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U. Furmanowicz: “Make in India”: Importance and Barriers

It is not a coincidence that the “Make in India” plan has been preceded by a spectacular success of Indian Space Research Organisation. The spacecraft Mangalyaan has reached Mars on September 24, 2014. This mission made India the first Asian state which entered the orbit of the Red Planet[i]. A new campaign inaugurated by prime minister Narendra Modi on September 25, 2014, is focused on reforms facilitating economic development in areas such as manufacturing, innovations, start-ups and design.

BACKGROUND

Indian journalists and observers notice that while Western societies are ageing, Asian nation will be young for next 20-30 years. The main thrust of the initiative is a creation of additional employment opportunities (10 million per year). An inseparable part of the plan remains an increase of manufacturing share of GDP from 15% to 25%.

India wants to take advantage of rising costs of labour in China. Its policy is concentrated on attracting business partners by offering an opportunity for higher profits, particularly in a context of the Trans-Pacific Partnership agreement.

When it comes to the “Make in India” initiative, the commentators present different points of view. According to Swaminathan Iyer, it is not a policy. Nevertheless, the Governor of the Reserve Bank of India Raghuram Rajan takes the position that the state authorities should be more focused on “Make for India”. What is more, the economist says that government is paying too much attention to the export-led growth[ii].

OBSTACLES TO OVERCOME

The success of the undertaking depends on investment in Research and Development (R&D). Both the government and private sector has to cooperate to give the economy a boost. A vital part of economic growth is Foreign Direct Investment, which allows the companies to gain access to technical know-how and reduce unemployment. It plays a crucial role in stabilizing the Indian Rupee exchange rate and Balance of Payments (BoP). An increase in FDI inflows in Fiscal Year 2015 is a result of investments in the services sector and infrastructure[iii]. The main players offering maximum FDI capital inflows to India in 2015 were Mauritius (US$ 9,03 billion), Singapore (US$ 6,74 billion) and Netherlands (US$ 3,43 billion).

An important issue remains lack of ability to manufacture important components and sub-systems. Manufacturing sector seems to be more “cost-centric” than value-oriented[iv]. An implementation of a low-cost technology does not bring a high-quality product, consistency and reliability.

India must compete with countries such as South Korea and China which became leaders in shipbuilding technology and aeronautics. However, these Asian countries conducted liberal policy when it comes to Foreign Direct Investment and simplified doing business.

Corporate organizations in France are spending even 10% of their turnover on R&D. French government actively supports a private sector to invest in this sector. Its offer includes, for instance,  an ad hoc tax credit and deduction of expenditure. India must create a stable environment for innovative companies. Overall allocation to R&D in developed countries is much higher than in India (2,2-3,5% versus 0,85%). Even Tata, Mahindra and Larsen & Toubro (L&T) invest less than 1% of their turnover in this area. The companies being Original Equipment Manufacturers which want to do business in India are interested in more independent organizing and controlling.

Źródło: commons.wikimedia.org

Źródło: commons.wikimedia.org

The path of development relies on two critical factors – the cost of capital and quality of human resources. BRICS countries suffer because of the high inflation rate. Analysts predict that growth rate of Indian GDP will reach more than 7% in 2016[v]. This result is worse than between 2005 and 2010 when it achieved an average level of 8,5%. The Chinese economy is supposed to reach around 6,5%. According to International Monetary Fund forecasts, Indian inflation rate will show a downward tendency in the next years. It is expected to be 5,6% in the first quarter of 2016. Long-term forecasts say that this level will achieve around 4,8% in 2020[vi].

The government in New Delhi has already taken steps to improve the investment climate. The list of amendments includes among other things:

  • an introduction of higher investment limits for selected sectors,
  • the opportunity for easier exit from the projects in the construction industry,
  • relaxation of FDI policy in several areas (defence, civil aviation, private banking, news broadcasting),
  • plan to enable even 100% FDI in railway infrastructure (this opportunity does not include operations).
  • India is willing to grant a status of Most Favoured Nation (MFN) to 15 countries to provide them with some extra bonuses. This offer is addressed to participants of talks regarding Regional Comprehensive Economic Partnership.

The cost of realization of Five-Year Plan 2012-2017 is around US$ 1 trillion. It is focused on the protection of infrastructure development, especially ports, airways and highways. These circumstances create a demand for FDI flows.

India ranks 130th out of 189 economies in “Doing Business 2016” report[vii]. Doing business in this country is still burdensome. Factors such as starting a business and dealing with construction permits showed slight improvement. However, there is no change in case of enforcing contracts and trading across borders.  Asian country placed 76th position in the newest report “Corruption Perceptions Index 2015” worked out by Transparency International (TI). The organization’s research director, Robin Hoddes, noticed that none of the BRICS countries took place among 50 leading states[viii].

The surveys show that corrupted business environment affects a model of technology adoption. Some of the entrepreneurs accept turning a blind eye to bribery and prefer a lack of growth than development and transparency[ix]. This attitude is explained as “Peter Pan Syndrome”: the companies decide to join the informal sector. Despite a fact that China overtook its neighbour in corruption (83. position), the observers cite Salman Rushdie’s quip describing India as one man, one bribe democracy.

A FEW REMARKS ON THE OLD CONTINENT

Taking into account the scale of cooperation with Paris, Berlin and London, our part of the Old Continent seems to be less tempting for the current Indian government. The latest meeting of President Francois Hollande and Prime Minister Narendra Modi allowed them to sign the Memoranda of Understanding (MoU) concerning various sectors like solar energy, urban transport and development, etc. What is more, a three-day (January 23-26, 2016) visit to India brought, among other things, an agreement between European and Asian giants – Airbus Group and Mahindra Aerospace. The leaders finalized a deal regarding the purchase of 36 French Rafale fighter jets. Both countries want to develop 10,000 MW nuclear project[x] in Maharashtra state. Paris is going to partner New Delhi to build three smart cities – Chandigarh (which has been designed by Le Corbusier), Ponducherry and Nagpur.

Poland remains the sixth-largest economy in the European Union and the largest country in Central Europe. A research expertise offered by Polish specialists has a high potential for cooperation. It may help Poland to become a gateway to Europe. A participation in government initiatives such as 100 Smart Cities and Digital India seems to play a crucial role[xi]. India is the fastest growing economy, and European countries want to take advantage of this situation. India-Central Europe Business Forum[xii] is looking for opportunities of doing business in partner countries. However, New Delhi is focused rather on the economic importance of the United Kingdom, France and Germany. So far, Indian Prime Minister has never visited Central Europe. Poland and its neighbours are not among top priorities of Narendra Modi’s government.

Low costs of labour and attractive human capital may encourage both Poland and India to cooperate. It could include innovations (business process outsourcing, IT, biotechnology and pharmaceuticals) and more traditional sectors (defence, mining, energy). The success of Polish companies in India – Obram and Bella –  and Indian business in Poland – Wipro, Infosys – remains a good omen. An attractive opportunity to strengthen mutual efforts seems to be a fact that the economies of these countries are based on coal. The collaboration may concern, for instance, renewable energy, alternative sources of energy and green technologies.

LUST FOR REFORMS REPAIRING A REPUTATION

The foreign investors, Indian companies and (current and future) workforce are waiting for numerous changes. These undertakings include a simplification and stabilization of the tax system, introduction of progressive labour laws, increase in the capacity of highways and railways, investments
in infrastructure facilitating access to major domestic and international hubs. This long list of things to do is composed of digitalization of government agencies and departments, improvement of the international competitiveness by growing investments in R&D, easier access to the capital for small and medium-sized enterprises, etc.

“Make in India” may be seen as a PR and marketing strategy worked out to grab the attention of overseas investors and domestic companies selling Indian products and services. The initiative is a matter of considerable importance for current Indian Cabinet. Is conquest of Mars easier than the development of manufacturing sector? An execution of the plan is difficult. Having done that, Prime Minister Modi can prove his political talents and enhance the reputation of his country on the international stage.

Urszula Furmanowicz

[i] http://uk.reuters.com/article/india-mars-idUKL3N0RP56S20140924

[ii] http://www.indiandefencereview.com/news/make-in-india-challenges-before-defence-manufacturing/

[iii] http://www.ibef.org/economy/foreign-direct-investment.aspx

[iv] http://mfgtechupdate.com/2015/07/make-in-india-challenges-and-opportunities-for-manufacturing-sector/

[v] http://www.economist.com/blogs/graphicdetail/2015/12/daily-chart

[vi] http://www.tradingeconomics.com/india/inflation-cpi/forecast

[vii] http://www.doingbusiness.org/data/exploreeconomies/india

[viii] http://www.japantimes.co.jp/news/2016/01/27/world/emerging-giants-plagued-corruption-transparency-international-says/#.VqiYVCrhChc

[ix] http://insights.som.yale.edu/insights/corruption-decreases-technology-adoption-emerging-markets

[x] http://nuclear.energy-business-review.com/news/edf-signs-mou-to-build-10000mw-nuclear-project-in-india-270116-4793962

[xi] http://pibc.truest.pl/event/poland-india-it-forum/

[xii] http://pressnewsofindia.com/the-2nd-india-central-europe-business-forum-icebf-kicks-off-in-bengaluru/

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U. Furmanowicz: “Make in India”: Importance and Barriers Reviewed by on 31 stycznia 2016 .

It is not a coincidence that the “Make in India” plan has been preceded by a spectacular success of Indian Space Research Organisation. The spacecraft Mangalyaan has reached Mars on September 24, 2014. This mission made India the first Asian state which entered the orbit of the Red Planet[i]. A new campaign inaugurated by prime

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KOMENTARZE: 1

  • Z pewnością warto pisac o mozliwościach spółpracy gospodarczej pomiedzy Polską a Indiami, ale wymienienie 2 firm zdecydowanie nie zachęca.

    Problemów do działania w Indiach jest wielokrotnie więcej. Część mozna usunąć na d
    rodze negocjacji pomiedzy UE a Indiami i o tym należy poamietać, że wiele spraw (szcególnie moze FTA w przyszłości) trzeba załątwiać na szczeblu wyższym niż pojedyncze państwo.

    W Indiach nie jest główną kwetią zdefiniowanie pól do działań. Główne pytanie brzmi nie co, ale jak.
    Ponadto przedsiębiorca potrzebuje przede wszystkim klientów. Reszta to sprawa drugorzędna.

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