talk about electric vehicles or EVs, however, talking about these things without proper research can be detrimental to India's manufacturing sector as well as to India's economy. Let's assess it here:

• First thing first, let's get some numbers for India's automobile sector:

India's automobile sector (including component manufacturing) is expected to touch 251.4 - 282.8 billion US$ by 2026.

Two-wheeler sales dominate the auto industry with approximately 81% of vehicles sold in FY 2019 belonging to the two-wheelers category.

The automotive industry also employs approximately 37 million people directly and indirectly. Direct employment is roughly 10 million whereas indirect employment is 27 million.

The automotive industry also contributes about 50% to India's domestic manufacturing output.

These are massive numbers and any disruption in the automotive industry is bound to impact the growth of India's GDP as well as employment generation.

• Having assessed the current automotive numbers, let's now focus on the working of Electric Vehicles.

An Electric Vehicle runs on an electric battery. This electric battery is made from 4 major materials namely Lithium, Cobalt, Manganese, and Graphite. And India does not possess these materials in abundance. Therefore, India will need to import these raw materials from abroad to make electric batteries in India. Where are these 4 major materials found in abundance? Primarily in Africa and South America. And China has already secured deals with these countries to buy these 4 major materials. China has already developed the supply chain and has become the leader in the manufacturing of electric batteries. India has lagged behind in this aspect. Neither do we have secured substantial deals to procure raw materials from Africa and South America nor do we have developed manufacturing capabilities to develop electric batteries in India.

Electric Vehicles are constant torque vehicles. What does constant torque vehicle mean? It means, in laymen's terms, Electric Vehicles won't be requiring a gearbox system. You just install the electric battery and accelerate. That's it. No gearbox system, no clutch system, just accelerate and use the brake system as and when required. At the same time, since Electric Vehicles would be running on a battery, therefore, there won't be any need for a combustion engine (diesel or petrol). Therefore, there won't be any need for carburetors, injectors, pistons, combustion chambers, flywheels, etc.

• Therefore, with the adoption of Electric Vehicles, 3 things would happen in India.

Firstly, since, China has taken a lead in the manufacturing of electric batteries, and India has lagged behind, therefore, for the foreseeable future, we would have to source batteries from China. It is already happening. Many companies, large or small, have already started sourcing batteries from China. In fact, many startups have mushroomed in India that make electric bikes. All these startups source battery, controller, and other body parts from China and then assemble in India. These companies call themselves as manufacturing companies, however, these companies are nothing but assembler. Since, electric batteries, controllers, and other body parts are manufactured in China, therefore, the bulk of the jobs are generated in China and not in India. At the same time, these electric batteries are highly expensive. India's trade deficit with China is already in excess of 60+ billion US$ (approximately, 4.2 Lacs Crore Rupees). Do we want to increase it further? Do we want to create manufacturing jobs in China? The answer is NO.

The second point is since electric vehicles will do away with components such as a gearbox, clutch, combustion engine, piston, carburetor, injector, flywheel, then, what will happen to the component manufacturing companies who are currently manufacturing these components? Won't it result in the loss of manufacturing jobs on a large scale? All these component manufacturing companies employ millions of people. All these component manufacturing companies have invested heavily in setting up manufacturing plants. What will happen to these jobs? What will happen to these manufacturing plants?  Won't it derail the Make in India initiative? Won't it slow down India's GDP growth? Won't it make millions of people jobless?

And thirdly, what will happen to a roadside mechanic whom people approach on a typical Sunday to get their car repaired or serviced? Since electric vehicles will operate on a battery and do away with components such as clutch, gearbox, piston, combustion chamber, etc., therefore, the need for car maintenance will reduce. An electric battery will need less maintenance. Therefore, what will happen to millions of unorganized car mechanics in India? Won't it result in a loss of jobs in the informal sector? Won't it slow down India's consumption and in turn slow down GDP growth further?

• Conclusion

Therefore, unless and until India secures substantial deals with African and South American countries to source Lithium, Manganese, Cobalt, Graphite, and at the same time India develops its own capabilities in the manufacturing of electric batteries, we must not rush towards electric vehicles. Once we have developed internal capabilities to manufacture electric batteries, we can shift current component manufacturing jobs to electric battery manufacturing. That is doable. But without developing our own capabilities in the manufacturing of electric batteries and simply sourcing these batteries, controllers from China, we will be doing a great disservice to India's economy.