Make in India suffers from an identity crisis: Expert

There is more room than imagined for reform in the Union Budget for the Make in India initiative. It is the political willingness that will provide the answers

GN Bureau | January 23, 2017


#Observer Research Foundation   #Natasha Agarwal   #make in India   #union budget   #FDI  


While the debate on the success or failure of Make in India continues to make headlines, “I argue that it suffers from an identity crisis, nullifying the efforts taken by the government to achieve the desired objective”, writes Natasha Agarwal in an article hosted on the Observer Research Foundation website.
 
Agarwal, who is a research economist affiliated with the World Education Foundation, said that the crisis is only magnified, thanks to an intricate web of international production network, which is increasingly organised within the global value chains (GVCs) — where the different stages of the production process are located across different countries; where goods cross several borders before it reaches to the final consumer; where the rules of international trade are now being redefined from trade in comparative goods to trade in competitive goods.
 
This leads to the main question: where does it identify India to be in this global value chain?
 
The article “Questions on the Union Budget and Make in India” said that as the 2017-18 Union Budget gets in sight, the question asked very often is: how will the budget redefine the rules of the game, so it is able to achieve its policy objectives? One such — much sought after — rule of the game is for the Make in India initiative. The question, however is, why Make in India is sought after?
 
With the objective of transforming India into a global design and manufacturing hub, the government of India launched the Make in India initiative in September 2014. Focusing on twenty five sectors, it lays down a blueprint of how it envisions India as a manufacturing hub. Ever since its launch, the government appears to be making consistent efforts in giving meat to its blueprint.
 
 
The government has not only provided financial incentives through its Union Budget, but has also engaged in regular sector development through ongoing policy announcements. It has also engaged with stakeholders outside sectoral focus to ensure fruitful developments of the initiative — improving India’s rank in the World Bank’s Ease of Doing Business indicator — or setting up of the Investor Facilitation Cell, wrote Agarwal.
 
Whether such sectoral policies are compliant to international rules defined through India’s membership to multilateral organisations like the WTO; whether developments in improving India’s rank on Ease of Doing Business indicator, is a matter of debate. The question on the success of Make in India’s success still remains up for debate.
 
The government is quick in suggesting that after the launch of Make in India, there has been an unprecedented increase in FDI inflows in the country.
During the period, October 2014 to September 2016, total FDI equity inflows of $77.86 billion was recorded as against $48.57 billion received during the preceding twenty four months with an increase of 60 percent (Nirmala Sitharaman’s address in Lok Sabha). Given that there is no counterfactual evidence of whether this would not have been the case — if the Make in India initiative did not exist — reasons behind the success of Make in India remains disputable.
 
The article went on to say that identifying the position in the global value chain is crucial in defining both trade and FDI policies of India, which go beyond the existing state of affairs.
 
“To put this in perspective, let’s take the example of India’s FDI policies which has not only seen sectoral limits off the previously defined limits, but also greater encouragement through automatic route, rather than government approval route. The question, however, is: do liberalising FDI sectoral caps encourage its inflow without government approval amount to all the FDI?
 
“I argue that it may be the first step. However, identification of India’s position in the global chain would help determine the various other aspects to FDI policies. For instance, if India wants to be identified as the processing and assembling hub wanting to serve the global market in the aforementioned global value chain, then it can lay greater emphasis on encouraging, in what I refer to as, export-oriented processing FDI, i.e. FDI for processing of intermediates to finished products.”
 
Identification in the global value chain will also help in defining India’s trade policies by correcting anomalies such as inverted duty structure, correcting trade barriers, and secure a better deal through trade agreements. Besides, with only three countries to ratify the Trade Facilitation Agreement, India has all the more reasons to incorporate a wider range of policies under the umbrella of Make in India.
 
There is more room than imagined for reform in the Union Budget for the Make in India initiative. It is the political willingness that will provide the answers, the article added.
 

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