Manufacturing sector in Modi govt's one year: Work in progress

  • Rajiv Kumar
  • Updated: May 28, 2015 17:20 IST

Drawing on his experience as chief minister of Gujarat, Prime Minister Narendra Modi is focused on expanding the manufacturing sector’s share of the economy in order to boost employment for India’s young population.

To this end, the government launched its flagship Make in India program on September 25, 2014, and it has identified 25 “thrust sectors” to be given special attention. But it has yet to outline concrete measures for promoting investment in these areas.

Nonetheless, the government’s sharp policy focus on expanding manufacturing capacities is a positive signal. The department of industrial policy and promotion, the lead agency for the Make in India program’s implementation, has been empowered to coordinate across ministries and between the central government and the states. Yet given India’s legacy of weak, fragmented governance, such coordination is easier said than done.

Overall, the government has taken a number of incremental steps toward realising Modi’s objective to raise India in the World Bank’s Ease of Doing Business rankings by as many as 50 places by the end of his first term. The department has launched the eBiz online portal, which collects ten regulatory permissions in one place and allows for online clearance.

This obviates the need to submit separate forms to different offices. The government has allowed self-certification of certain regulatory provisions; relaxed foreign direct investment caps, with 100% now allowed in the great majority of sectors and with lower caps for defense, insurance, and multibrand retail; and given the nod for two states, Rajasthan and Madhya Pradesh, to reform their labor laws in a pro-business manner.

Investor confidence, however, remains low, as the growth of credit offtake from commercial banks has dipped below 4 percent. In part, this is due to continued slack in both domestic and international demand.

The biggest culprit for investment weakness is the unpredictable and overtly anti–private sector stance of the Income Tax Department, whose questionable behavior the finance minister has inexplicably allowed to continue.

In sum, while on-the-ground realities may have remained virtually unchanged, there is plenty of work in progress. Investors are willing to wait for some time before making up their minds. For the manufacturing sector, the first year of the Modi government represents a task that is well begun but not yet half done.

(Rajiv Kumar, a senior fellow at the Center for Policy Research in New Delhi, is an economist and author of several books on India’s economy and national security.)

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