AFTER Indian Prime Minister Narendra Modi launched his flagship ‘Make in India’ initiative in September 2014, it has become a buzzword for politicians across the spectrum. State after state, including those ruled by non-BJP parties, is promoting the ‘Make in India’ initiative by encouraging global and domestic investors to set up manufacturing plants.

For the National Democratic Alliance government at the centre, the initiative is the bedrock of its economic philosophy — encouraging manufacturing, as against focusing only on the services sector. The share of manufacturing in India’s GDP has declined steadily in recent decades.

Manufacturing accounts for just 16pc of India’s GDP at present. The Make in India initiative aims to raise this to 25pc by 2025. One of the main reasons for pushing manufacturing to the forefront of economic activity is the need to provide jobs to millions of young people who enter the market every year.

India is urbanising at a rapid pace and there is massive migration from rural areas to urban ones. Millions of youngsters who are abandoning farms and heading for cities seek jobs for a better future. Many of them land up in low-paying jobs in the service sector.

International companies are finalising multi-million-dollar deals to set up factories in India

The NDA government wants to turn the focus to manufacturing. But manufacturing jobs require a certain set of skills, which are in short supply in the country. Hence, the government’s focus on skills and vocational training for the young. After Modi became the prime minister, he established a ministry of skills development and entrepreneurship.

The mess in India’s higher education system has resulted in millions of youngsters routinely enrolling for degree programmes, which does not equip them for any specific jobs. Recent years have seen a craze for MBA degrees, which have now become de rigueur for even entry-level white collar jobs. Modi wants to change this, weaning the youth away from plain degrees into specific skills, on the lines of vocational programmes in the developed world.

If the share of manufacturing has to go up, industries would need millions of skilled personnel who can handle machines, do welding jobs, take up masonry, operate steel or power plants, do maintenance work and carry out other blue collar assignments that are generally looked down upon today.

The challenges before the government are enormous. “We believe the on-going reform efforts by the government need to be supplemented with appropriate implementations along with overhauling some of the fundamental factors such as labour laws, poor infrastructure along with tax policies that have held back India’s growth potential,” says Dr Arun Singh, senior economist, Dun & Bradstreet, a leading provider of global business information, knowledge and insight.

According to government figures, FDI inflows between April and September added up to $24.41bn (as against $44.29bn for fiscal 2014-15)

According to Singh, enhancing the share of manufacturing to 25pc of overall economy would require a conducive business environment, investment to support innovation, capital and labour efficiency, shift from low value added sectors towards high value added ones, efficient business processes, presence of supporting industries along with continued policy thrust.

Dun & Bradstreet recently launched a report, Manufacturing India 2025, focusing on the growth of the sector over the next decade.

THE Make in India initiative has resulted in a significant increase in foreign direct investment (FDI) into the country. FDI has jumped by 35pc since the initiative was launched in September 2014.

According to government figures, FDI inflows between April and September added up to $24.41bn (as against $44.29bn for fiscal 2014-15). The government expects FDI to soar by 45pc next year as the Make in India initiative results in increased global investments.

Modi, who has been travelling extensively around the globe, pushing his Make in India agenda, has also been interacting with CEOs of leading companies in many countries. In Moscow recently he was present along with Russian President Vladimir Putin at a function where a $1bn agreement relating to the manufacture of 200 Kamov-226T light utility helicopters for the armed forces was signed.

This was the first such deal in the defence sector following the launch of the initiative. State-owned Hindustan Aeronautics Ltd will manufacture the helicopters in collaboration with Russia’s Rostec State Corporation.

Several other deals involving international players and their Indian partners are also being signed. International companies including Boeing, General Motors, Mercedes-Benz, BMW, Suzuki Motors, GE Transport, Alstom, Ikea, Siemens, First Solar, Samsung Electronics and HTC are finalising multi-million-dollar deals to set up factories in India.

At a meeting with visiting Japanese Prime Minister Shinzo Abe, Modi revealed that he had been told that Japanese investors have earmarked about $12bn for the Make in India initiative. Japan has already agreed to provide low-interest loans for the ambitious Bullet Train project between Mumbai and Ahmedabad.

But despite all the buzz around Make in India, the country still has a long way to go before it emerges as a manufacturing hub. The global slowdown is also hurting the prospects for the manufacturing sector.

A recent survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) notes that the export outlook for manufacturing is feeble. A majority of manufacturers surveyed said they do not have plans for capacity additions.

While those surveyed expected ‘strong’ growth in the capital goods and automobile sectors, the rest of those quizzed had low expectations from industries including metals, cement and even electronics.

Another survey, the Nikkei India Manufacturing Purchasing Managers’ Index showed a sharp fall in the growth of the manufacturing sector, the fourth successive fall. “The November PMI data point to tepid manufacturing growth across India, with gloomy domestic demand resulting in the weakest expansion in production for 25 months,” said the report.

India also is relatively less competitive in terms of the cost of capital, labour, land and inputs like electricity. The NDA government has failed to must courage to reform labour laws, though a few states have started pushing in that direction. The cost of finance is extremely high, power supplies are erratic and high-priced and acquisition of large tracts of land is virtually impossible because of the new land act.

Published in Dawn, Business & Finance weekly, January 4th, 2016