There Is No Substitute For An Industrial Policy

Context: This article is based on the news “There is no substitute for an industrial policy” which was published in the Indian Express. The government has put the implementation of the new industrial policy (NIP 23) on hold which has been under development for more than two years. 

About New Industrial Policy 2023

• Third Economic Policy: The Union commerce ministry released the draft of Industrial Policy to replace the 1991 policy. 
  • This will be the third industrial policy, after the first in 1956 and next in 1991.
• Disruptions in Economic Activity: The new industrial policy has been fuelled primarily by the disruptions in economic activity due to the COVID-19 pandemic and the shocks driven by uncertainties and disruptions in supply chains. 
• Objectives of New Industrial Policy 2023: This resurgence of industrial policy to deal with exogenous shocks has two objectives: 
  • enhance the pace of economic activity at the national level
  • devise mechanisms to impart resilience to the industrial sector. 

About Make in India Initiative

It was launched by India in September 2014 aimed at creating a robust and competitive manufacturing industry. 

• The Make in India initiative built upon the dynamic goals of NMP 2011, aspires to “transform India into a global design and manufacturing export hub,” positioning MII for the global market.

Objectives of Make in India Initiative

• To increase the manufacturing sector’s growth rate to 12-14% per annum;
• To create 100 million additional manufacturing jobs in the economy by 2022;
• To ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2025.

Significance of Make in India Initiative

• Increased FDI: FDI inflows in India increased to $83.6 billions  in 2021-22 from  $ 45.15 billion in 2014-2015.
• Improvement in the ease of doing business in India: The government has implemented various reforms to simplify regulatory processes, reduce bureaucracy, and create a more favorable environment for businesses.
• India is ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.
• Skilling Labour force: The government has launched programs like Skill India to enhance the employability of the workforce and promote entrepreneurship among the youth. 
• This has resulted in the creation of a skilled labor force, which is vital for the success of manufacturing industries.
• Smartphone Manufacturing in India: Local manufacturing of mobile phones grew at 23% compounded annual rate between 2014 and 2022.India has become the second-largest mobile phone manufacturing country after China, with cumulative shipments of locally produced handsets crossing two billion during 2014-2022.
• Growth in Toy Industry: Complimented by sincere efforts of domestic toy manufacturers, the import of toys in FY21-22 have reduced by 70% to USD 110 Mn.
• Growth in localism mindset among Indian consumers:  As per the report by KPMG on consumption habits of Indian consumers, around 60 percent of respondents across all age groups expressed their desire to replace foreign brands with indigenous brands. 

Challenges with Make in India Initiative

• Increased Protectionist policies: There are concerns regarding expansion of protectionist policies to other sectors with the increased tariffs as this will lead to emergence of shortages, black markets, and widespread rent-seeking.
  • India recently imposed an import ban on 928 military equipment for self-reliance in the manufacturing of defence items.
• Biasness towards Capital Intensive Industries: The industrial policy practice through the PLI scheme is biased towards capital-intensive industries. 
• • The scheme focuses on providing subsidies to selected large and medium-scale industries. 
  • Ex- automobiles, pharma, advanced battery cells, telecom equipment, etc. despite having comparative advantages in labour-intensive manufacturing activities.
• Focus on assembling rather than Manufacturing: Major focus industries under the Make in India scheme are restricted to the assembling of knocked-down kits despite many global companies having set up units in the country.
• Ex- Mobile, telecommunication and electronics equipment manufacturing, etc.

• Stagnant Manufacturing Sector: Despite the significant diversification of manufacturing observed in East Asian countries since the late 1970s, India’s manufacturing share has remained stagnant at approximately 15% of the GDP. 
  • Rather than adding 100 million manufacturing jobs, India reported a loss of 24 million jobs between 2016-17 and 2020-21, according to a recent analysis by Ashoka University’s Centre for Economic Data and Analysis.
•  Serious crisis of underemployment and disguised unemployment: 

Way Forward

• Export Competitiveness:  Since the domestic market has its limitations, the focus must also be on exports.
  • To improve export competitiveness, there should be an attempt to reduce production costs, improve quality and be more innovative.
  • It should identify segments within the high value manufacturing value chain where it possesses a comparative cost advantage and can contribute effectively. 
  • Achieving this necessitates aligning the industrial policy with an optimal industrial structure that aligns with the country’s inherent strengths, encompassing the relative abundance of labor, skills, and capital.
• Expanding PLI to Labour Intersive Sectors: The scope of the PLI scheme needs to be expanded to include labour intensive sectors such as leather, garment, light engineering goods, toys, and footwear. 
  • These sectors have maximum local value addition. Ex- textiles, food products, etc.
  • It is critical to scale up the domestic manufacturing in these sectors and generate employment and build industrial capabilities.
  • Although the PLI scheme is advantageous for high-end manufacturing, the traditional manufacturing sector remains the most viable choice to create jobs for the masses.
• Financial Incentives: India’s industrial strategy under Atma Nirbhar Bharat needs to ensure that financial incentives are extended to sectors or firms that foster strong domestic inter-sectoral linkages and facilitate industrial upgrading. 
  • These sectors  will generate a real economic surplus for the economy which will contribute to the effective utilisation of the factor of production as well as their advancement for upgrading industrial structures. 
  • This will ultimately deepen domestic manufacturing capabilities, thereby creating possible opportunities to plug in global production networks.
• Integrating ‘Make in India’ with ‘assemble for the world’ : In China, it worked in integrating its domestic manufacturing industries with assembling units for global ‘network product’ companies. 
• • By importing components and assembling them in China for the world, China created jobs at an unprecedented scale.
  • Similarly, by integrating “Assemble in India for the world” into Make in India, India can raise its export market share to about 3.5 per cent by 2025 and 6 per cent by 2030.
  • As per the economic Survey, this may create about 4 crore well-paid jobs by 2025 and about 8 crore by 2030. 

Must Read: Vision 2047: A Roadmap To A $30 Trillion Economy

DOWNLOAD PDF