New Delhi: India is one of the largest and fastest-growing economies of the world. Since the liberalisation reforms were introduced by the government in the early ’90s, the Gross Domestic Product (GDP) of the country has risen rapidly. From being an agriculture-based economy to becoming a service-oriented economy, economists believe that India has missed out on the manufacturing part. Generally, the journey of a country from an underdeveloped to a developed economy starts with an upsurge in agricultural activities, followed by manufacturing and services, but in the case of India, the manufacturing part has been missing. At the same time, the global economy is dominated by countries that have a robust manufacturing base.
Make in India: Introduction and concept
In order to reinstate the missing link and transform India into a manufacturing and design hub, the ambitious plan of ‘Make in India’ was launched by Prime Minister Narendra Modi in September 2014. ‘Make in India’ was a judicious response to the demanding situation. At the time, the much-talked-about emerging market debate had died down and the Indian economy was facing “Stagflation” — a situation where an economy faces the double whammy of stagnation and inflation. Further, India was dubbed as one of the ‘Fragile Five,’ with global investors becoming sceptical of the country’s performance on the economic front. The nation was staring at a severe economic failure and desperately needed a major push and ‘Make in India’ had the answer.
The nation was staring at a severe economic failure and desperately needed a major push and ‘Make in India’ had the answer.
The concept of “Make in India” is aimed at encouraging major global companies to manufacture their goods in India. The primary task of the project is to attract investments from all across the globe. The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, is the nodal agency for the formulation and implementation of the programme. ‘Make in India’ had a bright start with India becoming the top destination globally for foreign direct investment (FDI), surpassing the United States and China, with $60.1 billion FDI investments coming in just the next year after its launch in 2014. In the subsequent years, India improved its ranking across major fields; its ranking improved significantly in the Ease of Doing Business from 100 in 2014 to 63 in 2019 among 190 countries.
Make in India in defence sector
Defence is one of the core areas where the government has focussed heavily in the last five years. The country’s defence sector carries huge potential as India was among the top three countries spending on its defence in 2019. Moreover, India has the second largest standing Army in the world. Of the total budget allocated for the financial year 2018-2019, around 1/3rd was allocated for capital expenditure. Most importantly, foreign vendors contribute more than 50 percent of defence equipment which gives a great opportunity for import substitution. It was argued that opening of the defence industry for the participation of private players, along with foreign Original Equipment Manufacturers (OEMs), would help the government to leverage domestic as well as global markets. Also, this type of model would bolster the local manufacturing base which will eventually support the country’s export in the longer run.
FDI in defence sector
One of the key policy decisions in the defence manufacturing sector was allowing 100 percent FDI. Through automatic route and government route, the Centre paved the way for FDI up to 49 percent each. The step was aimed at accessing the modern technology that is confined mostly to the western countries. The government also removed the requirement of single largest ownership of 51 percent of equity. Besides, the government issued the Defence Procurement Procedure (DPP 2016), which was focussed on the institutionalising, streamlining and simplifying of defence procurement procedure to enhance the country’s local manufacturing. The policy has mandated the offset requirement of a minimum of 30 percent for the procurement of defence equipment by foreign defence players for a project which has an estimated cost of acquisition of $286.04 million or more.
Single-window system for spurring exports
Export was also one of the major focus areas, wherein a web-based single window system was created to issue ‘No Objection Certificates.’ The time-bound and transparent process drastically reduced the maximum processing time to 25 days; in fact around 70 percent of the NOCs for exports were issued in just 15 days. For encouraging exports through Defence Public Sector Undertakings (DPSUs), new exports offices were opened by Bharat Electronics Limited (BEL) in Myanmar and Hanoi. An Export Promotion cell was also constituted for public as well as private sector companies to coordinate and follow-up on export-related action, including enquiries received from various countries.
Bringing in MSMEs
Make in India also placed focus on Micro, Small and Medium Enterprises with provision for 90 percent funding by the government. Under MAKE-II, procedures were further simplified in January 2018 for better coordination between the government and private Indian industries for indigenous design, development and manufacture of defence equipment.
Besides, India also announced the setting up of two Defence corridors in Tamil Nadu and Uttar Pradesh. A joint venture between Ordnance Factory Board (OFB) and Concern Kalashnikov has also been approved for manufacturing of AK-203 rifles locally.
The Central government also chalked out a dedicated policy for defence start-ups in the country. Innovation for Defence Excellence (iDEX) was created to develop an ecosystem of fostering innovation and technology development in defence and aerospace by engaging industries, including MSMEs, start-ups, R&D institutes and academia. Under this scheme, Defence India Start up challenge (DISC) is also being organised to identify major start-ups and support them with funding.
Make in India: Hits
The policies and its implementation carried out by the incumbent government resulted in unprecedented changes in the local defence manufacturing in the country. The value of defence production by DPSUs has seen a steady growth over the years from $5.2 billion in 2015 to $6.3 billion in 2019. Reforms taken in the recent times have pushed exports to an astonishing level. Defence exports authorisation in the last three years has jumped 800 percent from $214 million in FY17 to $1.5 billion in FY19.
The government is also working towards its vision of achieving the target of exports contributing 25 percent to the annual turnovers of respective DPSUs by the end of fiscal year 2022-23. By the end of 2025, India plans to export defence equipment worth $5 billion.
Make in India: Misses
In the last five years, Make in India not only played a critical role in India’s march for self-reliance in defence needs but also towards boosting the country’s exports. Still, there are major areas where India is yet to make considerable progress. Despite having the world’s third largest defence budget in 2019, India still imports around 60 percent of its defence requirements. Although, India does have a defence procurement policy in place, it has failed to spur the entire process due to a huge gap between its interpretation and implementation. For instance, the development of Infantry Combat Vehicle (ICV) and Battlefield Management Systems (BMS) was the pilot project in ‘Make in India’ category but because of faulty evaluation procedure, the entire process was scrapped after investing four years. Now even if the entire process is completed without any further delays, it would be only by 2027 that the production would start. Given the track record, it is highly unlikely that the project would even take off by 2027.
So, what went wrong?
Commodore Anil Jai Singh (Retired), who served in the Directorates of Naval Plans and Submarine Acquisition at Naval Headquarters argues that policies as well as the implementation have hampered the effectiveness of ‘Make in India.’ He said, “The bottom line of ‘Make in India’ was to invite major manufacturing companies across the globe with high-end technology to India so that they manufacture here and sell it anywhere in the world. Defence was one the eight sectors which was identified as a priority sector. But the policies emanated after initial thrust were not supportive for local manufacturing in defence industry. For example, L1 process was chosen over the bidding process, there were many conditions introduced in the FDI policy which did not attract foreign investment in the industry.” The officer, who was also actively involved in drafting the Navy’s 30-year submarine construction plan and the 15-year shipbuilding plan, further added, “Yes, in some cases, FDI was allowed up to 100% on case-by-case basis, but not even a single contract was awarded through this route. So, ambiguous policy created a hindrance towards the goal of self-reliance, but majorly it was implementation that badly affected ‘Make in India’ in defence.”
|Four pillars of Make in India New Processes Under “Make in India,” ease of doing business is at the core to promote entrepreneurship in the country which also includes de-licensing and de-regulating the industry during the entire life cycle of a business. New Infrastructure The Modi-led government fairly understood the necessity of a modern infrastructure for the growth of the industry. In order to achieve growth, the government plans to build industrial corridors and smart cities to facilitate infrastructure based on the latest technology with high-speed communication and integrated logistic arrangements. The government also targets to strengthen the existing infrastructure by upgrading infrastructure in industrial clusters. New Sector The government has identified 25 sectors which will lead the way of growth. Currently, it has permitted 100% Foreign Direct Investment (FDI), except for Space industry (74%), defence industry (49%) and Media of India (26%). New Mindset The Indian government in the past was seen as the regulator. ‘Make in India’ plans to structurally change this thinking by bringing the industry into the bigger picture. The government will act as a facilitator and not regulator.|
With projects like ‘Make in India,’ there is no doubt that the government is moving in the right direction towards not only becoming self-reliant in meeting the country’s defence needs but also a net exporter of defence goods. But the government will have to take a lead in creating a level playing field for private companies, DPSUs, DRDO and OFBs. Commodore AJ Singh adds, “One way ‘Make in India’ can be pushed back on track is by creating enabling environment that is conducive for DPSUs as well as private players. Too much stress has been given on the functioning of DPSUs, but unless we take the private players on board, we would continue to lack in creating an ecosystem of defence manufacturing in the country. The policies and its implementation should be monitored in a time-bound manner, while fixing the accountability on the organisations involved.”