Topsy-turvy GDP numbers, sluggish agricultural growth, snowballing unemployment, plunging stock market, depreciating currency resulting in diminished exports, shackled manufacturing sector and a sputtering consumption over the last few years have left Indian economy in a stupor. Of late, an untimely pandemic has further amplified the misery and slackened the economic growth which was blooming a few years ago. Even after the promulgation of many packages and incentives intended to stimulate the comatose economy, there seems to be no end in sight for this 'Great Indian slowdown' and a ‘v-shaped recovery’ seems beyond the bounds of possibility.
With most of the international agencies forecasting a continuity of this down-the-slope economic trend in the coming years, experts many a time have accentuated on a mega economic package to alleviate the slowdown blues which have swallowed up every economic sector including healthcare, tourism, transport and trade.
Therefore, Prime Minister's announcement of a 20 lakh crore mega Covid-relief package couldn't have come at a more fitting time. At 10% of GDP, it is one of the largest in the world with the spotlight on self reliance, after the packages announced by Japan (21% of GDP), United States (13% of GDP), Sweden (12% of GDP) and Germany (10.7% of GDP).
In my understanding, Atmanirbhar Bharat mission with its slogan of ‘vocal for local’, is a revival of ‘Make in India', with its main focus on indigenous manufacturing. This begs the question as to what actually became of the foregoing edition of Make in India? Were the targets of the mission actualized? Why has the Prime minister given a clarion call for Atmanirbhar Bharat at this time?
Make in India was an endeavouring crusade put out into motion in 2015 which planned on making India a global manufacturing nerve center by facilitating investment and creating a best in class manufacturing infrastructure. The cardinal objectives included attaining a manufacturing growth rate of 12-14%, creating 200 million manufacturing jobs by 2022 and booming the GDP contribution of manufacturing sector to 25% by 2025 as compared to 15% in 2015.
However, a unanimous inference of experts is that Make in India was a flop; an ill-timed, ill-conceived game plan doomed to be a fiasco. From demonization to posthaste-implemented GST, farfetched and ambitious growth rate targets, inclusion of too many sectors leading to a loss of policy focus, a mighty reliance on foreign capital coupled with a low investor sentiment, higher corporate tax rates compared to other countries of the world and tortuous labour laws many factors instigated its nonperformance.
It has been approximated that manufacturing growth rate which was targeted at 12 to 14%, has plummeted to 0.6% in the first quarter of fiscal year 2020 while the manufacturing share in GDP which was at 15% in 2015 declined to 14% in 2019 and the retrogression of employment scenario has added insult to injury. During the period of Make in India program, which was glorified by many as the forerunner of India’s evolution as a manufacturing hotbed, India's dependence on China for goods has doubled in the past five years.
Exports are pegged at 2011 levels which is symptomatic of the fact that India is neither making goods for itself nor for the world. Experts were of the opinion that the trade war between US and China would be a boon for India but on the contrary, it benefitted Vietnam and Bangladesh. It is estimated that during the ‘Make in India’ years, Bangladesh's manufacturing share increased from 16% to 18% of GDP while GDP was 8%. All these figures speak volumes about the failure of Make in India program in realizing its goals.
The MSME push
MSMEs form the foundation of our national economic sector with 97% of the industries falling under this category, contributing about 45% of the manufacturing output, 50% of Indian exports, about 30% of the GDP and employing about 11 crore people. To achieve the target of $5 trillion economy, India plans at increasing the share of MSMEs to GDP to over 50%, exports’ contribution to 75% and employment generation to 15 crore people.
However, the neoteric slowdown has stupefied MSME sector with 25% of the firms on the brink of permanent shutdown and more than 60% firms not having budget to disburse salaries. The sector, therefore, called for hair-trigger efforts to raise its spirits.
Amendment in the definition of MSMEs raising the investment limits, announcement of collateral-free automatic lones, subordinate debt for stressed MSMEs, only local bids for tenders upto 200 crores and a fund of funds for well performing MSMEs can turn out to be a much needed shot in the arm for this sector which was on the verge of a debacle. It will kick-start the cycle of business activities and safeguard jobs. This will make domestic MSMEs more competitive and act as a foundation stone to the realization of self-reliant India.
An opportunity in offing
India has a history of redeeming and repairing in critical situations. Be it the balance of payment crisis of 1991-92 or the economic sanctions post 1997-98 nuclear tests, India has bitten the bullet in the times of crisis. With the world order fated to undergo metamorphosis post Covid-19, a dynamic push for manufacturing was foreseeable and the announcement of the Atmanirbhar Bharat mission is an indication that India has got the vibes of a fortuity in these onerous times.
Focusing on manufacturing is crucial because it generates employment, allures FDI and helps shrink the trade deficit due to its multiplier effect, which is exactly what India needs right now. The mission aims at providing a platform for ‘India-centric’ innovation and revive indigenous industries and entrepreneurs.
With the US-China trade war escalating leading to ambiguity in investment coupled with the dubiousity brought about due to the manner in which China has handled the whole episode of Covid-19 and with countries like Japan and Korea announcing incentives for the companies to march out and say goodbye to China, many foreign manufacturers are in search of backup destinations to relocate their companies and India is a place to be.
This is because India is a resource-rich country with an abundant and exuberant labour force, 900 million working age population and a huge market of 1.3 billion people and therefore, is a consummate landing-place for resource-seeking as well as market-seeking manufacturers.
To ensure facile access to land and to lure companies, Government of India has identified 4.6 lakh hectares of land and 1000 foreign manufacturers have already shown their interest to relocate to India, which is a reassuring sign.
Reduction in corporate tax rates for domestic and new manufacturing companies, production linked incentive (PLI) for indigenous manufacturing of mobile phones, other catalysts in the form of preferential tax rates and tax holidays similar to Vietnam and a plan to increase import duties will inevitably step-up domestic production and go a long way in helping accomplish the goal of self-reliant India.
Self reliance, as explained by the Prime Minister, does not mean isolation. In fact, it is India’s bridge between localization and globalization, Even though the stimulus package may not ensure a ‘v-shaped recovery’, it will surely ensure a 'nike-swoosh' recovery if implemented properly. The announcement of Atmanirbhar Bharat mission is historic.
However, mere announcing of a scheme is not enough. India needs to ensure a conducive and amicable business environment, amendments to rationalize labour laws and an invigoration of deep-rooted and durable commercial diplomacy to bring into existence an international niche market to make this mission a success.