To transform, strengthen and promote the manufacturing sector of India and make India a global manufacturing and design hub, the Government of India launched the ‘Make in India’ initiative in 2014. The initiative was designed to increase the share of manufacturing sector’s contribution to GDP to 25% by 2025 by facilitating investment, fostering innovation, developing efficient and world class infrastructure and opening up new sectors for foreign capital. However, looking at the share of manufacturing in India’s GDP which has stagnated around 16%-17% over the years, the success of ‘Make in India’ is still struggling to live up to its expectations.
International trade is in troubled waters after the US China trade war and now even deeper so due to the Coronavirus pandemic. As a result, world trade and investment are slowing down. India missed the opportunity to grab a lion’s share of shifting manufacturing bases and jobs from China following increased trade tensions between the two largest economies in the world and economies of Vietnam, Bangladesh and Indonesia benefited due to the trade crisis.
Also, India’s withdrawal from Regional Comprehensive Economic Partnership (RCEP) which was viewed as a major forum to regional economic integration in Asia dimmed its prospects to be a global manufacturing hub and a key player in the global value chain. Now it will boost China’s trade leadership in Asia which brings together the ASEAN countries plus six others.
The economy was trying to recover from a global economic slowdown, the coronavirus pandemic has put a deeper dent in the global recovery mechanism. The COVID-19 pandemic has disrupted supply chains and caused global supply-demand mismatch resulting in industries losing billions of dollars. This could be an opportune time for India to rethink and reposition itself in global world trade and fill global shortage of materials.
Globally, many companies are looking to exit their manufacturing facilities from China and settle their manufacturing base elsewhere. India can tap these opportunities given the easy availability of skilled workers and competitive prices. However, India requires some serious investment in capacity building, infrastructure, logistics and innovative R&D. According to the World Development Report 2020, India’s logistics costs are double that of her neighboring partner Bangladesh and triple that of China. This explains the limited participation of India in the Global Value Chain (GVC).
India’s flagship programme ‘Make in India’ can be leveraged to supply its own domestic market and export to the world. For instance, there is an urgent need for manufacturing active pharmaceutical ingredients (API) or bulk drugs to ensure India’s future health safety as Coronavirus pandemic has severely impacted supply in India’s generic drug market. India’s pharmaceutical industry should end dependence on Chinese imports of bulk drugs by increasing local production.
With Make in India, India has the potential to become a strong connection to the global manufacturing chain. To bring structural change in the Indian economy, India has to transition from manufacturing low value-added products to high value added products. The Indian Government must initiate efforts to make our manufacturing sector competitive relative to Chinese companies by enabling them to compete on the price front to reap economies of scale. Indian goods can be made more competitive through competitive pricing of energy and transport.
There should also be inclusion of technology and product innovation at each level of the value chain. Apart from this, our ease of doing business, cost of capital, financial penetration, indigenous R&D, customs procedures and land availability must also be competitive. To conclude, Make in India is a large missed opportunity and unless pragmatic reforms are not taken to scale up its manufacturing sector, it is unlikely that India can become a manufacturing hub and participate in GVC dominated by China.