Biggest Mobile-Phone Plant Overshadows ‘Make in India’ Failure
After a great marketing campaign by the PM of India, Narendra Modi, the ‘Make in India’ initiative just isn’t ready for the world.
World’s Largest Mobile Phone Plant
Last week, PM Narendra Modi and South Korean President Moon Jae-In celebrated the inauguration of Samsung’s largest mobile phone factory.
During the event, Modi said the facility was “extremely important” for his ‘Make in India’ initiative. It would also boost the manufacturing segment of the country to 25% of India’s economy by 2020 and create millions of jobs.
Samsung remarked the project to be a ‘shining example’ of the success of the campaign.
Fact And Figures
The investment is more the exception than the norm. According to stats by World Bank and the RBI, manufacturing hasn’t received a significant boost since Modi took office in 2014.
While India has recently overtaken France to become the world’s sixth largest economy, manufacturing has shrunk about 15% of GDP from about 18.6% in 1995, according to World Bank.
Other data shows that investment in India has dropped and stalled projects are increasing.
Made in China
Unlike Beijing’s Made in China 2025 Program- which has strategic targets in industries like robotics and new-energy vehicles, Modi’s Make in India plan is more of an investment promotion strategy.
One of the major reforms undertaken by the current government in this field was in 2014, when foreign investments were loosened up in several sectors including defense.
Over-Capacity
The estimated value of stalled projects has increased from roughly 5.29 trillion to 7.63 trillion in the same period. Data furnished by RBI also points out that corporate capital expenditure has fallen since Modi came into power.
“Modi’s Make in India project hasn’t worked, because Indian companies invested heavily for years until 2012,well before Modi’s election, and now, they have excess industrial capacity”, said Mahesh Vyas, CMIE’s chief executive officer.
“It now needs to wait for these capacities to be absorbed fully before new capacities are built aggressively again,” Vyas said.
He added, “the world has become a lot more protectionist and is more keen to retain employment on its shores than exporting these to other countries.”
Foreign Direct Investment
Rising purchases of smartphones and TVs have made electronics India’s second-biggest import after oil and it is pushing the nation’s trade deficit wider.
Although under Modi, FDI has flowed into India and the country’s ease of doing business has improved.
According to Bloomberg, FDI remains just 1.2% of India’s overall investment. High-profile investments from foreign firms should not be confused with an overall improvement in investment activity in India.
With more jobs created in the service sector, the agenda of the present government should be to focus on those investments.
Way Forward
The ‘Make In India’ program still hasn’t been able to avoid the onerous regulations and occasional political interference that are still common in India.
Also, given India’s tough labor laws and higher bureaucratic entry barriers into manufacturing, along with its widespread fluency in English- a boon in global services suggests that its comparative advantage lies in services rather than manufacturing.