On the threshold of major economic reforms with a population of 1.311 billion (2015) and a 2.074 trillion dollar GDP (2015)1 India, had ranked 85 on the Forbes list of best countries for business out of 139 countries in 2016. The list based on many parameters including property rights, innovation, taxes, technology and corruption among others.
Commensurate with Forbes list, India Ranks 130 overall in the World Bank Ease of Doing Business (EODB) Report and 155 vis-a-vis starting a business out of the 190 countries. Its rank rose by just one place last year in the survey. The government has since then set the targets high to bring about remarkable policy reforms to change the situation. In 2016 the minimum capital requirement and the need to obtain a certificate to commence business operations was eliminated with an objective to bring down the number of days to start a business in India. The ambitious goal aims to bring down the number of days required from 26 at present to just six days which is expected to bring a remarkable improvement in the ranking.
These reforms were a part of Make in India, the flagship initiative of the Modi administration which was launched in September 2014. Make in India is an aggregate of initiatives aimed at raising the contribution of the manufacturing sector to 25% of the GDP by 20252, making India a manufacturing hub. Notable reforms have been introduced since then to promote foreign direct investment, revamp policies governing intellectual property rights and improve the ease of doing business. It targets 25 sectors of the economy including aviation, textile, and garments, thermal power, renewable energy, tourism and hospitality, construction, biotechnology, automobile, and defense manufacturing among the others.
The focus of the initiative is not limited to reshaping policies, and it also promises to create 100 smart, sustainable cities where manufacturing will be a key economic driver. The government is working on building a pentagon of industrial corridors across the country to provide developed land and quality infrastructure for industrial townships.3
This initiative received an unparalleled response to the government receiving 19 billion dollar worth of proposals from companies interested in manufacturing electronics in India between September 2014 and November 2015 alone.4
Why Make in India? How does it propose to help a country which continues to face the challenges of poverty, corruption, malnutrition and low literacy rates? Make in India is all set to increase the economic growth in our country and economic development usually follows growth. Growth in an economy fueled by productivity can be directly linked to government revenue collections, which underpin welfare schemes for the poor serving as a measure of reducing income inequality in a country.
“A more productive private sector, in turn, expands employment and contributes taxes necessary for public investment in health, education, and other services. In contrast, a weak business environment increases the obstacles to conducting business activities and decreases a country’s prospects for reaching its potential regarding employment, production, and welfare.” IFC World Bank group
According to the enterprise survey (2013-14) conducted by the IFC World Bank group the top ten areas of prevalent business environment obstacles perceived by firms operating in the Indian economy included corruption, electricity, tax rates, practices in the informal sector, access to finance, labor regulations, access to land, tax administration, political instability and inadequately educated workforce. Corruption, electricity and tax rates accumulated the highest percentage of votes in the study.
Corruption and inefficient regulations elevate the cost of obtaining licenses and permits which hamper the growth of the businesses in the economy.
In light of this study and the poor ranking of India, the government has sought to resolve these issues by pursuing policies counteracting corruption, unskilled workforce, restrictive regulations and other business environment obstacles identified in the survey by the World Bank Group.
With these policies in effect, India expanding its global presence has opened new avenues for businesses. The startup culture added to these reforms makes the country an attractive destination for investment. These policy decisions are bound to increase foreign direct investment (FDI) in the economy. FDI promises economic growth, improved standard of living, increased demand, increased competition and the benefits of job and skill creation here’s a detailed look at some of the implications.
Age demographic, employment and growing population
With the current demographic profile of India, it is expected that, in 2020, the average age of an Indian will be 29 years5. Unemployment in India is projected to increase from 17.7 million last year to 18 million in 2018 as per the World Employment and Social Outlook Report released by The United Nations International Labour Organisation (ILO). Make in India sounds like a promising attempt to match the population growth with the increase in employment by facilitating investment to create jobs. However, the creation of employment opportunities does not guarantee the decrease in the number of unemployed people; some other factors like skill and education also play a vital role. The government has tactfully targeted this issue with Pradhan Mantri Kaushal Vikas Yojna (PMKVY) aimed at enabling unskilled youth to take up industry-relevant skill training that will help them in securing a better livelihood.6
Human Development Index
United Nations Development Programme (UNDP) has been presenting a measurement of the development of a country regarding the Human Development Index (HDI) since 1990. HDI is based on intrinsic measures not considered in economic growth; these include measures of standard of living, average longevity and level of education. India was ranked 131 in the 2016 Human Development Index (HDI) among the 188 countries7 and the lowest among the BRIICS nations. It lags behind in almost all measures used to compile the index. An increase in employment and expenditure fueled by the Make in India initiative is expected to help overcome these problems, but programs to boost investment in healthcare and education undertaken by the government through effective allocation of resources are also required.
The Paris Climate Agreement
The tenets of sustainable development theory range from reducing poverty to adopting market-based approaches and ensuring access to affordable and clean energy. While the initiative promises to augment the manufacturing sector in the economy, it also raises concern over the greenhouse gas emission levels from the country. As a part of the commitments to the Paris agreement on climate change, this could mean an amplified requirement of investment to reduce its carbon emission intensity or increased regulations on select sectors. A sophisticated set of policies is of paramount importance to determine the effectiveness and the compatibility of the Make in India Initiative with the Paris climate agreement.
The Insolvency and Bankruptcy Code
Improving the ease of doing business with the current system of bankruptcy codes may undermine the intent of the initiative. With the current bankruptcy code, failure of businesses has the potential of leaving productive assets unused in the economy for a long period. Greater importance needs to be given to the speed of recovery. The Insolvency and Bankruptcy code 2015 passed as a move in this direction. An amendment to the RBI Act was also enacted, giving the central bank the power to direct banks and take punitive action against individual account holders under the code. 8
The Brand image of India
No country can strive towards maximizing the welfare of economic agents with sustainable growth on its own, bilateral relations and trade serve as an indispensable tool to achieve sustained growth in any economy. The Make in India initiative is helping in improving the brand image of India in the international arena by easing trade and taxes (through the goods and service tax).9
However, this ship may not sail smoothly, in the long run, the downsides of increased FDI may be a reason for concern. An increased dependence on foreign countries and excessive monopoly power of foreign firms can result in exploitation if not checked with regulation. The benefits of FDI may also remain limited if policies formed fail to deliver.
The level of development still depends on whether the government will be able to channelize investments in a direction necessary to act as a catalyst for inclusive growth. With the largest population of middle class and poor, this nation needs programs to benefit the community. These programs sound elaborate and tackle specific issues related to the private sector but only time will tell if they are able to deliver.
- Worldometers (www.Worldometers.info) Elaboration of data by United Nations, Department of Economic and Social Affairs, Population Division. World Population Prospects: The 2015 Revision.
- "Make in India: Centre gets Rs 1.20 lakh crore worth investment proposals in electronics sector". timesofindia-economictimes.
- Basu, Kaushik (25 July 2007). "India's demographic dividend". BBC News.
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