DETAILS: Co-Authors

Name : Mr. Prashant Kumar Mishra

Designation : Indian Administrative Service (Probationer)

Address : Lal Bahadur Shastri National Academy of Administration, Mussoorie, Uttarakhand.

Contact Number : 9167625897

Email Id : [email protected]

Name : Ms. Balashri S. Jalgar

Designation : Advocate

Address : 538/D, Sector No. 3, Karanjimath Road, Shiva Basava Nagar, Belgaum, Karnataka

Contact Number : 9769881545

Email Id : [email protected]

Word count : BIOGRAPHY

Prashant Kumar Mishra B.A. LL. B. (Hons.) IAS Probationer, 2014 Batch, Karnataka Cadre

Mr. Prashant Kumar Mishra is a law graduate from Gujarat National Law University, Gandhinagar. He practised as an Advocate in Bombay High Court before getting selected for prestigious IAS in the year 2014.

He is at present completing his training for IAS and will be posted for district training in June, 2015. His areas of interest include public policy and commercial laws.

Balashri Shankar Jalgar B. Com. LL. B. (Hons.) Advocate, Karnataka

Ms. Balashri Jalgar graduated from Gujarat National Law University, Gandhinagar in the year 2011. She is currently having an independent legal practice in various legal forums in the state of Karnataka. She is also a qualified Company Secretary. Her area of interest is corporate and commercial laws.

Ms. Jalgar has published various articles in the journals of national repute. She has presented research papers at various national and international conferences. Make in India vis-a-vis India’s Manufacturing Sector

Introduction: Make in India is a new approach introduced by the present government to make India a manufacturing hub. Manufacturing industry is significant importance for the development of any country. Developing countries like India depend largely on manufacturing sector for growth and employment. Indian economy which is traditionally dependent on agriculture is taking big leaps in promoting manufacturing sector.

The objective of the mega programme is to ensure that manufacturing sector which contributes around 15% of the country’s Gross Domestic Products is increased to 25% in next few years. This initiative would help in increasing manufacturing in the country which in turn would lead to employment generation in secondary sector and would provide more purchasing power in the people’s hand.

It involves new initiatives to facilitate investment for innovation and building best in class manufacturing infrastructure. Major boost in infrastructure and innovation is required. An investor friendly IPR regime will be put in place for encouraging innovation in manufacturing sector. Tax concessions and FDI friendly systems would be put in place. Government of India is determined on reaping demographic dividend for which major thrust is on skill development. With an estimated 250 million people joining Indian labour force over the next 15 years, it is important that skill development initiative is followed in full earnest. Work on mapping for assessing skill manpower demand for specific sectors in going on. There has to be synchronization between the objectives of the government, academic world, industry and job seekers for ensuring that industry specific skills are imparted.

But there are few hurdles like restrictive labour laws, abundance of unskilled workforce over skilled workforce, lack of technology innovations are some of the factors contributing to this. This article takes a look at what has been done so far and what need more to be done to give much needed impetus to the sector. Objective of Make in India India’s manufacturing has been a puzzle. Since the late 1970s, even as its peers in East Asia have greatly diversified into manufacturing, the sector’s share has stagnated at around 15 per cent of the GDP. It is not that past governments have not tried to revive manufacturing. For decades now, not just the Centre, the states too have had an industrial policy. At some time or the other, many states have even pursued it vigorously. Some of these policies have also been well designed. But the results have been universally disappointing.

The revival of our stagnant manufacturing sector is arguably the biggest economic challenge India is facing. Unfortunately, the problem is complex and intractable, demanding several, often diffuse, sets of solutions. Hence Make in India initiative aims at the initiative to focus on 25 sectors of the economy for job creation and skill enhancement. Some of these sectors are automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, auto components, design manufacturing, renewable energy, mining, bio- technology and electronics. The initiative hopes to increase GDP growth and tax revenue. The initiative also aims at high quality standard. 1

It is important for the purchasing power of the common man to increase, as this would further boost demand, and hence spur development, in addition to benefiting investors. The faster people are pulled out of poverty and brought into the middle class, the more opportunity will there be for global business. Therefore, investors from abroad need to create jobs. Cost effective manufacturing and a handsome buyer – one who has purchasing power – are both required. More employment creates more purchasing power.

The mood of gloom prevails among India’s business community in the last few years, due to lack of clarity on policy issues. Businessmen generally leave India to set up business elsewhere. No businessmen should leave the country is another major objective behind Make in India.

1 Focus on 'Make in India'", Business Standard. 25 September 2014; 27 February 2015 The need to raise the global competitiveness of the Indian manufacturing sector is imperative for the country’s long term-growth. The National Manufacturing Policy is by far the most comprehensive and significant policy initiative taken by the Government. The policy is the first of its kind for the manufacturing sector as it addresses areas of regulation, infrastructure, skill development, technology, availability of finance, exit mechanism and other pertinent factors related to the growth of the sector.

The vision of Make in India initiative is to:

 An increase in manufacturing sector growth to 12-14% per annum over the medium term.

 An increase in the share of manufacturing in the country’s Gross Domestic Product from 16% to 25% by 2022.

 To create 100 million additional jobs by 2022 in manufacturing sector.

 Creation of appropriate skill sets among rural migrants and the urban poor for inclusive growth.

 An increase in domestic value addition and technological depth in manufacturing.

 Enhancing the global competitiveness of the Indian manufacturing sector.

 Ensuring sustainability of growth, particularly with regard to environment.

Make in India focuses on FDI — First Develop India is a signal to the companies that government should create an enabling environment for investment, which can be expected they would reciprocate by committing their energies and investments to the country. 2

Challenges in Manufacturing Sector Make in India initiative has listed down various strengths in the manufacturing sector of India:

2PM launches “Make in India” global initiative, http://pmindia.gov.in/en/news_updates/pm-launches-make-in- india-global-initiative/  India has already marked its presence as one of the fastest growing economies of the world.

 The country is expected to rank amongst the world’s top three growth economies and amongst the top three manufacturing destinations by 2020.

 Favourable demographic dividends for the next 2-3 decades. Sustained availability of quality workforce.

 The cost of manpower is relatively low as compared to other countries.

 Responsible business houses operating with credibility and professionalism.

 Strong consumerism in the domestic market.

 Strong technical and engineering capabilities backed by top-notch scientific and technical institutes.

 Well-regulated and stable financial markets open to foreign investors

Though the strength is perceptible and sound still there are numerous challenges that inhibit manufacturing sector. Sorely deficient infrastructure, inhospitable business environment, corruption, poor quality of human resources, problems with access to timely and adequate credit, difficulty of getting land, high burden of taxation and restrictive labour regulations would figure prominently on any list.

In an ideal world, public policy would be tailored to address all these problems. But in the real world, governments have limited resources and face serious administrative and political limitations. Further, many of these are intimately linked to the country’s stage of development.

Infrastructure tops the list of most surveys on doing business in India. In particular, chronic deficiencies in transportation and power impose prohibitive costs and lower business competitiveness. Multiple enterprise surveys have identified electricity as the biggest constraint. Further, India lags behind on every measure of transport connectivity. Though there have been considerable recent successes spurred by private participation, much needs to be done. Credit access for small and medium enterprises (SMEs) is a concern even in developed economies. Interestingly, among the ten parameters in the World Bank’s Doing Business Survey (DBS), India scores best on access to credit, better than its emerging market peers. Other surveys also confirm this. The more important concern would be the undoubted difficulties faced by informal firms in accessing credit.

Scarcity of land and skilled labour have already started troubling businesses, though it is difficult to describe them as binding constraints. Consider land where over the last decade, several states have generously allocated massive amounts of land, virtually free of cost, for the establishment of manufacturing facilities. But, pointing to constraints that go beyond land, only a minuscule proportion of these investments have materialised.

Our poor human resource quality - 70 per cent of the workforce is educated up to the primary level or lower, though only 10 per cent has received some skill training is likely to emerge as a constraint in the days ahead. A more sustainable strategy to bridge the “employability deficit” is to fix the quality of school education.

The regulatory hurdles are equally onerous. India has some of the most restrictive labour regulations. They not only impose prohibitive costs on employers but also an unbearable burden on employees, thereby forcing both sides into informal contracting.

High taxes erode business competitiveness. A multiplicity of indirect taxes raises both the tax burden as well as administration costs. In any case, our less-than- encouraging experience with tax concessions, the core of numerous Central and state industrial policies over the years, does not lend credence to the view that taxation costs are a binding constraint.

Labour taxes, infrastructure, and the business environment appear to be binding constraints on the revival of India’s manufacturing sector. However, given the huge size and vast diversity of the country, a diagnostic for each state may be a more prudent strategy. In any case, instead of big-bang reforms, sustained efforts in multiple directions, which cumulatively generate large effects, are required to relax these constraints so that we can realise the goal of making in India. Incentives for Make in India initiative Under the initiative, brochures on the 25 sectors and a web portal were released. Before the initiative was launched, foreign equity caps in various sectors had been relaxed. The application for licences was made available online. The validity of licenses was increased to 3 years. Various other norms and procedures were also relaxed.

In August 2014, the Cabinet of India allowed 49% foreign direct investment (FDI) in the defence sector and 100% in railways infrastructure. The defence sector previously allowed 26% FDI and FDI was not allowed in railways. This was in hope of bringing down the military imports of India. Earlier, one Indian company would have held the 51% stake, this was changed so that multiple companies could hold the 51%. Out of 25 sectors, except Space(74%), Defence(49%) and News Media(26%), 100% FDI is allowed in rest of sectors.

Further simplification of regulatory environments in the following ways will be done by the government:

 Timelines will be defined for all clearances.

 Central & State governments to provide exemptions from rules and regulations related to labour, environment etc. subject to the fulfilment of certain conditions.

 Mechanisms for the cooperation of public or private institutions with government inspection services under the overall control of statutory authorities to be developed.

 Process of clearances by centre and state authorities to be progressively web- enabled.

 A combined application form and a common register to be developed.

 The submission of multiple returns for different departments will be replaced by one simplified monthly/quarterly return.

 A single window clearance for units in NIMZ.

 Ease in environment approvals.

Additionally sector wise incentives are: Transfer of assets:  In case a unit is declared sick, the transfer of assets will be facilitated by the company managing the affairs of NIMZ.

 Relief from capital gains tax on the sale of plant and machinery of a unit located in NIMZ will be granted in case of the re-investment of sale consideration within a period of 3 years for purchase of new plant and machinery in any other unit located in the same or another NIMZ.

Green technology & practices:  5% interest in reimbursement & 10% capital subsidy for the production of equipment/machines/devices for controlling pollution, reducing energy consumption and water conservation.

 A grant of 25% to SMEs for expenditure incurred on audit subject to a maximum of INR 1,00,000.

 A 10% one-time capital subsidy for units practising zero water discharge.

 A rebate on water cess for setting up wastewater recycling facilities.

 Incentives for renewable energy under the existing schemes.

 An incentive of INR 2,00,000 for all buildings which obtain a green rating under the IGBC/LEED or GRIHA systems.

Technology development:  Incentives for the production of equipment/machines/devices for controlling pollution, reducing energy consumption and water conservation.

 SMEs will be given access to the patent pool and/or part of reimbursement of technology acquisition costs up to a maximum of INR 20,00,000 for the purpose of acquiring appropriate technologies up to a maximum of 5 years.

Special benefits to SMEs:  Rollover relief from long term capital gains tax to individuals on sale of residential property in case of re-investment of sale consideration.

 A tax pass-through status for venture capital funds with a focus on SMEs in the manufacturing sector.  Liberalization of RBI norms for banks investing in venture capital funds with a focus on SMEs, in consultation with RBI.

 The liberalization of IRDA guidelines to provide for investments by insurance companies.

 The inclusion of lending to SMEs in manufacturing as part of priority sector lending.

 Easier access to bank finance through appropriate bank lending norms.

 The setting up of a stock exchange for SMEs.

 Service entity for the collection and payment of statutory dues of SMEs.

Government procurement:  The policy will also consider use of public procurement with stipulation of local value addition in specified sectors. These include areas of critical technologies such as solar energy equipment, electronic hardware, fuel efficient transport equipment, IT based security systems, power, roads & highways, railways, aviation and ports.

Industrial training & skill upgradation measures:  Skill-building among large numbers of a minimally educated workforce.

 Relevant vocational and skill training through establishment of ITI in PPP mode.

 Specialized skill development through the establishment of polytechnics.

 Establishment of instructors’ training centre in each NIMZ.

Exit mechanism:  It envisages an alternate exit mechanism through job loss policy and a sinking fund or a combination of both.

Under foreign policy investment, domestic manufacturing will be the core and central tenet as that puts job creation or employment generation at the top of the objectives in inviting foreign investment to the country. Our foreign investment policy on efficient and competitive domestic manufacturing will serve multiple objectives. First and foremost, it will enhance job opportunities within the country; second, it will minimise the imports of such products into the country, thereby mitigating the pressure on our trade deficit; third, in the long run, if not in the near-term, it will help augment and diversify our exports from the manufacturing sector; fourth, it will help in bringing latest technologies into the country and lastly, such domestic manufacturing will help minimize some of the trade frictions we have with other countries. The importance of domestic manufacturing with foreign investment in reducing trade frictions with other countries is at present ignored or underestimated. As a corollary, the focus on world- class domestic manufacturing may also be the best way to cope with globalisation and to maximise the possible benefits from it. The size of our domestic market and the abundant availability of skilled and technical manpower at low cost is a leverage that we need to put to use consciously to induce foreign investors to make India as a manufacturing hub in their operations. If there is one lesson we can learn from the Chinese, it is how the size of the domestic market and the availability of skilled and disciplined manpower could be put to effective use for the industrial and technological development of the country with foreign investment.

Also, National Investment and Manufacturing Zones are being conceived as giant industrial greenfield townships to promote world-class manufacturing activities. The central government will be responsible for bearing the cost of master planning, improving/providing external physical infrastructure linkages including rail, road, ports, airports and telecom, providing institutional infrastructure for productivity, skill development and the promotion of domestic and global investments. Further the identification of land will be undertaken by state governments. State governments will be responsible for water requirement, power connectivity, physical infrastructure, utility linkages, environmental impact studies and bearing the cost of resettlement and rehabilitation packages for the owners of acquired land. The state government will also play a role in its acquisition if necessary.

Make in India: Steps for success There have been procedural delays, tax hurdles and complications and numerous factors which are hindering the manufacturing sector. To achieve progress and realise the dream of Make in India soon, following steps are essential:

Cutting down on procedural delay: For making India an investment hub, the first and foremost importance step would be to create an efficient administrative machinery which would cut down on delays in project clearances. Economists say that India has been very stringent when it comes to giving procedural and regulatory clearances. Besides a time bound clearance from all regulatory authority would create a conducive environment for business. Delay in getting regulatory clearances lead to rise in cost of production.

Tax sops & focus on innovation: Economists have noted that with the globalization becoming a reality, Indian manufacturers will have to compete with the best and cheapest the rest of the world has to offer even in the domestic market. They urged for providing tax concessions to any industry which would set up manufacturing facility in the country. Besides a critical aspect is the country’s huge small and medium-sized industries which could play a big role in making the country take the next big leap in manufacturing.

Skill development & thrust on education:

There has to be synchronization between the objectives of the government, academic world, industry and job seekers for ensuring that industry specific skills are imparted. Experts argue that the country needs to focus on quality education not just skill development. In the last couple of years, National Skill Development Agency (NSDA) initiated work on creating a labour market information system which would help industry sourcing their manpower requirement. After getting information on labour market, the government would provide accreditation to manpower agencies so that the industry can access information on the manpower requirement.

Reforms in the labour laws: Besides the skill development, labour law flexibility is a key element for the success of this campaign for increasing manufacturing in the country. Economists say that “labour law flexibility does not imply ‘hire and fire’ policy, it’s about providing a sound social safety net to workers.” Experts say that the country has some of the most comprehensive labour laws at the same time a large parts of working population do not have access to social security net. Prime Minister had stressed the faster the bulk of Indian middle class increases, the faster people move from poverty to middle class, the faster will be their conversion into a favourable market for the world. He said his government's focus will be on physical infrastructure creation as well as creating a digital network for making India a hub for global manufacturing of goods ranging from cars to softwares, satellites to submarines and paper to power. A leading Economist said the big challenge for ‘Make in India’ campaign would face constant comparison with China's 'Made in China' campaign. The China launched the campaign at the same day as India seeking to retain its manufacturing prowess.

Demographic Dividend: Notwithstanding the challenges faced in making India a manufacturing hub, the country is poised to reap rich dividend for being one of the youngest nations in the world. According to reports by 2020, India is set to become the world’s youngest country with 64% of its population in the working age group. With the Western countries, Japan and even China aging, this demographic potential offers India and its growing economy an edge that economists believe could add a significant 2% to the GDP growth rate annually. Prime Minister also had said that India is the only country in the world which offers the unique combination of democracy, demography, and demand from a rising middle class. Besides, the campaign would ensure closer centre and states relations for promoting India as a global manufacturing hub.

Conclusion

Make in India is not a one stop solution for all the problem facing the Indian economy but it is certainly a giant step in making India a globally competitive manufacturing hub. However for this it is imperative that some essential criteria are fulfilled in right earnest. To start with, infrastructure execution in India is abysmal, it needs to be corrected. India will not be able to realise her true potential in manufacturing unless there is tangible change in mindset.

REFERENCES

1. “ Make in India: Turning vision into reality”; BCG-CII initiative, CII 13th Manufacturing Summit, 2014. 2. “ How can the New Government make India a Global Manufacturing Hub”, CRISIL Young Thought Leader.

3. www.mea.gov.in/Portal/.../3174_Questions_on_Make_in_India.pdf, MEA take on Make in India Initiative

4. Govt. of India websites viz. employmentnews.gov.in/webmake.pdf; www.investindia.gov.in/InvestIndia_Brochure_web.pdf; www.makeinindia.com