Posted in Finance Articles, Total Reads: 1343
, Published on 17 August 2015
India is one of the fastest growing economy in the world. India GDP is expected to grow at 7.9 percent growth rate for 2015-2016 .India has been ranked among the top 3 attractive destinations for inbound investments. India is very rich with manpower and cheap labour. But still India is lagging in terms of manufacturing products within India. The “Make in India” campaign will boost the Indian economy and will remove our too much dependency on foreign countries. We are mainly going to study Impact of Make in India on inflation and Employment. We will undergo regression analysis to show the interrelationship between Make in India with inflation and employment.
Narendra Modi came up with “Make in India” that means manufacture in India. The government projected that we should stop exporting raw materials and importing manufactured goods. Many renowned industry owners supported our prime minister in this campaign. The main aim is to increase manufacturing sector share in GDP from 15 to 25 percent. Make in India will foster innovation and growth of manufacturing industries. This campaign will transform the economy from services driven growth model to labour intensive manufacturing model.
There are actually 25 sectors present under the Make in India campaign:
Automobile, Automobile parts, Aviation, Biotechnology, Chemicals, Construction, Defence manufacturing, Electrical machinery, Electronic systems, Food processing, IT & BPM, Leather, Media and Entertainment, Mining, Oil and Gas, Pharmaceuticals, Ports, Railways, Renewable energy, Roads and Highways, Space, Textiles and garments, Thermal power, Tourism and hospitality, Wellness
We are providing some data of India below:
Manufacturing GDP in trillion INR
Manufacturing GDP as a % of total GDP
Fig 1 ( Source : World Development Indicators)
Fig 2 GDP in trillion Rupees in India (Source : : World Development Indicators)
Fig : 3 Manufacturing GDP as a % of total GDP(Source: World Development Indicators)
These graphs depict that manufacturing sector is contributing very less to Indian GDP. We should stop exporting raw materials and try to produce in India.
Why India need Make in India campaign
India has a huge potential to set up manufacturing companies. Low labour costs and huge domestic market triggers India to produce within country. India is a store house of different raw materials. Lack of proper infrastructure is preventing India to produce within the country. Thus India is focusing more on importing manufactured products rather producing them. Promoting the manufacturing sector is a good strategy because it accounts for largest number of jobs in India. Manufacturing requires both skilled and unskilled workers. Thus it will create jobs for unskilled labourers. There has been a restricted growth in manufacturing sector for many years. India was mainly focusing in service sector. The service sector provides jobs to only skilled people. As a result unskilled people are not getting jobs. Make in India will increase export of the country and will economic growth of the company. The current account deficit will come down due to this venture. The main barrier for Make in India is lack of infrastructure in India. India is ranked 142 out of 189 countries in terms of ease of doing business in India.
ease of doing business rank
Thus India ranks very poorly in terms of doing business within the country. Make in India will only happen after all the barriers are removed. The current government of India should take steps to improve this rank.
The tables and graphs below depict these conditions.
Manufacturing GDP (% of total GDP)
Source :- World Development Indicators
Fig 3: Manufacturing sector GDP in different countries (Source: World Development Indicators)
The FDI inflow to India is quite low. The graphs below proves that foreign companies still think India is still not a good place to invest their resources. India is still lacking in terms of trade. India’s poor trade balance is a barrier for economic development. India’s depth of connectivity with other countries is very low.
Fig 4 : FDI inflow ( % of GDP) ( Source : World Development Indicators)
Fig 5: CAD as a percentage of GDP (Source : World Development Indicators)
India is quite behind other countries in terms of infrastructure. The infrastructure is huge barrier to economic growth. India’s population is going to increase heavily and thus urbanisation will increase. As a result government of India will spend $1 trillion in infrastructure expenditure. Private sector plays a great role in infrastructure development.
Impact of Make in India
• The index of industrial production will be hugely impacted by Make in India. The IIP of India will increase due to Make in India campaign. Manufacturing has the highest weightage in measuring IIP. The other sectors as mining occupies a low weightage in the IIP.
Fig 6: Index of industrial production
• India will be converted into export oriented country from import oriented country. The current account deficit will come down due to Make in India campaign. As a result of this the GDP of the country will increase. Currently India has a GDP growth rate of 7.5%. Thus by Make in India campaign we can target a GDP of 10%.
• Indian IT services revenues will touch $225 billion by 2020. The IT industry is eager on utilizing the potential of Make in India initiative to introduce policies and reforms that could stimulate its growth. This campaign will lead to increase in software start-up companies in India. India can be next Silicon valley . The government should start with more technology projects which will help economy to be moved to IT platforms in banking and financial services.
• India will act as a consumer market by companies. Many companies will invest in India. Thus the FDI inflow to India will increase due to Make in India campaign.
• Make in India will also has a huge impact on inflation. With Make in India the government expenditure will increase and thus IS curve will move rightwards and as a result the interest rate will increase. The income level is also increasing and as a result consumption will increase and there will be more demand for goods. As a result there will be rise in price of goods and as a result inflation will occur. From Phillips curve we know that as inflation increases employment will also increases. Thus Make in India will lead to development of new jobs in the country. In the meantime the government should keep a check on the inflation level.
Steps taken By Indian government for Make in India vision
• Increasing custom duty on imported or complete built unit of buses from 10 to 40 percent. Thus it will protect the domestic market of buses.
• The government will launch National Skills Mission to consolidate skill initiative across several ministries.
• Deen Dayal Upadhay Gramin Kaushal Yojana has been launched to enhance the employability of rural youth.
• Reduces rate of custom duty on certain inputs, raw materials to reduce cost of manufacturing involved in several sectors. This will decrease the import cost of Indian companies
• The government is not imposing taxes on funds such as private equity funds, debt funds, venture capital funds etc. They are imposing taxes on the investors.
• Allowing FDI in defence, construction and railways
• Increasing validity of industrial license to 3 years
• Online way of obtaining environmental clearance.
• Infrastructure initiatives such as Delhi- Mumbai Industrial corridor, Amritsar-Kolkata Industrial Corridor, Chennai- Bengaluru Industrial corridor etc.
• Implementation of GST in 2016. GST will lead to economic growth of the country.
• GAAR has been deferred by two years. This will improve the ease of business in India.
• Investor facilitation cell has been started by India to help the first time investors.
• Development of smart cities and industrial corridors.
• Land bill is being modified by current government. They are trying to pass the new land bill which will help foreign players to set up factories in the country. This land bill will initiate the development of many projects in the country.
Other Steps that can be taken by government of India
• The government can introduce subsidy on different sectors to promote Make in India campaign
• Labour plays a huge role in Make in India campaign. The government should liberalize the provisions of Chapter V of Industrial Disputes Act by allowing up to 100 people outside its current number of 100. The government should modify Industrial Employment Act to ease job transfers and fixed term employment. The government should consider amending the Contract Labour Act.
• Development of special economic zones (SEZ). Public private partnership models should be encouraged. Public private sector R & D activities should be promoted to improve technological infrastructure of companies.
• The government should extend their help to set up more manufacturing based start-up companies.
• The government should step up their effort in passing the land bill as soon as possible. This will lure the companies to set up their factories in India.
Upsides and downsides of Make in India
Thus Make in India will generate a lot of jobs in the country. This will increase employment level by almost 5 percent in India. The Indian needs to implement policies that will help to push India manufacturing sector contribution towards GDP to 25% in 2025. India is still ranked very poorly in terms of ease of doing business. Indian government should try to improve the policies. Indian government should take steps to improve business climate. Thus increasing the ease of doing business level will attract foreign investors. The Make in India campaign will help India to grow economically. India’s growing economy will provide investment opportunities to domestic as well as foreign companies. Make in India will also improve the quality standard of the country. There are some barriers and loopholes for Make in India. This barriers and loopholes will be camouflaged by the advantages of Make in India campaign. There will be very less impact on environment.
This article has been authored by ARIJIT CHOWDHURY and ASHISH SOOD from GIM
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