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.