‘Make in India’ Revival: Let’s Start by Simplifying GST Regime

That ‘Make in India’ has failed is as clear as day. It is now up to the government to course correct, without delay.

September 2019 marked five years of the launch of the Modi government’s flagship ‘Make in India’ programme. As concerned citizens, it is time for us to look back and reflect on how this ‘landmark’ initiative has performed. It had come with promises of great economic transformation, but with the growth rate of manufacturing plummeting to 0.6 percent last quarter, it is clear that not many are making in India.

Five years later, we see industries across India in turmoil. The country’s leading biscuit maker, Parle, announced a monumental job cut last month.

In the textile sector, Bangladesh is consolidating its position as a leading manufacturer as losses for India mount. Ashok Leyland and Maruti Suzuki have been going through intermittent plant shutdowns. The Tatas, who in 2008 were acquiring Jaguar and Corus without ‘Make in India’, have been forced to go for block closures in their Jamshedpur unit.

‘Make in India’ was launched with much fanfare, with the government listing for itself three major “achievable targets”:

1. increasing manufacturing growth to 12-14 percent per annum
2. increasing share of manufacturing in GDP from 16 percent to 25 percent by 2022
3. creating 100 million jobs in manufacturing by 2022

Indian Exports Were to Surge. What Happened?

Going by the track record, not a single target seems achievable, since:

1. Manufacturing growth rate (10.2 percent before the launch of the programme) has witnessed a precipitous decline to 0.6 percent last quarter
2. the share of manufacturing in the GDP has contracted and remains stagnant at 16.5 percent
3. jobs? Unemployment is at its highest in recorded history.

The recently concluded ‘Industrial Outlook Survey of the Manufacturing Sector’ by the Reserve Bank of India points to the gloom pervading businesses right now. The business climate last month was the worst since the 2008 financial crisis, with nearly one-fourth contraction in orders of manufacturing companies.

Indian exports were expected to surge exponentially with increased manufacturing — the reality is the opposite.

Despite a depreciating rupee, exports have been tepid. The five years of Modi government saw exports grow from USD 314 billion to USD 330 billion, a compound annual growth rate of less than 1 percent. While exports stagnated, imports rose significantly, leading to a ballooning trade deficit. In these five years, the trade imbalance with China rose by nearly 50 percent.

USD 36 billion

Trade Imbalance in 2013-14

USD 53.5 billion

Trade Imbalance in 2018-19

Low Levels of Investments Represent Lack of Confidence in Indian Economy

While few are ‘making in India’, more worrisome is the fact that fewer still are keen on investing in India. Fresh private investments have fallen to a 16-year low. For the July-September 2019 quarter, new investment announcements were 59 percent lower than in the corresponding quarter a year ago. Stalled projects are at a historic high.

The poor scenario becomes grimmer when we look at Annual Survey of Industries data. The industrial Gross Capital Formation (investment) growth rate, which was 19 percent per annum under the Congress-led United Progressive Alliance government, has now fallen to 0.66 percent.

The low levels of investments represent a lack of confidence in the Indian economy.

MSMEs – which account for about 45 per cent of manufacturing output – and start-ups, have probably been the worst hit. The former have had to face credit crunches and weakening growth. The Start-up India program has secured funding for 129 firms only while nearly 3 lakh are registered under its India Hub.

If one were to stack all the relevant indices from the period preceding the launch of Make in India, one would find an economy set for a manufacturing boom. Today, it is clear that the opportunity has been lost and there is an urgent need for a thorough review and, subsequently, a course correction.

Foreign Investors Will Pay Heed When Govt Appears Serious

The biggest blows to ‘Make in India’ came from the government itself with the announcement of demonetisation and the hastily implemented Goods and Services Tax. The disruption, increased compliance costs, and a complex tax regime ground the economy to a halt.

Since then, the acute fall in consumption, which is a product of the twin shocks, has forced further contraction in industrial activity. It is without a doubt that India’s manufacturing sector needs to grow rapidly. It is the only option for a country that wants to optimally utilise its demographic dividend. Towards that end, we will need a concerted effort that encompasses more than just branding and aesthetically designed creatives.

In her budget speech and the many extra-budgetary press conferences, the Finance Minister announced a slew of measures aimed at propelling manufacturing growth. PM Modi stated that the corporate tax cut would give a great stimulus to Make in India and “attract private investment from across the globe”. But are these enough?

Foreign investors will heed the call of “come and make in India” only when the government appears serious in its endeavours of righting its wrongs.

GST Needs to be Simplified, Tax ‘Terrorism’ Must End

If India is to unleash the animal spirits of its entrepreneurs and achieve high growth rate in manufacturing, it will have to start with radically simplifying the GST regime. This must be supplemented with ending tax ‘terrorism’. Inclusive wealth creation cannot take place in an environment of fear.

The government must address the credit crunch at the earliest. Further, there must be consistency in policy-making. The trial and error method of governance will have to go. Announcing a policy and changing it three weeks later, is asking for trouble.

Frequent changes in rules and regulations are detrimental to attracting investment.

It would behoove well for the government to heed the advice of renowned economist, former rime minister, Dr Manmohan Singh, and consider priority-lending in the job creating sectors, especially for MSMEs. MSME exporters should be provided with an incentive package.

That ‘Make in India’ has failed is as clear as day. It is now up to the government to course correct, and there is no time to waste.

(Lalitesh Pati Tripathi is a former Indian National Congress Legislator from Mirzapur, Uttar Pradesh. Akash Satyawali is a policy enthusiast working with the Research Department, Indian National Congress. This is an opinion piece, and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)