‘Make in India’ completed its maiden anniversary in September this year. Fortunately, the overall economic environment for India appears far more positive and full of opportunity than for the world as a whole. Forecasts from the IMF, The World Bank, and the Japanese brokerage firm, Nomura, all suggest India growing at around 7.5-8% this fiscal, with possibilities for positive revision as the reforms gradually show results.

The recent Ernst and Young’s Survey 2015 has ranked India as the most attractive market this year. It also states that India has emerged as the number one FDI destination in the world during the first half of 2015. This survey reconfirm the earlier findings of the Financial Times, London, which had also placed India ahead of China for greenfield foreign direct investments in 2015. Frost and Sullivan in its global study of growth, innovation and leadership, has placed India at number one position amongst a hundred countries. Similarly, Foreign Policy magazine of the US has ranked India at number one position amongst the world’s topmost destinations from 110 countries. India today is an oasis of growth in the midst of a barren economic landscape.

The recent GDP numbers show that India registered a growth of 7% in the first quarter of 2015-16, lower than 7.5 during the same period last year. The overall GDP growth number, which is a cause of worry for some, is nevertheless the fastest in the world. This is impressive showing, given the IMF concerns of lower global growth in the first half of 2015 owing to a further slowdown in the emerging economies and a weaker recovery in advanced economies as highlighted in the recent report for the G-20 meeting on ‘Global Prospects and Policy Challenges’.

The latest data on Index of Industrial Production (IIP) for the month of August 2015 shows a healthy growth of 6.4%, after growing at more than 4% in June and July. Manufacturing in particular grew at around 6.9% in August. The cumulative growth of IIP from April to August 2015 is around 4.1%, higher than the 3% during the corresponding period last year. Other macroeconomic indicators, such as inflation, fiscal deficit, current account deficit, foreign exchange reserves, etc., have also shown significant improvement in the last one year. Overall, despite the recent global turbulence, both the near-term and long-term growth prospects remain favourable.

The manufacturing sector in India is small as compared to that of other BRICS (Brazil, Russia, India, China and South Africa) nations. It accounts for merely 17.2% of Gross Value Added (GVA) at current basic prices. Raising the share of manufacturing in GDP in India has become a key priority because of the enormous potential that the manufacturing sector has for generating higher inclusive growth with enormous opportunities to the workforce. Without manufacturing growing at a faster rate, job absorption would continue to be low.

Countries worldwide are increasingly organizing their production, trade and investment decisions based on opportunities provided by the global value chains. They are also increasingly signing bilateral and multilateral trade agreements with one another to more often than not, avoid any disadvantage from exclusion. Success today depends principally on how countries are able to compete on cost, quality and productivity in the manufacturing sector.

In this backdrop, the Make in India programme was initiated to bring the manufacturing sector into the centrestage of economic growth and to develop India as a hub for manufacturing, design and innovation. Twenty-five sectors have been identified as thrust sectors of the Make in India programme. Actions plans for twenty-five thrust sectors have been finalized and a professional agency is currently engaging with nodal officers of these ministries/departments on a regular basis to assist them in setting time-frames to monitor targets and submit progress reports.

 

Building a conducive and enabling environment: Various ease of doing business initiatives have been undertaken to de-license and de-regulate the industry during the entire life cycle of a business. The Department of Industrial Policy and Promotion (DIPP) is also working closely with the state governments in helping them identify constraints in doing business and improving the overall business environment. A 98 point questionnaire for ascertaining the status of existing policy and procedures impacting setting up of industries/business as per the action plan was shared by DIPP with the states. Based on the responses received, an assessment exercise for ranking states on the basis of implementation of business reforms was completed and the results were released by the World Bank last month. It provides a road map to states to help them learn from one another and replicate success stories.

An expert committee is examining the possibility of replacing multiple prior permissions by prior regulatory mechanisms. Public comments on various suggestions received by them are being invited.

On the recommendation of the Law Commission, a Commercial Courts Bill 2015 that provides for the setting up of a commercial division in the High Courts which exercise original jurisdiction and commercial courts for dealing with commercial disputes, has been introduced in Parliament. Once approved, this is expected to improve India’s performance in enforcing contracts relating to cases such as intellectual property rights, arbitration, insurance and taxation. These measures will increase profitability of firms and hence encourage investor confidence and further investments.

 

The success of ‘Make in India’ is intrinsically linked with the overall infrastructure environment of the economy which is a prime focus. Our stress is on building a pentagon of industrial corridors to boost manufacturing (Delhi-Mumbai industrial corridor, Chennai-Bengaluru industrial corridor, Bengaluru-Mumbai industrial corridor, Amritsar-Kolkata industrial corridor and Vizag-Chennai industrial corridor). Care has been taken to engage stakeholders at every stage in discussions, and various state government’s views and priorities are fully accounted for and industries most suitable along different corridors are being identified. The work related to planning, coordination, funding, development etc. of these industrial corridors is to be handled by the National Industrial Corridor Development Authority which is being created.

The creation of a National Investment and Infrastructure Fund (NIIF) is also underway, the framework for which was recently released. The fund would be crucial in infusing equity capital in the infrastructure finance companies, which can further be leveraged manifold. Once operational, fresh investments in greenfield and brown-field projects and support to existing cash starved stalled projects would be ensured.

 

Under the programme, an investor facilitation cell has been created as part of the ‘Invest India’ initiative to guide, assist and handhold investors during the entire lifecycle of the business. Some states have created investor facilitation cells. Country specific help desks are being created to cater to the needs of specific investors.

The government has put in place an investor friendly policy on FDI which is reviewed on an ongoing basis to make it even more investor friendly. Various measures have been taken to liberalize FDI policy: caps on FDI have been raised in the defence sector, insurance sector and pension sector from 26% to 49%; FDI has been permitted in operation and maintenance in specified rail infrastructure projects; norms have been revised for 100% FDI under automatic route in construction along with exempting medical devices from sectoral restrictions for pharmaceuticals. Further, composite caps on all forms of foreign investments have also been introduced recently to ensure uniformity across the sectors in FDI policy for attracting foreign investments. We are now going a step forward by launching the next generation of FDI reforms where the focus is on cutting the need for prior government approvals and simplification of the overall FDI policy so as to reduce delays.

The continuous efforts to reinstall investor’s confidence have started gradually translating into outcomes. FDI equity inflow into the economy has increased by about 27% during 2014-15, and by about 31% during April-June 2015 corresponding to the same period last year. India regained its position in the list of top 10 destinations for Foreign Direct Investment (FDI) in 2014 according to UNCTAD’s World Investment Report 2015 (India is ranked 9th this year, it was 15th last year). India’s rank as a top prospective host country for FDI rose to third place from fourth place.

According to the recently released World Economic Forum’s Global Competitiveness Report 2015-16, India’s rank has improved 16 positions to 55th position from 71st last year. The ranking is based on performance on 114 indicators that are clubbed under 12 parameters such as infrastructure, macroeconomic environment, institutions, market size and innovation, among others. India ranks well in market size, institutions, business sophistication, innovation, etc. and almost all parameters have shown improvement in the last one year.

 

India is one of the youngest nations in the world with more than two-thirds of the total population below 35 years of age, making it suitable for building a manufacturing hub. We have young people, but many of these youth are unemployable as they lack the required skill sets for meaningful economic employment. Less than 5% of India’s potential workforce today gets formal skill training to be, and stay, employable. A skilled workforce is the backbone of the manufacturing sector and overall development of the economy. The government has taken a number of steps to enhance skills, thereby increasing the employability of workers in India.

To make India a skill capital of the world, the ‘Skill India’ initiative has been launched. Under it, various initiatives have been launched such as providing an umbrella framework to all skilling activities under the National Policy for Skill Development and Entrepreneurship 2015, a flagship scheme of Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with financial rewards to complete skill training, recognition of training and prior learning skills by issuing recognizable certificates and financial assistance to youth seeking to attend skill development programmes under the Skill Loan Scheme. Companies will immensely benefit from a skilled workforce.

 

Promoting and nurturing innovation and entrepreneurship: India is also creating an encouraging ecosystem to support entrepreneurship and start-ups. A Techno-Financial, Incubation and Facilitation Programme has been announced by the prime minister called SETU (Self-Employment and Talent Utilization) to support all aspects of start-up businesses, and other self-employment activities, particularly in technology driven areas.

In order to create a conducive ecosystem for venture capital in the MSME sector, an ‘India Aspiration Fund’ has been set up under the Small Industries Development Bank of India (SIDBI). The fund is expected to attract private capital by way of providing equity, soft loans, other risk capital, and so on to various venture funds, which will then come up with newer investment ideas and protocols.

With a special focus on 25 thrust sectors of Make in India, SIDBI Make in India Loan for Small Enterprises (SMILE) has been launched to offer quasi-equity and term based short-term loans to Indian SMEs with less stringent rules and regulations. To further support the financing and development needs of micro-units and existing small businesses, a Micro Units Development Refinance Agency (MUDRA) Bank has been set up which will provide development and refinance to commercial banks/NBFCs/cooperative banks for loans given to micro-units. The bank will follow a credit-plus approach in the form of providing financial literacy, addressing skill gaps, information gaps, etcetera.

 

India has a pool of young, talented, enthusiastic and creative innovators. A strong intellectual property regime promotes creativity and helps develop the culture of respect for innovation in the country. Several measures have been taken to ensure continuous and unending improvement of the Indian Intellectual Property Rights ecosystem. Intellectual property offices have been radically transformed and human resource has been augmented. Incentivized online filing facilities have been provided with concessions for MSMEs to encourage Indian entrepreneurs to innovate.

The Atal Innovation Mission has been launched as an Innovation Promotion Platform involving academics, entrepreneurs, and researchers drawing upon national and international experiences to foster a culture of innovation, R&D in India. The platform will also promote a network of world-class innovation hubs. The mission will provide funds to a net-work of institutions to conduct research on innovations and would be a mechanism to promote an exchange of ideas.

Connecting Digitally: Digital India, aims to reform government systems, eliminate waste, increase access and empower citizens. It will drive the next wave of growth, which will be knowledge driven. Once in place, broadband in every village with a wide range of online services, will transform India in a manner we cannot foresee.

Besides digital connectivity, measures such as proposed Goods and Services Tax (economic connectivity), providing thrust to infrastructure in general and developing new smart cities and industrial clusters in identified industrial corridors (physical connectivity) are underway for making India a barrier free well connected national market for seamless movement of goods and services across states. The Sagarmala project is one such initiative.

There are several challenges related to factor market reforms. India’s labour laws are antiquated, and its land laws severely impact infrastructure development. Despite several recent measures, there is a clear need for greater consistency, predictability and clarity in our tax policies. We also need to improve our regulatory mechanisms.

Overall, the reforms that have been initiated in the past year have created an optimistic and positive environment for business, investors and budding entrepreneurs. As a result, a number of domestic and international companies are setting up or seriously planning to set up manufacturing facilities in India. The ground for business-friendly and sustained growth has been laid. The direction is right; we just need to accelerate this growth.