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.
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.
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