Thoughts on ‘Make in India’
By Richard Heald
On 25th September 2014, last Thursday, India's Prime Minister Narendra Modi launched his "Make in India" initiative UK India Business Council's CEO, Richard Heald, examines what this means for UK businesses in India.
During his August Independence Day speech the Indian Prime Minister made it clear his government would focus on creating sustainable growth by building up India’s manufacturing base. What is probably more relevant for British companies is that his rallying cry “Come, Make in India” has now developed into a fully-fledged government initiative intended to drive inward investment and attract foreign businesses to India.
This initiative underscores three elements which the UK India Business Council have long stressed:
Firstly, it underscores the diminishing importance of direct trade in an increasing world dominated by supply chains;
Secondly, that India has ambitions to become a global manufacturing hub not merely satisfying the growing domestic needs, but as a destination from which manufactured goods can be exported; and,
Thirdly, that India with its network of bilateral trade agreements around with emerging nations and particularly the Gulf, ASEAN and Africa is aiming to play a major role as the manufacturing hub for “South-South” trade.
In the minds of many Indian policy makers and politicians, India has for too long been portrayed as an elephant compared to the Chinese dragon and Asian tigers. Somewhat poetically the ‘Make in India’ campaign seeks to replace the image of a stately and steady elephant with an Indian lion exuding power and vitality.
The campaign seeks investments across 25 key sectors, ranging from aviation and defence to automobiles, ICT, tourism, creative sector, biotechnology, pharmaceuticals, hospitality, chemicals, and healthcare.
This campaign is also helpfully being pushed at a moment where India is experiencing an increasingly positive investment environment. Not only has investor confidence been returning off the back of Modi’s decisive election victory, but India’s growth rate is also accelerating, and has recently reached its highest level in two years – an impressive 5.7 percent.
What is more, India is already projected by UKIBC Strategic Partner, HSBC, to be the world’s fastest growing exporter between 2014 and 2030, which they anticipate will result in leap from India being the 14th largest exporter of goods by value globally to the 5th. And, encouragingly, HSBC expect a number of the sectors identified by the “Make in India” initiative to contribute towards this transformation from a largely domestic demand driven economy to a global export hub.
In particular, they identify the export of automotive and transport equipment as an area of huge potential. With existing oversupply in the Indian market and India’s strategic location between a number of major emerging markets, global car companies who have already invested heavily in the market in recent years are now looking to, and are well placed to, export from India. The report clearly identifies emerging markets as the likely destination for these goods, making India the location for manufacturers to exploit growth in South-South trade.
For a more detailed look at their projections for India you can view:
Reassuringly UK companies in this sector are also well placed to take advantage of these trends, and some are already ahead of the curve with a notable example being UKIBC member JCB.
JCB who already employ over 7,000 people in India will export their new model the JS205LC, which has been designed and developed especially for emerging markets, from India to the Middle East, South East Asia and parts of Africa. Equally, Triumph Motorcycles which, capitalising on Brand Britain and Indian perceptions around the quality of British goods, have also made huge strides in the domestic market since entering in 2013, and are well placed to export along similar lines.
Of course, creating the necessary conditions within the wider economy that will attract foreign manufacturers on mass will be tough, and in order to achieve this Modi will have to address three major challenges.
Firstly, he will need to develop sustainable infrastructure in India. The budget announced in July increased infrastructure spending including the allocation of nearly £700 million for the development of smart cities across India. In addition, both the budget and his Independence Day speech suggest an openness towards the prospect of Foreign Direct Investment in India’s urban construction sector, a welcome change for British companies. Underpinning these efforts will be India’s economic corridors, including the Delhi Mumbai Economic Corridor, which with recent shake ups at the top will provide strong strategic planning for joining up India’s numerous infrastructure projects and spending.
Secondly, he will need to re-orientate India’s bureaucracy to make it effective. This is by no means a small feat and a perennial problem, but the Government has already made significant progress in changing the central decision making bureaucracy. Encouragingly, Modi has brought departmental announcements under his control. Something previous administrations have often failed to do, and has even had a notable, if as of yet only anecdotal, impact on the working hours and ethics of senior bureaucrats, and even Ministers.
And thirdly, he will need to rebalance the relationship between the Federal Government towards the States. In his Independence Day speech, Modi highlighted the role of States in India’s development and focused on improving the “wiring” between the different branches of Government. The reform of the Planning Commission, which in recent decades has too often become an obstacle to States developing their economies, will give them much greater scope to attract and make worthwhile investments. Promisingly, state co-operation will also be sought in simplifying India’s tax regime and bringing in a nationally standardised Good and Sales Tax, which strongly reinforces UKIBC’s perception that India’s States are increasingly key to India’s attractions as an investment destination.
What does this mean for UK trade policy to India and UK business and where are the opportunities? These are themes which we will be developing over the coming weeks, but there are some important initial points to be made now:
- The UK should be more “muscular” in stressing the leading position it is already playing in supporting India’s economic growth and our leading role in helping India achieve its ambitions.
- Our visible trade position has significantly improved over the past few years, but as we have said “what goes into the back of a container” plays a diminishing role in an increasing globalising market dominated by a multiplicity of supply chains. There are already a significant number of UK companies operating and manufacturing in India. The UKIBC estimates that over 500 companies are already manufacturing in India.
- The role of the City of London and our financial and professional services sectors already play a leading role as a source of both FII and FDI flows. The UK remains within the top three FDI investors in India, but this ignores the international flows of investments. Mauritius remains the single largest source of FDI. But taking into account that a significant amount of these flows are controlled within the Square Mile, the UK controls or influences the largest portion of India’s FDI flows. Finance is key to India achieving its ambitions, as can be seen by Prime Minister Modi granting one-on-one meetings to leading New York financial institutions during his current trip to the USA. The UK Financial Sector should be used more robustly in trade policy.
- The sectors where emphasis is being placed – in defence and aerospace, electronics, advanced manufacturing and creative media – are sectors in which the UK has a multiplicity of strengths.
- Critically, this is not negative for the UK in terms of a diminution of investment and exporting jobs:
- First, the “Make in India” initiative still offers increasing opportunities for visible trade in the short and medium term at least. Complex global supply chains often necessitate a relative increase in things that go in containers. If India is to manufacture and export, she will also need to import increasing amounts of components since India won’t make them all domestically – at least to start with.
- Secondly, the export of IP and, increasingly, co-production of IP are vital in global manufacturing and to the success of “Make in India”. Already, the UK can claim a unique position in India’s commercial and manufacturing ecosystem through its continuing ability to dominate upstream innovation and creativity. The UK academic, research and corporate world has a critical willingness to innovate and collaborate on the back of an increasingly robust IP protection regime. The UK is already the favoured participant in upstream collaboration and destination for Indian upstream investment. This can only accelerate as India’s indigenous manufacturing base develops.
There may be a belief in the UK that the NDA Government is already wasting the opportunity of its massive election win through inaction. It is not. On the ground people will tell you change is accelerating. The speed and mode of execution of the “Make in India” programme is the latest manifestation of this. In practice these changes mean that perceived barriers to doing business in India will all be broken down in time.
