Effect of FDI on Economic Development after launch of “MAKE IN INDIA” Campaign.

 Effect of FDI on Economic Development after launch of

“MAKE IN INDIA” Campaign.

Subroto Kumar Ghosh, Research Scholar

University Department of Commerce & Business Management, Ranchi University, Ranchi.

Mobile: +91 97714 73885, Email: ghosh.com@gmail.com

Dr. Dilip Kumar Sahu, Assistant Professor

Department of Commerce, J. N. College, Dhurwa, Ranchi.

Abstract

India is a country rich in natural resources. Labour is aplenty and skilled labour is easily available given the high rates of unemployment among the educated class of the country. Make in India is the best innovative idea has been created by Indian Prime Minister Mr. Narendra Modi on 25^th September 2014 to develop Indian economy and infrastructure of the country in manufacturing sector. This initiative started in twenty-five sectors of the economy. These include automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, design manufacturing, renewable energy, mining, bio-technology, and electronics. It will create a huge foreign investment for the country. The initiative taken for to create the job opportunities and increase the Gross domestic product of the country and competition in the developing world. Prime Minister has launched this ambitious campaign with an aim to turn the country into a global manufacturing hub. To gain investor confidence and attract high FDI in the future, India would need to fix its poor infrastructure through investment in highways, ports and power plants. This study focuses on the changes in FDI rate after introduction of Make in India by Prime Minister and growth due to increase in the FDI rate. FDI inflows before and after the “MAKE IN INDIA” campaign were compared using the quantitative data which has been collected from various reports like Reserve Bank of India Database on Indian Economy, database of department of Industrial Policy and Promotion. The effect of FDI on economic development ranges from productivity increased to enable greater technology transfer.

Keywords:  Make in India, Foreign Direct Investment, Indian economy, Gross domestic product, global manufacturing hub.

 

 

 

INTRODUCTION

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, launched by Prime Minister Narendra Modi on 25 September 2014. The landmark initiative has made a tremendous impact on the investment climate of the country, and reflects in the significant growth of overall Foreign Direct Investment (FDI)

This initiative started in twenty-five sectors of the economy. These include automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, design manufacturing, renewable energy, mining, bio-technology, and electronics.

Make in India focuses on the following twenty-five sectors of the economy:

·        Automobiles

·        Automobile Components

·        Aviation

·        Biotechnology

·        Chemicals

·        Construction

·        Defence manufacturing

·        Electrical Machinery

·        Electronic systems

·        Food Processing

·        Information Technology and Business Process Management

·        Leather

·        Media and Entertainment

·        Mining

·        Oil and Gas

·        Pharmaceuticals

·        Ports and Shipping

·        Railways

·        Renewable Energy

·        Roads and Highways

·        Space and astronomy

·        Textiles and Garments

·        Thermal Power

·        Tourism and Hospitality

·        Wellness

As per the new Govt. Policy 100% FDI is permitted in all the above sectors, except for space (74%), defence (49%) and news media (26%).

OBJECTIVES OF MAKE IN INDIA

v  Focus on Job Creation, Skill Development and Enhancement.

v  Hope to increase GDP growth and tax revenue.

v  Focus upon the heavy industries and public enterprises while generating employment in India.

v  To facilitate Investment and Foster innovation.

v  Protect intellectual property and to built best-in-class manufacturing infrastructure

v  High quality standards and minimizing the impact on the environment.

v  To attract capital and technological investment in India.

v  Over 1000 training centers would be open across India in next 2 years.

v  Skill certification would be given to training process, a standard. Currently manufacturing in India suffers due to low productivity rigid laws & infrastructure resulting in low quality products getting manufactured.

v  The e-biz portal would launch which would be real time and available 24x7.

 

OBJECTIVE OF STUDY

1. To find out the effect of FDI on economic development after launch of “Make in India” campaign.

2. To study about the role of FDI inflows and its contribution in increasing output.

 

RESEARCH METHODOLOGY

The study is based on secondary data. The required data has been collected from various sources i.e. research papers, various Bulletins of Reserve Bank of India, Publications from Ministry of Commerce, Govt. of India that are available on internet.

 

PRESENT RESPONSE

In January 2015, the Spice Group said it would start a mobile phone manufacturing unit in Uttar Pradesh with an investment of 500 crores (US$75 million). A memorandum of understanding was signed between the Spice Group and the Government of Uttar Pradesh.

In January 2015, Hyun Chil Hong, the President & CEO of Samsung South Asia, met with Kalraj Mishra, Union Minister for Micro, Small and Medium Enterprises (MSME), to discuss a joint initiative under which 10 "MSME Samsung Technical Schools" will be established in India. In February, Samsung said that will manufacture the Samsung Z1 in its plant in Noida

In February 2015, Hitachi said it was committed to the initiative. It said that it would increase its employees in India from 10,000 to 13,000 and it would try to increase its revenues from India from ¥100 billion in 2013 to ¥210 billion. It said that an auto-component plant will be set up in Chennai in 2016.

February 2015, Huawei opened a new research and development (R&D) campus in Bengaluru. It had invested US $ 170 million to establish the research and development centre. It is also in the process of setting up a Telecom hardware manufacturing plant in Chennai, the approvals of which have been granted by the central government.

In February, Marine Products Export Development Authority said that it was interested in supplying shrimp eggs to shrimp farmers in India under the initiative.

In June 2015, France-based LH Aviation signed an MoU with OIS Advanced Technologies to set up a manufacturing plant in India to manufacture drones.

In February 2015, Xiaomi began initial talks with the Andhra Pradesh government to begin manufacturing Smartphone’s at a Foxconn-run facility in Sri City. On 11 August 2015, the company announced that the first manufacturing unit was operational and introduced the Xiaomi Redmi 2 Prime, a Smartphone that was assembled at the facility.

Lenovo announced on August 2015 that it had begun manufacturing Motorola Smartphone’s at a plant in Sriperumbudur near Chennai, run by Singapore-based contract manufacturer Flextronics International Ltd. The plant has separate manufacturing lines for Lenovo and Motorola, as well as quality assurance, and product testing. The first Smartphone manufactured at the facility was the 4G variant of the Motorola Moto E (2nd generation).

On 16 October 2015, Boeing chairman James McNerney said that the company could assemble fighter planes and either the Apache or Chinook defense helicopter in India.

 

 

VISION OF MAKE IN INDIA

 

Manufacturing currently contributes just over 15% to the national GDP. The aim of this campaign is to grow this to a 25% contribution as seen with other developing nations of Asia. In the process, the government expects to generate jobs, attract much Foreign Direct Investment, and transform India into a manufacturing hub preferred around the globe. 

The aim is to take the share of manufacturing in the country’s GDP from a stagnant 16% currently to 25% by 2022, as stated in the National Manufacturing Policy, and to create 100 million jobs by 2022. India had fallen to a lowly 134th rank out of 189 countries this year (three down from 2013) in the World Bank’s Ease of Doing Business rankings. India is one of the world's fastest-growing economies.

The tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity (PPP). India has been recording sustained trade deficits since 1980 mainly due to the high growth of imports, particularly of crude oil, gold and silver.

Receipts Exports during October, 2014 were valued at US $ 12146 Million (Rs. 74505.99 Crore). Payments Imports during October, 2014 were valued at US $ 5942 Million (Rs. 36449.42 Crore). The trade balance in Services (i.e. net exports of Services) for October, 2014 was estimated at US $ 6204 Million.

On Independence Day 15^th August 2014. Our Prime Minister, invited global companies to pick India to locate factories, promising to replace red tape with red-carpet welcomes. To make India break into the top 50 in the World Bank’s ease of business index ranking from the current 134th position.

 

IMPACT OF MAKE IN INDIA

Make in India has already created a strong impact with tangible results:

v  India is now 1st amongst the world’s fastest growing economies (Source: International Monetary Fund).

v  India is 1st amongst the world’s topmost Greenfield FDI destinations, January-June 2015 (Source: Financial Times, FDI Markets).

v  India is 1st amongst the 100 Countries in the growth, innovation and leadership index. (Source: Frost & Sullivan)

v  India is 1st amongst the world’s fastest growing economies in both 2016-2017. (Source: WESP Report 2016, United Nations)

v  India is the 1st choice for technological MNCs to set up R&D centers outside their home countries. (Source: Zinnow Management Consulting Report)

v  India is the 7th most valued nation brand in the world. (Source: Brand Finance)

v  India is 1st amongst the world’s most attractive investment destinations. (Ernst & Young – 2015 India Attractiveness Survey)

v  India is now 1st amongst 110 investment destinations polled globally. (Foreign Policy Magazine, Baseline Profitability Index, 2015)

v  India is amongst the top 10 investment destinations. (Source: World Investment Report 2015, UNCTAD).

v  India’s rank jumped 12 places on the ‘Ease of Doing Business’ 2016 list. (Source: World Bank).

v  India moved 16 places on the Global Competitiveness Index 2015-16. (Source: World Economic Forum)

v  India has recorded 35% Growth in FDI Equity Inflows. (Source: Department of Industrial Policy & Research)

 

Advantages of Make in India

The concept of Make in India is a good initiative taken by the NDA Government and it is definitely going to affect the socio - economic growth of our country, especially in providing employment opportunities and industrial growth. To accommodate the 300 million people who will join India’s workforce between 2010 and 2040, each year 10 million jobs are needed. It is expected that the manufacturing sector will create about 100 million jobs by 2022. In addition to this the other advantages of Make in India are as under:

Manufacturing sector led growth of nominal and per capita GDP. While India ranks 7th in terms of nominal GDP, it ranks a dismal 131st in terms of per capita GDP.

Employment will increase manifold. This will augment the purchasing power of the common Indian, mitigate poverty and expand the consumer base for companies. Besides, it will help in reducing brain drain.

Export-oriented growth model will improve India’s Balance of Payments and help in accumulating foreign exchange reserves (which is very important given the volatility in the global economy with multiple rounds of Quantitative Easing announced by major economies).

Foreign investment will bring technical expertise and creative skills along with foreign capital. The concomitant credit rating upgrade will further woo investors.

FIIs play a dominant role (relative to FDI) in the Indian markets. However, FIIs are highly volatile in nature and a sudden exodus of hot money from India can affect a nosedive in the bellwether indices. Make in India will give an unprecedented boost to FDI flows, bringing India back to the global investment radar.

The urge to attract investors will actuate substantial policies towards improving the Ease of Doing Business in India. The Government of the day will have to keep its house in order (by undertaking groundbreaking economic, political and social reforms) to market Brand India to the world at large.

Challenges in Implementation of ‘Make in India’

No doubt the above discussed advantages of Make in India concept will boost up our economic growth and the initiatives taken by the present government is being welcome by every corner of the world. It is very clear that countries and private sector players are showing their keen interest in this concept and are willing to invest in manufacturing sector, but, following are certain grey area’s which needs immediate attention of the government for smooth implementation and success of this concept.

India’s labor laws are still ancient by most standards which makes hiring and firing and shutting down of inefficient units next to impossible.

India, in one sense has a federal structure which reduces the Central government’s power in pulling off such schemes and ideas. Provision of utilities such as electricity, water, infrastructure development such as roads, law and order, land allotment, are all under state government’s gambit. Thus, cooperation of state governments is an absolute necessity for “Make in India.”

High level of corruption in India at all levels in the bureaucracy. China even though on the basis of data provided by transparency international is more corrupt than India, India’s ‘70’s hangover of permit and license raj (which leads to red-tapism and hence corruption) and weak redress system makes doing business a very difficult task. This is the main reason the country has fared poorly in ease of doing business indices. According to World Bank data, it’s at a distant 130 compared to China which is 83 (2015 data).

India’s investment in health and education leaves a lot to be desired. A skilled and healthy population is both: a good employee and a potentially good employer. India spends less than 3% of GDP for both health and education. China, on the other hand, spends more than 3% of a much larger GDP in favor of both.

Political instability, law and order problem, social unrest, increasing crime rate are another challenges which restricts the countries to invest in India.

 

Suggestions for Increased Flow of FDI into the Country

Flexible labor law needed: China gets maximum FDI in the manufacturing sector, which has helped the country become the manufacturing hub of the world. In India the manufacturing sector can grow if infrastructure facilities are improved and labour reform stake place. The country should take initiatives to adopt more flexible labour laws. Relook at sectoral caps: Though the Government has hiked the sectoral cap for FDI over the years, it is time to revisit issues pertaining to limits in such sectors as coalmining, insurance, real estate, and retail trade, apart from the small-scale sector. Government should allow more investment into the country under automatic route. Reforms like bringing more sectors under the automatic route, increasing the FDI cap and simplifying the procedural delays has to be initiated. There is need to improve SEZs in terms of their size, road and port connectivity, assured power supply and decentralized decision-making. Geographical disparities of FDI should be removed: The issues of geographical disparities of FDI in India need to address on priority. Many states are making serious efforts to simplify regulations for setting up and operating the industrial units. Promote Greenfield projects: India’s volume of FDI has increased largely dueto Merger and Acquisitions (M&As) rather than large Greenfields projects. M&As not necessarily imply infusion of new capital into a country if it is through reinvested earnings and intra company loans. Business friendly environment must be created on priority to attract large Greenfields projects. Develop debt market: India has a well developed equity market but does not have a well developed debt market. Steps should be taken to improve the depth and liquidity of debt market as many companies may prefer leveraged investment rather than investing their own cash. Education sector should be opened to FDI: India has a huge pool of working population. However, due to poor quality primary education and higher education, there is still an acute shortage of talent. FDI in Education Sector is lesser than one percent. By giving the status of primary and higher education in the country, FDI in this sector must be encouraged. Strengthen research and development in the country: India should consciously work towards attracting greater FDI into R&D as a means of strengthening the country’s technological prowess and competitiveness.

 

CONCLUSIONS

FDI plays an important role in the long-term development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. It has been analyzed that there is high correlation between Industrial Production and FDI inflows. The effect of FDI on economic development ranges from productivity increased to enable greater technology transfer.

Make in India attract the world for business in Indian soil with lowest labor cost & best quality of the product to be produced in the modern technology. India is one of the fastest growing economies in the developing countries and will get foreign direct investment through Make In India project. Make in India’s vision is so vast and long lasting and got the good response around the world for set up manufacturing industries in India. It will help India to improve the GDP of the country and will create better living of life for everyone in the country. Through Make in India in upcoming years looking forward for bright future in manufacturing industry.

According to Press Information Bureau Government of India, Ministry of Commerce & Industry on 14-July-2015 48% Growth in FDI Equity Inflows after Make in India. 

The growth in FDI has been significant after the launch of Make in India initiatives in September 2014, with 48 percent increase in FDI equity inflows during October 2014 to April 2015 over the corresponding period last year. In 2014-15, country witnessed unprecedented growth of 717 percent, to US $ 40.92 billion of Investment by Foreign Institutional Investors (FIIs). The FDI inflow under the approval route saw a growth of 87% during 2014-15 with inflow of US$ 2.22 billion despite more sectors having been liberalized during this period and with more than 90 percent of FDI being on automatic route. These indicators showcases remarkable pace of approval being accorded by the government and confidence of investors in the resurgent India. 

The increased inflow of Foreign Direct Investment (FDI) in India especially in a climate of contracting worldwide investments indicates the faith that overseas investors have imposed in the country's economy and the reforms initiated by the Government towards ease of doing business. The Make in India initiatives of the Government and its outreach to all investors have made a positive investment climate for India which is evidenced in the results for the last financial year especially the second half. 

The FDI inflow during the financial year 2014-15 was spread across the sectors evidencing the fact of positive eco-system of investment opportunities which India is now providing- Services Sector (US$ 3.2 billion), Telecommunication (US$2.8 billion), Trading (US$ 2.7 billion), Automobile Industry (US$ 2.5 billion), Computer Software & Hardware (US$ 2.2 billion), Drugs & Pharmaceuticals (US$1.5 billion) and Construction (Infra) activities (US$ 0.75billion). 

Government amended the FDI policy to further enable a positive investment climate and sync it with the vision and focus areas of the present Government such as affordable housing, smart cities, financial inclusion and reforms in railway infrastructure. The Construction Development Sector was allowed easy exit norms with rationalized area restrictions and due emphasis on affordable housing. The FDI cap in insurance and pension sector has been raised to 49 per cent. 100 per cent FDI has been allowed in railway infrastructure (excluding operations) and also in the medical devices sector. Further the definition of NRI was expanded to include OCI cardholders as well as PIO cardholders. NRIs investment under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment made by residents, thereby giving flexibility to NRIs to invest in India. 

The Foreign Policy Magazine in its present analysis on a vast number of parameters has rated India as the No.1 destination in the world. Frost & Sullivan, a US based agency has on number of indicators selected the Make in India initiative as the best initiative to drive manufacturing. 

India stands committed to have a FDI policy and regime which is investor friendly and also promotes investment leading to increased manufacturing, job creation and overall economic growth of the country.

 

REFERENCES

1. "Look East, Link West, says PM Modi at Make in India launch”. Hindustan Times. 25 September 2014. Retrieved 27 February 2015.

2. "India pips US, China as No. 1 foreign direct investment destination - The Times of India".

Timesofindia.indiatimes.com. Retrieved 2015-10-01.

3. "India Pips China, US to Emerge as Favourite Foreign Investment Destination: Report - NDTVProfit.com".Profit.ndtv.com. Retrieved 2015-10-01.

4. "Pay-off time for Modi: India displaces US, China as the top FDI destination in 2015". Firstpost. 2015-07-29. Retrieved 2015-10-01.

5. "Spice Group announces Rs 500 crore investment to build mobile manufacturing unit in UP". DNA India. 28January 2015. Retrieved 27 February2015.

6. "MSME-Samsung Technical School to promote 'Make in India'". Business Standard. 15 January 2015. Retrieved 2 March 2015.

7. "Samsung launches new 4G phones, says still on top in India". The Indian Express. 17 February 2015. Retrieved 2 March 2015.

8. "Hitachi keen to push ‘Make in India’ programme". The Hindu. 16 February 2015. Retrieved 27 February 2015.

9. "China's Huawei makes $170 million "Make in India" investment". Reuters. 5 February 2015. Retrieved 2 March 2015.

10. "Huawei India opens new R&D campus in Bengaluru". Deccan Herald. 5 February 2015. Retrieved 2 March 2015.

11. Aman Sharma, ET Bureau Jul 14, 2015, 06.08PM IST. "Make in India: Chinese telecom giant Huawei to set up a unit in Tamil Nadu - timesofindia-economictimes". Articles.economictimes.indiatimes.com. Retrieved2015-10-01.

12. "MPEDA keen on producing ‘Make in India’ shrimp seed". The Hindu. 1 February 2015. Retrieved 27 February 2015.

13. "French drone maker LH Aviation to Make in India now | business". Hindustan Times. 2015-06-19. Retrieved 2015-10-01.

14. "#MakeInIndia: Xiaomi launches Redmi 2 Prime which is made in Andhra Pradesh". The Indian Express. 2015-08-11. Retrieved 2015-10-01.

15. Romit Guha, ET Bureau Aug 18, 2015, 12.56PM IST. "Make In India: Lenovo-Motorola starts making Smartphone’s at Chennai plant - timesofindia-economictimes". Economictimes.indiatimes.com. Retrieved 2015-10-01.

16. "Lenovo starts manufacturing Smartphone’s in India". Livemint. Retrieved2015-10-01.

17. Boeing boost for Make in India, New Delhi: The Times of India, TNN, 17 October 2015.

18. Naman Vinod, Make in India: Pradhanmantri Narinder Modi Ka Naya Prayaas, Hind Pocket Books, 2015.

19. Can “Make in India” make jobs? The challenges of manufacturing growth and high–quality job creation in India by Russell A. Green Will Clayton, fellow, International Economics, James A. Baker, Institute for Public Policy Rice University, (http://bakerinstitute.org. 2014).

20. Role of HR and Financial Services in Making “Make in India” Campaign a Success by Samridhi Goyal , Prabhjot Kaur , Kawalpreet Singh, IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN:  2319- 7668. Volume 17, Issue 2.Ver. IV (Feb. 2015).