Only 17% of India’s GDP comes from manufacturing as against 29% for South Korea and 34% for China. The gap has widened in the last decade. The BJP Government is attempting to correct the same with its Make in India initiative.
However most of the initiatives taken up by PM Narendra Modi have really not taken off as expected, due to poor execution at the ground level both at the Centre and the states. His ideas to transform India can be a game changer, be it Swachh Bharat, Ganga Cleaning, Demonetization or Make in India, but it has not because at the execution level they have been lacking. There is a need to sort out the inherent problems at the state and central level dogging the programs. The key areas that need attention in the Make in India program to really push the manufacturing sector are:
Last Mile Infrastructure
Lack of infrastructure in newly set up industrial estates where projects have been allotted, (even in the BJP ruled states like Maharashtra, Rajasthan and MP ) is delaying project implementation. Roads, water, electricity, internet connecting the last mile are often missing. So businesses have to first set up or wait for their infrastructure before bringing in plant machinery and manpower. In most other nations including China, everything is provided before projects are approved and complete infrastructure facility is allotted on lease rentals and not on land selling basis. This 10 year or 20 year lease period is a much better concept because the ownership of the land and building remains with the Govt or the industrial estate which has given permission, and that is where massive capital appreciation takes place. There are several successful models working globally and some on the PPP basis which India can adopt to ensure that turnkey factory facility is provided to manufacturing companies.
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Ease of Doing Business
Although it is much better than before, the ease of doing business is nowhere at the global level. Dozens of permissions are still are needed to do businesses especially in large states like Maharashtra and UP and files still move slowly. At times there is lack of clarity of concept that makes needless approvals mandatory and time consuming. Why should pollution clearance be needed for setting up an electronic or mechanical engineering industry in a notified industrial area is beyond comprehension. If the industrial areas house pre-defined category of industries why are more approvals needed after allotment?
Logistics and Turnaround Time at Ports
Imports and export consignments take very long time due to port congestion and red tape. A major security printer who has units in Noida, Colombo, Mumbai says” for our export house in Colombo the typical shipping time notice given to the port is 4 to 6 hours, while in Mumbai it could be 4 to 6 days”. Dr. Didar Singh Secretary General of FICCI says that the cost of doing business needs to be reduced and the focus must be more on easing business conditions for existing producers. He agrees that the turnaround time at the Colombo or other major Asian ports is around fourth of the 48 hours turnaround time in most well run Indian ports. “Logistics consume around 15 to 20 % of business income in India which is three times the global norm. GST will possibly improve some of that if trucks do not stop at borders, but the port issues need to be solved urgently” This is needed to reduce the cost of Make In India, because the bigger time delay is in the customs clearances and the waiting at the ports, both for incoming and outgoing consignments.
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Cluster Approach Needed To Speed Up Things
Ease of doing business should mean reducing downtime to start manufacturing. That has yet to improve significantly , and needs to be addressed urgently by upgrading infrastructural facilities provided to investors. However infrastructure is not merely land and building.
In certain cases testing and laboratory facilities especially in defence manufacturing are extremely expensive and needs to be provided by the Government. “You really can’t expect a manufacturer or a MSME unit to invest in a multi million dollar testing facility for developing missile or sub-marine sub-systems. To get quick approval of defense projects labs like ERTL are needed to be provided for the product testing by the small and medium units” says Sunil Khanna MD of Emerson Power Network.
Cluster approach needs to be adopted like in the Automobile industry where a key manufacturer could influence and decide the setting up of the component units within his periphery. Similar should be the approach for telecom or electronics units. ‘Farm to Food to Processed Product’ and ‘Farm to Yarn to Fashion’ clusters need to be mooted for agriculture based units. Unless care is taken to adopt practices that can really improve the execution speed of manufacturing projects, Make in India will remain an unrealised dream.