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Make in India

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Recently, the Prime Minister charmed the global community and national industries with his enthusiastic promotion of his “Make in India” scheme, inviting international manufacturers to come and conduct their core operations in India. This was part of India’s push to become a global manufacturing hub by 2025, when it is estimated by Mckinsey that India’s manufacturing sector will account singlehandedly for a mammoth $1 trillion, be 25-30 percent of India’s Gross Domestic Product and on account of this total economic output and provide for as many as 100 million jobs.

Factors of Production:

The primary factors of production, large availability of labor and ready access to capital, work quite well for the manufacturing sector in India. Indeed, labor has traditionally been seen as a major strength, even though historically labor has been regarded as cheap but relatively unskilled. That is changing quickly, because even though businesses are still able to avail the service of indigenous labourers at increasing but still cost-effective rates, overall, the training, skill and expertise of the average Indian worker has shot up significantly over the past few decades.

As for capital, banks and financial services companies are ready, willing and able to provide loans to new businesses, and small and medium enterprises in the manufacturing sector in particular have various government schemes and subsidies they can profitably utilize. Banks have seen credit and restructuring default rates go down compared to other sectors and are willing to provide capital on demand to most

Reasons for Choosing India

India’s growth in the manufacturing sector over the last decade or so has been positive. It has been ranked in 2013 as the fourth most competitive manufacturing nation in Deloitte’s global index for 38 nations and India’s economy has also experienced significant expansion during the period 2006-2011, achieving a five-year compound annual growth rate (CAGR) of 7.8 per cent.

Some Manufacturing Projects in India

By way of illustration of the manufacturing scenario in India, Pidilite Industries Ltd has approved the acquisition of adhesive business of Blue Coat Pvt Ltd for a cash consideration of Rs 263.57 crore (US$ 43.08 million).

Toshiba Group plans to make India the design, manufacturing and export hub for its lighting business, and multiply the local headcount to design lights for planned smart cities airports, stadiums, highways, warehouses and factories, said Mr Yoichi Lbi, President & CEO, Toshiba Lighting & Technology Corporation.

Chemical manufacturer Deepak Nitrite Ltd plans to invest Rs1,200 crore (US$ 196.18 million) to establish a plant for manufacturing phenol and acetone in Dahej, Gujarat. The capacity of the phenol plant will be 200,000 tonnes per annum (MTPA) and that of acetone will be 120,000 MTPA.

Sesa Sterlite will spend up to Rs 8,000 crore (US$ 1.31 billion) over the next three to four years to expand its Lanjigarh refinery in Odisha, following consent from villagers. The company will now produce 6 MT of alumina from the present capacity of 1 MT, as per the Odisha government.

Government Incentives and Programmes

India and China have formalised an agreement to take forward the establishment of the China-dedicated industrial clusters in India, with the objective to enhance Chinese investment in infrastructure and manufacturing. The agreement was signed during Indian Vice-President, Mr Hamid Ansari’s visit to Beijing. Officials have described the Memorandum of Understanding (MoU) as more ‘an enabling framework’ than a concrete agreement, as of now.

The Indian government has given in-principle approval to five National Investment and Manufacturing Zones (NIMZs) outside the Delhi-Mumbai Industrial Corridor (DMIC) region. The zones include Nagpur in Maharashtra; Tumkur in Karnataka; and Chittoor, Medak and Prakasam in Andhra Pradesh. The state governments have to first acquire the land prior to any investments being made in the approved zones.

For the Make in India scheme in particular, the Cabinet Committee on Economic Affairs (CCEA) has cleared a scheme of Rs 931 crore (US$ 152.2 million) to be used in the capital goods sector.

Future Outlook

India’s manufacturing sector is vital for its economic progress. Presently, the sector is an attractive hub for foreign investments. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country. Hi-tech exports are also predicted to enhance India’s manufacturing sector; they witnessed a CAGR of 26 per cent during the period 2007-2011, with exports reaching US$ 20.9 billion from US$ 8.1 billion in 2007. Pharmaceuticals and electronic goods dominate exports of hi-tech products, with the share of electronics growing nearly twofold in the period 2007-2011, according to an industry study.

In FY 2007, a growth of 15% was achieved, and the government seeks to replicate such positive years and double digit growth in future years and over the long term. The government is actively encouraging both foreign and domestic players to come to India and not to outsource operations but to carry on production and manufacturing in India and trying to incentivize it in various ways. Foreign companies for their part see that India is a solid base for manufacturing, that it has skilled labor, and a consumer base with rapidly increasing disposable incomes, so that a substantially large domestic market for product sales exists and will continue to exist for a good while. This is beside products they may wish to export.

These and other factors have been stressed by the government to invite foreign manufacturers interested in establishing India as their base. The manufacturing sector, like other sectors, has experienced declining growth and net profit during the time of recession and slowdown, with capital expansion projects put on hold, some staff laid off, and investment decisions cancelled. After weathering this crunch time, it is now gradually beginning to pick up again and has returned to sold growth, so that it remains on course for the 2025 target of accounting for close to a hundred million jobs.

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