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Make in India: Indian, global companies can make PM Modi’s dream true by Mergers and Acquisitions

Recent events surrounding China’s aggressive political and business tactics coupled with its rather poor handling of the containment of the coronavirus spread have made global economies wary of India.

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With India emerging as a top contender in attracting foreign investments in the manufacturing and business sector, our government has renewed focus on Indian manufacturing and its Make in India.

Recent events surrounding China’s aggressive political and business tactics coupled with its rather poor handling of the containment of the coronavirus spread have made global economies wary of the country, propelling them to look for alternate avenues of business and trade. The recent India–China border clash in mid-June that resulted in the death of 20 Indian soldiers has also enraged Indian citizens, making them averse to using Chinese products and services. It resulted in an outraged public seeking a ban on apps, and even boycotting products manufactured there. This has brought greater focus on Indian manufacturers, who up till now had to fight for attention in their own market amidst the presence of foreign counterparts, particularly cheaper goods from China.

With India emerging as a top contender in attracting foreign investments in the manufacturing and business sector, our government has renewed focus on Indian manufacturing and its Make in India initiative has gained further traction, potentially promoting India’s dream of becoming Asia’s next superpower. In light of this, Mergers and Acquisitions (M&A) are being considered as the best way out for both Indian and international companies who want to conform to the Indian government’s initiatives and promote local manufacturing, while adopting and retaining the global best practices in
manufacturing and trade. Mergers and Acquisitions are an effective tool to harness the advanced technical know-how and larger pool of financial resources of foreign businesses along with the Indian manufacturers’ deeper understanding of the complex local market and wider network of customers and suppliers.

No doubt, mergers and acquisitions in India have been steadily growing in the fields of pharma, medical, biotech, defence, renewables, insurance and financial services, among others. The United Nations Conference on Trade and Development (UNCTAD) in its World Investment Report 2020 stated that India was the 9th largest recipient of FDI in 2019 and the biggest FDI host in South Asia. According to the report, FDI in India shows a long-term growth trend, and India’s large market coupled with positive economic growth in the post-pandemic period will continue to attract foreign investments.

One of the major reasons for the increase in M&A activity in India can be attributed to the government’s Make in India scheme, which has brought greater benefits to domestic manufacturers as well as to their foreign counterparts who are willing to join hands in business. The benefits range from lower land costs and ease in procuring licenses and permits to tax benefits, power tariff incentives, investment subsidies, and so on. While the larger picture definitely finds favour with many, there is no denying that there is much scope for improvement in the ground-level execution of the scheme, especially since many businesses, especially MSMEs, are yet to benefit from. In fact, overall growth in industrial output and employment has also been low.

Nonetheless, the newly launched Aatmanirbhar Bharat Abhiyaan has been like a breath of fresh air for Indian manufacturers. Increase in the state governments’ borrowing limits, privatisation of Public Sector Enterprise (PSEs), collateral-free business loans, MSME corpus and subordinate debt, disallowing of foreign firms in government tenders up to Rs 200 crore, and reduction in tax rates serve as being the major policy highlights. Moreover, ease of doing business has been another focus of this program that is set to rectify the challenges in the current business environment of India. Already, India has jumped 14 places to hold the 63rd position as per the World Bank’s Ease of Doing Business 2020 survey, and this promise of improvement in India’s global ranking puts the country and its business-centric initiatives in a positive light.

The M&A scene in India is only set to expand further, in light of the government’s investor-friendly schemes and reforms and rising interest of major global firms in the Indian market, so Indian corporates must maximise this situation to benefit their businesses and the overall Indian market. They need to take full advantage of the government’s schemes and initiatives and negotiate M&A deals that allow them to retain their freedom. Parallelly, the also need to learn international best practices from their foreign partners. In these trying times, enhancing collaboration and teamwork in different operational areas such as marketing, finance, production and so on is the best way forward for companies, and Indian manufacturers need to do the same.

It is imperative for Indian business leaders to make use of the increased interest in the Indian market amidst the current crisis to return stronger, better and leaner. This is possible only with the right integration strategies, collaboration and learning. Through efficient planning and execution of the M&A process, Indian corporates can establish a stronger presence in the world market and improve India’s position as a leading manufacturing nation.

  • Brajesh Tiwari is Associate Professor, JNU at School of Management. Views expressed are the author’s own.

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