In this essay, Kalyani Jain outlines two different economic programs ‘Make in India’ and ‘Made in India’; one the government has and another the government might promote in order to deal with the stagnating economic situation in India. The essay analyzes their pros and cons and ends by giving a possible solution to the dilemma of choosing between the two programs.
Make In India
‘Make in India’, the recent program launched by Narendra Modi’s Government in September 2014 finds its origin in 1901’s pre-independent India where Dadabhai Nauroji wrote against the exports of raw materials from India under the British economic policies and in favor of the alternative of ‘Make in India’ to stop the exploitation of the Indian economy. Similar to Nauroji’s Make in India model, the new model under the BJP government aims to encourage industrialists to setup their manufacturing units in India through Foreign Direct Investment(FDI) in order to transform India into a globally credible manufacturing ground.
The program was launched as a necessary response to the stagnating condition of the Indian economy when the NDA government took over. The GDP growth rate had dropped down to roughly 6% after the promise of the BRICS nation failed and India was tagged as a member of the ‘Fragile Five’. This program is the outcome of a change in the Government mindset of being a constricting issuing authority to becoming a potential business partner. It was an invitation to potential investors and businesses around the world which aimed at portraying India as a credible business atmosphere which would have threefold desirable effects – raised confidence in India’s industrial capabilities, a structured stable framework for manufacturers and a means to raise Indian sentiments after a recesionary phase.
The claimed benefits of the program are optimistic in nature as they promise to help solve the problem of unemployment in the Indian economy and improve the GDP Growth Rate from 5% to 7% by increasing the share of the manufacturing sector by 12%. This would not only give a boost to the economy but also result in building the country’s infrastructure for the future as well. However, things are never as rosy as they seem and there are some major drawbacks to Make in India.
The plan to invite foreign investors to utilize India’s manufacturing potential through FDI leaves India in a vulnerable position through which there will be an increase in government expenditures through licensing costs and costs of unit upgradation hindered by the lack of raw materials in the economy. Returns on FDI could also be put in jeopardy in the future when tough competition arises, such as South Africa, that could offer more inviting prospects to the foreign investors and result in capital outflows from the economy. This could suddenly leave a major chunk of the Indian population unemployed, which in turn, would adversely affect the country’s GDP.
Another major drawback arises from allowing FDI in the defense sector. India has the third largest armed force in the world. However, currently, up to 60% of the defense requirements are met by imports. Under the Make in India program, the government eased the extent of FDI in some sections of the defense sector by up to 49% under automatic route compared to the earlier route where tedious government approvals were required. And for FDI beyond 49%, a clearance from the Foreign Investment Promotion Board (FIPB) is required instead of the earlier procedure of clearance from the Cabinet Committee on security.
Make in India also involves licensed manufacturing of foreign defense equipment that is regulated under the Defense Procurement Policy (DPP) in the categories ‘Buy and Make’ and ‘Buy and Make (Indian)’ under which a foreign arms manufacturer gets paid for the transfer of technology and the license to assemble a platform in India. Such a manufacturer supplies the needed technology and tools needed for assembling components into a full-fledged combat platform. The current policy under this is limited to aircraft, warships, armored vehicles and critical materials (like special metal alloys). In reality foreign firms are hesitant in transferring any high-end technology to the Indian defense sector unless the FDI cap is increased to more than 50% in order for the investment to be beneficial to them. Therefore, even with the Make in India program a high proportion of the platform involves foreign imports.
This could result in political complications in beliefs that the defense sector should not be privatized in an indirect manner in order to satisfy a sense of indigenous security and pride. Defense elements like complex weapons, command and control intelligence network and technology are something that can be one of the most crucial element to succeed in a conflict situation and hence, the government is still hesitant to open such elements to foreign marketer’s’ scrutiny which might make the country strategically vulnerable.
In the given scenario an alternative solution is available, a concept which is not exactly new to Indians: Made in India.
Made in India
‘Made in India’ is a common phrase often seen on the tags of various products that a consumer purchases. It establishes an identity of the product’s having been manufactured in India and gives consumers abroad a means to identify the product’s Indian origins. A program to promote domestic manufacturers to produce goods in India could be a plausible solution to the problems in ‘Make in India’ discussed earlier.
For a product to be tagged as ‘Made in India’, it needs to be a product borne out of Indian factors of production – land, labor, capital, entrepreneurship and technology. This implies that by promoting made in India, there would be a utilization of our natural talent and resourses as well as generation of employment opportunities for the Indian masses. Ready resources combined with favorable government policies would encourage start-ups by entrepreneurs. If promoted positively, a Made in India product could eventually promote Indian home grown brands, similar to Swiss cheese or German cars and there can be a potential brand recognition for products of Indian origin.
The question then arises that what should be made in India? Different products need different factors of production and need to serve a diverse consumer base in a tough competitive setup. A plausible answer to that question could be making a product that is specifically labor intensive hence cutting costs and making imports uncompetitive while taming unemployment. Producers would also be faced with the choice of market, whether to make for domestic consumers or for exports.
Additionally, the competition faced by home brands from other domestic manufactures would be healthier than that through ‘Make in India’ where adverse competition can create negative outcomes like unemployment and incomplete infrastructure.
Made in India also fends off risks associated with Make in India in the defense sector. From a political perspective, strategic benefits like defense strength and nuclear energy are volatile in nature and can have adverse effects if a body such as a foreign investing MNC has control over the production of Indian arms rather than the state through its domestic producers. The defense sector can especially benefit through indigenous technology and production because elements of defense like complex combat weapons that rely on navigational guidance (for example, air to air missiles) as well as defense communication and intelligence gathering are volatile elements in a warring political scenario. Thus, such crucial things can be dealt with as a well kept secret of the nation ensuring strategic advantage and national security.
However, there can be some drawbacks to the Made in India policy. The current condition of the economy along with lack of government support makes it difficult for domestic brands to successfully be able to compete with global brands in both the fronts of foreign trade i.e., exports as well as imports due to the lack of quality in domestic goods.
The solution is for the government to encourage and facilitate enough research and development as to make the best of the available natural resources as well as promote policies that make it favorable for the Indian skilled pool of masses to explore their potential as entrepreneurs in the manufacturing sector. There are many sources from which a domestic start up can gather up the capital needed, widely divided into – Government, Private and Foreign.
With the help of a proper policy formulation by the Government, an Indian entrepreneur need not just depend on FDI or FII in order to meet their capital requirements. Governmental sources of capital include not only Government owned banks, which are directly affected by Government intervention, but also schemes like ‘The Technology Innovation Management and Entrepreneurship Information Service’ which assists technology oriented entrepreneurs to search for relevant technology, funding options and governmental policy information among other things. Recently, the Modi Government also launched a new Ministry for promoting entrepreneurship and skill development and creating jobs. Already existing government departments of the Government like the Department of Science and Technology also aim to assist the entrepreneurs financially as well as technologically in order to accelerate the growth and commercialization of indigenous technology and provides financial assistance in form of soft loans, grants or equity. There are also other Governmental programs and initiatives that assist new smaller entrepreneurs in India with their start-ups like the ‘Small Business Innovation Research’ which are generally limited to small to medium enterprises or agricultural and rural development.
A second category of capital sources includes the domestic sources like angel equity, smart leases, customers themselves or even other vendors among various other options. For example, angel equity is provided by Indian Angel Network with high end, successful entrepreneurs and CEOs who invest in early stage businesses across India, which can potentially create a huge capital for start ups.
Lastly, foreign sources of capital include Foreign Direct as well as Indirect Investment by foreign investors to new or existent companies in India. As discussed earlier, ‘Make In India’ aims at this particular source of capital and resources in order to assist with the domestic production.
Conclusion – Summing up the Differences
Summing up, these are the major differences between the two programs:
Made in India involves domestic factors of production i.e., land, labor, capital, entrepreneurship and technology, whereas Make in India is just an invitation to the foreign factors of production in form of capital, technology and investment to employ Indian labor and use the land and natural resources in India. Made in India refers to a home grown brand with its own identity in domestic and/or foreign markets (for example, ‘Amul’ Butter -Taste of India, is an Indian identity that says Made in India), whereas, Make in India is not a brand but an instrument employed by the Indian government to deal with stagnation in manufacturing in India without the government having to invest in the manufacturing sector.
In the end, it can be seen that both the policies can benefit the Indian economy in their own ways but also have their own major drawbacks. Like most things in the universe, it’s generally advisable to try and get the best of both worlds. Hence, a plausible route that the Indian economy can take is to temporarily promote Make in India for a certain time until there’s enough means for a domestic entrepreneur to manufacture goods domestically and thus, gradually make a shift from Make in India towards Made in India in order for the Indian manufacturing sector to gain self-reliability and global recognition.
Kalyani Jain is a student of Jindal Global Law School in JGU, Sonipat