Aggressive push for ‘Make in India’ to bolster domestic manufacturing post-lockdown
The government will aggressively push its ‘Make in India’ objective post Covid-19 lockdown with a multi-pronged strategy –policy and fiscal incentives to existing and prospective domestic and foreign investors, duty protection to discourage imports of finished goods and handholding to Indian entrepreneurs in challenging monopoly of multinational e-commerce giants, people aware of the development said.
Several Covid-hit economies and global corporations, who are looking for an alternate to China as a manufacturing hub, have approached India, officials told HT. “Their main attractions are India’s vast domestic market, cheap manpower, resilience of its economy and a strong democracy. Their main apprehensions are regulatory hassles, compliance burdens and policy flip-flop,” two officials working in different economic ministries said requesting anonymity.
“The new opportunity is in sync with India’s ongoing ‘Make in India’ initiative. Fresh policy decisions and fiscal incentives will be announced to take it further after the lockdown is eased. India needs to assure both its domestic and foreign investors, whether existing or potential, that it will also protect them from any import surge, particularly from China,” one of the officials said.
A second official said a “thorough” review of import duties is being conducted with an objective to encourage manufacturing or value-addition in India. “Import of raw materials will be made increasingly cheaper, but higher duties will be levied on finished goods,” he said.
Sectors under consideration are electrical machinery, electronic items, organic chemicals, plastic products and medical equipment, the officials said.
According to the officials this is part of India’s ongoing ‘Make in India’ policy that saw two major announcements – a steep cut in basic corporate tax rates to 22% for existing companies and 15% to new firms on September 20, 2019, and import duty hike on a host of products in the budget this year.
While presenting the budget for 2020-21, finance minister Nirmala Sitharaman had said on February 1, “It has been observed that imports under Free Trade Agreements (FTAs) are on the rise. Undue claims of FTA benefits have posed threat to domestic industry. Such imports require stringent checks.” The budget raised import duties on a host of products such as footwear, furniture, electrical appliances toys, kitchenware and decorative items. Sitharaman said in her budget speech that “cheap and low-quality imports are an impediment” to the growth of micro, small and medium enterprises (MSMEs).
DK Srivastava, the chief policy advisor at global consultant EY India said major global economies will support ‘Make in India’ in the post-Covid era as they are making a conscious effort to relocate their manufacturing activities away from China.
“India is an attractive destination in the medium to long term because of its high share of working age population. In terms of policy support, the CIT [corporate income-tax] reforms undertaken last year will come in handy. A 15% CIT rate for new manufacturing units is highly competitive,” he said.
He, however, emphasised on additional government support in terms of allocation of land by involving states who have large readily available land banks.
The second official quoted above said ‘Make in India’ is not just confined to brick and mortar sectors. “The government is considering to encourage Indian enterprises in domestically-deleveloped services such as e-commerce parallel to global giants such as Amazon and Flipkart,” he said.
The Department for Promotion of Industry and Internal Trade (DPIIT) along with domestic retailers is planning to develop a national e-commerce platform that can be utilised by over 70 million kirana stores to deliver goods online. The platform will connect domestic manufacturers, distributors, wholesalers, retailers and consumers, the official said.
Experts said the government must look beyond domestic market. Srivastava said India’s primary strength lies in services sector and labour intensive and skill intensive manufacturing. “This is why we have export advantages in traditional areas such as gems and jewellery and modern areas such as engineering goods and pharmaceuticals. In the longer run we have to focus not only on ‘Make-in-India’ but also on developing exports both in manufacturing and services,” he said.
Federation of Indian Export Organisation (FIEO) president Sharad Kumar Saraf said post-Covid is likely to result in a paradigm shift of manufacturing of all types of products from China. Make in India is an ongoing initiative. But issues of land, labour and uncertainty in taxation are limiting the success of the programme.
“Radical reforms are needed in all three areas. What more we need is policy and fiscal incentives in terms of ease of doing business, easy availability of finance for the industry and above all better infrastructure including both transport and logistics,” he said. India’s strength lies in sectors like engineering goods, auto components, textiles, leather, apparel and garments, gems and jewellery, drugs and pharmaceuticals, organic and inorganic chemicals, food and food products, handicrafts, and carpets, he added.
He said India can promote manufacturing of high-end technology products like China. “However with China being looked at with susceptism globally, we need to capture the attention of the global business community with the support of the government in not only promoting manufacturing in our country but also Brand India products across the world,” he said.
According to official data, India’s overall exports -- merchandise and services combined -- was $528.45 billion in the last financial year ended march 31, 2020, about 1.36% decline over the previous year. Overall imports also saw a negative annual growth of 6.33% in April 2019-March 2020 at $598.61 billion.
India-China bilateral trade is heavily tilted in favour of China. According to trade figures released by the General Administration of Customs of China (GACC) in mid-January 2020, India’s trade deficit with China was $56.77 billion in 2019 while the bilateral trade between the two countries was about $92.68 billion that year, a 1.6% annual increase.