Once lockdown ends, govt plans Make in India boost
The governments of some Covid-hit economies and executives of global corporations seeking alternatives to manufacturing in China have made overtures to the Indian government about setting up factories here, two of the officials added.Updated: Apr 28, 2020, 06:19 IST
After the extended, 40-day Covid-19 lockdown that ends May 3, the government plans to aggressively push its Make in India programme by offering domestic and foreign manufacturers policy and fiscal incentives to manufacture locally even as it increases import duty to make imports expensive, two government officials familiar with the plan said on condition of anonymity.
Also in the works are measures to encourage local entrepreneurs to take on multinational e-commerce giants such as Amazon and the Walmart-owned Flipkart, they added.
The overall objective is to boost both manufacturing and services, and generate jobs, the officials said.
The governments of some Covid-hit economies and executives of global corporations seeking alternatives to manufacturing in China have made overtures to the Indian government about setting up factories here, two of the officials added.
“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 two said.
A vast market of 1.3 billion people, a relatively inexpensive workforce, and its democratic credentials are expected to hep India make its case, although the complexities of doing business in India (which have improved vastly in recent years), and poor infrastructure could play spoilsport.
Experts also point to the policy flip-flops associated with doing business in India.
The Make in India programme dates back to 2014, the first year of the Narendra Modi government’s first term in office, and was aimed at attracting investments in manufacturing, which contributes just18% to the economic output of Asia’s third-largest economy. The government followed up the programme with measures to improve the ease of business and loosen tough labour regulations.
The new incentives are aimed at burnishing India’s attraction as an investment destination for manufacturing companies.
A thorough review of import duties is now underway with the objective of encouraging manufacturing or value addition in India, said the second official cited above. “Import of raw materials will be made increasingly cheaper, but higher duties will be levied on finished goods.”
Sectors in which such measures are under consideration are electrical machinery, electronics, organic chemicals, plastic products and medical equipment, the officials said.
Some of the ground for the next phase of Make in India has already been prepared with two announcements -- a deep cut in the corporate tax rate to 22% for existing companies and 15% to new ones, in September 2019, and an import duty hike on a host of products, from footwear and furniture to electrical appliances and toys, in the February 1 budget for 2020-21.
Union finance minister Nirmala Sitharaman said in her budget speech: “It has been observed that imports under Free Trade Agreements (FTAs) are on the rise. Undue claims of FTA benefits have posed a threat to domestic industry. Such imports require stringent checks.” She added that “cheap and low-quality imports are an impediment” to the growth of micro, small and medium enterprises (MSMEs)”.
Major global economies will support Make in India in the post-Covid-19 era as they make a conscious effort to relocate their manufacturing activities away from China, said DK Srivastava, chief policy advisor at global consultant EY India .
“India is an attractive destination in the medium to long term basis 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.”
The second official quoted above said India would take the spirit of the Make in India campaign to services. “The government is considering encouraging Indian enterprises in domestically developed services such as e-commerce.”
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 used by over 70 million kirana stores to accept orders online. The platform will connect domestic manufacturers, distributors, wholesalers, retailers and consumers, the official said.
India must look beyond the domestic market, experts said. India’s primary strength lies in the services sector and in labour-intensive and skill-intensive manufacturing, Srivastava said. “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.”
Federation of Indian Export Organisations (FIEO) president Sharad Kumar Saraf said the post-Covid era is likely to see the shift of manufacturing of all types of products away from China. But issues related to land, labour and uncertainty in taxation are limiting the success of Make in India, he added.
“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.”
According to official data, India’s overall exports -- merchandise and services combined -- earned $528.45 billion in the financial year that ended on March 31, 2020, a 1.36% decline from the previous year. Imports shrank 6.33% in the year to $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; bilateral trade amounted to about $92.68 billion last year, a 1.6% annual increase.