Make in India Initiative and Foreign Investment

Compiled by Zulfiqar Sheth*

1) Make in India is an initiative of the Government of India to encourage multinational, as well as domestic, companies to manufacture their products in India. It was launched by Prime Minister Narendra Modi on 25 September 2014.
2) Coverage: The major objective behind the initiative is to focus on job creation and skill enhancement in twenty-five sectors of the economy. These sectors include: automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, design manufacturing, renewable energy, mining, bio-technology, and electronics.
3) Objectives: A) To attract foreign capital and technological investment in India B) To focus on job creation and skill enhancement C) To increase GDP growth and tax revenue. D) The initiative also aims at high quality standards and minimizing the impact on the environment. E) Facilitating the ease of doing business. F) Creating and adopting processes that allow for businesses to flourish E) Open up the economy, bring investment and promote local production. The Doing Business report of the World Bank and IFC for 2015 places India at just 142nd of 189 countries surveyed in ease of doing business. India used to be 116th of 155 countries a decade earlier.
4) Policy measures taken to boost foreign Investment: A) Foreign equity caps in various sectors have been relaxed. B) The application for licenses was made available online and the validity of licenses was increased to three years. Various other norms and procedures were also relaxed. C) In August 2014, the Cabinet allowed 49% foreign direct investment (FDI) in the defense sector and 100% in railways infrastructure. The defense sector previously allowed 26% FDI and FDI was not allowed in railways. D) Out of 25 sectors, except Space (74%), Defense (49%) and News Media (26%), 100% FDI is allowed in rest of sectors. E) foreign company treated as a domestic company F) 100% FDI allowed in the telecom sector G) 100% FDI in single-brand retail H) FDI in commodity exchanges, stock exchanges & depositories, power exchanges, petroleum refining by PSU’s, courier services under the government route has now been brought under the automatic route. I) Removal of restriction in tea plantation sector.
5) Foreign Direct Investment (FDI) in India: FDI is the major monetary source for economic development in India. Foreign companies invest in India to take benefits of cheaper wages and changing business environment of India. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India. According to the Financial Times, in 2015 India overtook China and the US as the top destination for the Foreign Direct Investment. In first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.
6) Challenges : A) Lack of infrastructure: a bid to build infrastructure via the thoroughly discredited PPP model is unlikely to solve the very real problem India faces in terms of infrastructure B) In order to attract global capital the Indian state needs to undertake certain measures that ensure the cheap manufacturing costs: giving capital access to cheap labor and natural resources – as has already manifested itself in recent changes in the labor laws, in the land acquisition act, and in the flexibility of environmental clearances. Social resistance to such measures is inevitable. C) Other developing economies are also competing to be low-cost manufacturing locations, and the state will have to work doubly hard to ensure a favorable investment climate and having to suppress resistance and social struggles as and when they arise.

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