India’s flagship Make-in-India campaign witnessed a soft launch in September 2014, just a few months after Narendra Modi became the Prime Minister, after a thumping electoral victory by the Bharatiya Janata Party (BJP) that year.
The government’s stated objective was to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure.
Though the government has taken a series of measures to push for this reform agenda, the two most notable steps are the Production-Linked Incentive (PLI) scheme and the opening up of Foreign Direct Investment (FDI) in key sectors.
In 2014, the government liberalised the FDI limit from 26 percent to 49 percent in the insurance sector. In September 2014, under the Make-in-India initiative, FDI policy for 25 sectors was liberalised further. In May 2020, the Centre increased the FDI limit in defence manufacturing under the automatic route from 49 percent to 74 percent.
According to the Centre, the Make-in-India initiative is based on four pillars – new processes to enhance 'ease-of-doing-business', development of new infrastructure, such as industrial corridors and smart cities, opening up of FDI to attract investment, and a shift in mindset to ensure that the government acts as a facilitator for the industry rather than as a regulator.
The push towards this initiative continued during the second term of the present government as campaigns like Atmanirbhar Bharat followed.
The verdict on the Make-in-India programme is a mixed one, with some saying it is too ambitious while India has made tall strides in sectors such as electronics and pharmaceuticals.
Exports have been rising steadily over the last decade. Exports of electronic goods increased from Rs 39,978 crore in 2016-17 to Rs 1,09,797 crore in 2021-22. Indian pharma exports have grown 103 percent since 2013-14, from Rs 90,415 crore in 2013-14 to Rs 1,83,422 crore in 2021-22.
However, some experts feel that India’s Make-in-India journey is yet to take off, with the country becoming a centre for assembly rather than manufacturing.
There are others who say that India has made a strong start. For instance, Foxconn is likely to invest $1 billion in a mobile manufacturing plant in India, according to reports. With another Union Budget round the corner, Moneycontrol evaluates India’s manufacturing push and what the budget can include to build India’s manufacturing story.
PLI scheme
In the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced an outlay of Rs 1.97 lakh crore for PLI schemes, which currently covers 14 key sectors, ranging from electronic products to drones.
The government had, in 2021, said that the minimum production in India as a result of the scheme is expected to be over $500 billion in five years.
As of June 2023, 733 applications have been approved in 14 sectors, with expected investment of Rs 3.65 lakh crore, according to estimates from the government. Around 176 medium, small and micro enterprises (MSMEs) are among the PLI beneficiaries in sectors such as bulk drugs, medical devices, pharma, telecom, white goods, food processing, textiles and drones.
While the PLI scheme has done wonders for a handful of sectors, including India’s electronic manufacturing, in many others, investments have been sluggish. In fact, the commerce ministry is working on reviewing the scheme to ensure better utilisation across sectors.
According to recent media reports, the government is planning changes in the textiles, pharmaceuticals, drones, solar and food processing industries, which together form nearly a third of the PLI scheme.
FDI rules
The National Democratic Alliance (NDA), led by the BJP, in its budget for 2014-15, announced the intent to promote FDI in sectors that could boost domestic manufacturing and job creation.
Following this, then Finance Minister Arun Jaitley announced several steps to boost foreign investment inflows into key sectors, including easing the composite cap on foreign exchange to a certain extent for defence and insurance sectors, and allowing manufacturing units to sell products through retail, including e-commerce platforms without any additional approval.
The next big overhaul in this policy came in June 2016 that included FDI beyond 49 percent in defence under the approval route and 100 percent FDI for e-commerce in food products manufactured in India under the approval route.
Since then, the incumbent government has further liberalised FDI rules in several sectors such as defence, oil refineries, telecom, aviation, among others.
According to estimates from Invest India, total FDI inflows into the country in the last 23 years (April 2000 - September 2023) stood at $953.143 billion, of which those in the last nine years (April 2014 - September 2023) amounted to nearly 65 percent.
Way forward
India’s Make-in-India stride is expected to receive a further boost as major economies look to reduce their dependence on China and scout for alternative manufacturing hubs. In this context, New Delhi has seen interest from conglomerates including Tesla and Apple to set up shop within the country.
The Budget for 2024-25 is likely to focus on ease-of-doing business, including decriminalisation of certain offences and labour laws, Moneycontrol reported citing sources on November 23 (give link).
The World Bank’s Ease-of-Doing Business Survey, in which India’s ranking rose from 142 in 2015 to 63 in 2020, has been discontinued. India had been doing well in the global ranking with respect to ease-of-doing business for the past few years.
Though India’s Make-in-India push via easier FDI norms and the PLI scheme has been acknowledged, there are concerns with regard to its sustenance.
The recent global slowdown has started impacting FDI flows. Foreign direct equity investments into India fell by 24 percent on-year to $20.5 billion during the first six months of the current fiscal.
Total FDI, including equity capital of unincorporated bodies, reinvest earnings and other capital, fell 15.5 percent during April to September and inflows decreased from key countries such as Singapore, Mauritius, US, and United Arab Emirates.
Expert-speak
“While there are a number of steps taken by the government, a further increase in the speed of creating infrastructure, including the logistics infrastructure, would support the manufacturing sector and the Make-in-India initiative. Currently, the PLI schemes are more focused on manufacturing output and less focused on research and innovation. While there is a separate research-based incentives scheme, the government may consider giving investment in research certain incentives under the PLI schemes itself,” Gunjan Prabhakaran, Partner & Leader, Indirect Tax, BDO India, told Moneycontrol.
“In addition, it is seen that after the announcement of the scheme, the various recipient industries have been engaging with the government to iron out the practical issues, including the eligibility norms itself, which leads to the modification of the schemes. This results in delays. This delay can be reduced if the schemes are designed in consultation with the industry, with the government laying down specific parameters. Lastly, some of the sectors have seen significant delays in the disbursement of incentives, which need to be addressed on a sector-specific basis as well as on conceptual level itself,” she said.
“The PLI schemes boost the Make-in-India initiative. The success of the two PLI schemes in pharma is getting reflected in declining imports. The pharma and medical devices industry proved its mettle during COVID-19. We served the domestic needs and exported as well. Under Vaccine Maitri, we supplied vaccines to around 96 countries,” Ashok Madan, ED, Indian Drug Manufacturers' Association (IDMA), told Moneycontrol.
Many, including former RBI governor Raghuram Rajan, has questioned the efficacy of the output-linked incentive plan. Rajan, in a note back in May 2022/2023, had said that the rise in exports of finished cell phones cannot be attributed to the country’s manufacturing prowess since manufacturers were most likely engaging in assembly alone.
Recently, former chief economic advisor to the government and current NITI Aayog member Arvind Virmani, in an interview to Moneycontrol, said that the government needs to identify the problems associated with the PLI scheme before expanding it further.
“If we want to extend PLI, we may have to identify problems in specific sectors and address them. Similarly, we may analyse whether the current structure of the PLI scheme is good only for electronics or works for other sectors, too,” he said on November 14.
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