On September 25, the Narendra Modi government’s flagship programme Make in India entered its tenth year. For a government that thrives on events and celebrating fiction, there was an eerie silence during the lead-up to this important anniversary. It is possible that the government has accepted that glitzy PR is no longer sufficient to hide the perilously weakened manufacturing sector.
Make in India was launched with much fanfare, with the government listing for itself three major targets: a) increasing manufacturing growth by 12-14% per annum b) increasing the share of manufacturing in the GDP to 25% by 2022 c) creating 100 million jobs in the manufacturing sector by 2022.
Perhaps the lack of celebrations is because not a single target has been achieved. The manufacturing growth rate has averaged 5.9% since 2013-14, the share of manufacturing has remained stagnant and was at 16.4% in 2022-23, and manufacturing jobs halved between 2016 and 2021. The decade of Make in India saw the share of manufacturing in the workforce decline from 12.6% in 2011-12 to 11.6% in 2021-22.
The all-around poor performance has not deterred the government from passing off exceptional events as regular affairs. Apple’s iPhone manufacturing is a case in point. Reportedly, Apple has tripled iPhone production in India and almost 7% of devices are now manufactured in the country. The government and its cheerleaders have chosen to propagate this data point as a sign of manufacturing clout. A quick look at the figures is enough to dispel such notions.
The Index of Industrial Production (IIP) tracks growth in different industry groups. India’s IIP has grown from 106.7 in 2013-14 to 138.5 in 2022-23, at a yearly average of 2.9%. A thriving manufacturing industry must showcase annual growth of 7-8%. Since 2014, most sectors have been struggling.
The sobering reality is that growth in the manufacturing of electrical equipment has averaged (-)1.8% since 2013-14. The average growth of the computer, electronic, and optical products sector has been 2%, the transport equipment industry has grown at 2.3%, and motor vehicle production has grown at 1.6%. Textile, apparel, and leather industries have traditionally been job-creating sectors. They have grown at rates of (-)0.5%, 1.2%, and (-)1.8% respectively.
There is massive joblessness – the unemployment rate amongst young graduates is 42.3% – because manufacturing has failed to take off. Apple expanding its production base in India is motivating but not the complete picture.
A factory here and a factory there is not the way to go. India needs hundreds of new factories across states that manufacture products consumed by different classes. The Annual Survey of Industries underscores how the sector has lost all vibrancy.
The number of factories increased by almost a lakh during the Congress-led United Progressive Alliance (UPA) government. Between 2013-14 and 2019-20, the number increased by only 22,000. The manufacturing surge during the UPA led to more employment opportunities. The number of employees in factories grew at 6.2% annually during the UPA regime. This growth fell to 2.8% under the Modi government. Similarly, wages to workers grew at 17.1% annually under the UPA, falling to 8.4% since 2014.
Profits of factories were increasing at 18.9% annually during the UPA’s term and now stand at 0.6%. Before marketing and sloganeering took over sound policymaking, a government worked diligently and the results speak for themselves. More factories were set up, more workers hired, workers paid reasonable amounts, and proprietors made handsome profits. This climate inspired industries to invest heavily in the sector. Gross capital formation under the UPA averaged 21.3% and has since turned negative (-0.7%).
The lack of investments is a telltale sign of loss of confidence in the government’s policies. A year ago, the finance minister admonished industry leaders for not investing in manufacturing. She asked, “I would equally want to know from the Indian industry why they are hesitant (to invest) …We will do everything to get the industry to invest here … (but) I want to hear from India Inc, what’s stopping you?” We don’t know if she received an answer that day but we do know that the economy still suffers from a demand slump. There are no investments in manufacturing because there isn’t enough demand.
The manufacturing sector may have been on a different trajectory without policy missteps like demonetisation and the poorly designed Goods and Services Tax. The latter struck at the low margins of the MSMEs. The little recovery was wiped out with the announcement of an unplanned COVID-19 lockdown in March 2020. The government’s response continues to be insipid. Raising import duties and prescribing licensing requirements does not enthuse businesses or foreign manufacturers looking to diversify operations as part of their ‘China Plus One’ strategy.
Weakened manufacturing has hurt India more than the data reflects. Although unwittingly, the most trenchant criticism of the government’s economic policies came from external affairs minister S. Jaishankar. In an interview earlier this year, Jaishankar candidly confessed that China’s economic might comes in the way of how this government deals with the border transgression issue. The minister’s defeatist attitude does our position and security forces’ morale no good. It does raise questions within the government.
A decade is a long time to judge a policy. If a programme repeatedly fails, it may be evidence that there is time to shelve it for something effective.
Akash Satyawali is a public policy professional and National Coordinator, AICC Research Department.
