'Make in India' will not happen in a hurry

 Goutam Das        Last Updated: December 22, 2014  | 09:51 IST
Prime Minister Narendra Modi
Prime Minister Narendra Modi is expected to review the 'Make in India' campaign on December 29. (Photo: Reuters)

Prime Minister Narendra Modi is expected to review his much-hyped 'Make in India' campaign on December 29. Has any progress been made thus far? There is little evidence in numbers - industrial production in October was 4.2 per cent lower compared to October 2013. Manufacturing shrank 7.6 per cent.

Government officials, however, insist there is lot of work happening in the background. At industry lobby FICCI's annual general meeting on Friday, where four government secretaries spoke, there were two takeaways for the industry - a) have patience b) temper your expectations.

Gauri Kumar, Secretary, Ministry of Labour and Employment; G Mohan Kumar, Secretary of Defence Production; Rajeev Kher, Commerce Secretary; and Amitabh Kant, Secretary, DIPP, all laid out the work that has happened in recent months. The effort of all departments has been towards "making it easier to do business in India". Labour reform, foreign direct investment announcements and most recently, Goods and Services Tax (earlier this month, the Cabinet cleared the GST Constitutional Amendment Bill) were cited as examples of work done.

There are also no fresh 'tax terrorism' cases, but the government is saddled with what Kant called "legacy issues" - which is why it would take time for the reforms to show results in terms of investments and jobs creation. A fast-track mechanism to resolve disputes such as retrospective taxation is key to gaining back lost foreign investor confidence. There are also challenges around labour productivity, infrastructure, and now the exports market - economic activity is slowing in many regions of the world, including China.

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In labour reforms, the government has addressed a few issues such as stemming inspector raj. On October 16, the government announced a Labour Inspection Scheme aimed at bringing in transparency in inspection. Instead of human discretion, a "risk-based" algorithm will now pick manufacturing units for inspection. The inspector has to upload his report within 72 hours of the inspection on a portal.

Nevertheless, some outdated labour laws still needle the industry. While Rajasthan has amended the Industrial Disputes Act, 1947, the Centre is yet to do so. The Act mandates companies employing 100 or more workers to seek prior permission of the government for firing workers.

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Chapter V B of the Act bars companies from exiting or downsizing quickly - a company needs to seek permission from the government three months in advance. This locks up capital in unproductive assets.

Till bottlenecks such as these are resolved, there is no way how manufacturing's share in the country's overall GDP can grow. The share has been shrinking, from a high of 16.28 per cent in 2011/2012 to 14.94 per cent in 2013/2014. The government wants to jack it up to 25 per cent. That is a tall order, even for the biggest optimist.

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