This month marks the 10th anniversary of Make in India, and it is useful to take stock and assess whether the programme has delivered on one of the central planks of Prime Minister Narendra Modi’s signature pitch: an invitation to the rest of the world to “Come, Make in India”. To cut to the chase, Make in India has been a qualified failure. India has failed to capitalise on favourable global conditions and substantially increase investment in manufacturing.

The strategic question for Indian policymakers was how to increase the share of manufacturing investment in the composition of Foreign Direct Investment, or FDI, inflows. Historically, the country has lagged peers in Southeast Asia due to the region’s more welcoming environment for foreign investors. The Asian Development Bank also suggests that foreign investors favour Southeast Asia because of opportunities from regional integration.

Despite Indian companies appearing to be reluctant partners in the Make in India push, official data indicates FDI has soared in the last two decades, putting the government’s statistics at odds with international data sources that show fluctuations and a clear dip from 2020. Data from the Make in India secretariat suggest that total FDI inflows between 2000 and 2023 totalled $919 billion, while inflows over the last nine years alone, the proximate period of the Modi years, amounted to around US$595 billion.

Foreign Direct Investment in manufacturing has clearly lagged compared with other sectors. In the 2022-’23 period, the top five sectors receiving FDI equity inflows were the services sector (16%), computer software and hardware (15%), trading (6%), telecommunications (6%), and automobiles (5%). However, data from UN Trade and Development indicates that FDI inflows have been significantly lower, amounting to around US$240 billion in the five-year period between 2019-’23, with inflows slumping 29% year-on-year to US$28 billion in 2023. The UN Trade and Development data in terms of announced greenfield investment projects in India during the 2020-’23 is more positive, with an estimated US$200 billion in project announcements.

Investments by chipmaker Micron and smartphone producer Apple serve as a litmus test of whether India will be able to build world-scale manufacturing capabilities, just as Southeast Asia has done so.

In June 2023, Micron announced that it would be establishing a new DRAM and NAND (storage and memory chips) assembly and test facility – the first in India – in Modi’s home state of Gujarat. Micron is planning to invest US$825 million over two phases of the project, the first phase to be implemented in late 2024 and the second phase “to start towards the second half of the decade”, according to the company.

While the company has committed to creating 5,000 direct jobs and an additional 15,000 “community jobs”, what attracted negative attention was the level of state support which the American company is slated to receive. The company noted that under the Indian government’s “Modified Assembly, Testing, Marking, and Packaging Scheme”, Micron will receive 50% fiscal support for the total project cost from government and additional incentives representing 20% of the total project cost from the state of Gujarat. The total project cost is estimated at US$2.75 billion, of which Micron’s actual commitment is US$825 million.

The generous subsidies via production-linked incentives have attracted strong criticism from the policy community. Former Reserve Bank of India Governor Raghuram Rajan has pointed out that state subsidies for the Micron facility amount to more than a third of the central government’s entire annual budget for higher education. “And for what?” he said. “According to the government’s own estimates, the project will create approximately 5,000 jobs. That is $400,000 per job. And the plant is not even set to pursue R&D [research and development].” Rajan has argued that the amount allocated for Micron subsidies would be better invested by the government in domestic higher education, which has lagged in recent years.

Similar controversy surrounds the manufacturing of Apple-made smartphones in India, although there is some recognition that the country is likely to be a major beneficiary of the company’s calibrated approach to reduce dependence on China as its dominant manufacturing base. The three contract manufacturers, including Foxconn, Apple’s traditional supplier with massive facilities in China, the Tata- group owned Westron, and Pegatron, will receive an estimated US$440 million in production-linked incentive funding set aside in 2023. India is already touting the incentives for Apple contract manufacturers as a major success with data showing that around US$14 billion worth of iPhones were shipped from the country in 2023, an estimated 10% of total iPhone shipments globally.

The Modi government’s former Chief Economic Advisor, Arvind Subramanian, has cited other factors for the weak performance of Make in India. He compares the Make in India approach in Modi’s first term in office, in 2014-2019, when the government took active steps to address risk mitigation, with that of Modi’s second term (2019-2024), when the government actively pursued three policy approaches that deterred investors. The first was the government’s pursuit of favouring “national champions” to undertake large projects with preferential fiscal and policy incentives. He argues that this strategy deterred domestic firms due to fears that the policy framework would be abruptly changed to their disadvantage.

Subramanian says that the second risk emanates from “direct and coercive state action”, such as aggressive moves by revenue authorities to extract back taxes from local and foreign firms. The third risk is from the nature of global supply chains, which are dependent on raw materials and components imported from overseas, particularly China. “For India to be internationally competitive – and convince the world to ‘Make in India’, manufacturing firms need to be assured that they will have access to raw materials and inputs from anywhere in the world,” Subramaniam said.

The Modi government has dismissed criticism against Make in India and appears resolute to push forward with the plan in the prime minister’s third term. “In a short space of time, the obsolete and obstructive frameworks of the past have been dismantled and replaced with a transparent and user-friendly system,” the Make in India website proclaims. However, beyond the debate on production-linked incentives and building an advanced manufacturing base, foreign and local investors still must grapple with two familiar obstacles – the sheer complexity of doing business in India and a skills deficit, which is leading to shortages in technical talent.

Anyone familiar with doing business in India knows that structural barriers to investing in a manufacturing facility are real and not going away. This ranges from complex land acquisition rules, outdated labour laws, and quixotic taxation rules at the federal and state levels. While it is true that such barriers can simply be dismantled or waived by national leaders, as is already happening for high-profile investors like Micron and Apple suppliers, the overall industry ecosystem still faces considerable regulatory barriers to doing business.

Even if hardy foreign investors are prepared to invest the time and effort to get their India investments off the ground, the question remains about a talent deficit. Although India produces one of the highest numbers of engineering graduates each year, just below China, there aren’t enough engineer’s welders, and assorted technical talent needed to match the ambitions of manufacturing investors.

While India’s elite institutions continue to produce world-class engineers, there is a fundamental problem with the quality of talent lower down the education value chain. India’s technical training and vocational factories are turning out tens of thousands of graduates each year, but Indian and foreign business are sceptical about their competence. This is a major hurdle.

While many of Silicon Valley’s Big Tech firms – Microsoft, Alphabet, and Adobe among others – are led by Indian Americans, their visibility gives a misleading perception that all technical talent originating from the country is world-class. Make in India’s long-term viability will depend on the central and state governments working together to strengthen technical and non-technical education standards across the board. To achieve a genuine renaissance in manufacturing, the government also needs to do more to remove policy roadblocks and level the playing field for foreign and domestic investors.

This is an edited excerpt from a research paper published by the Hinrich Foundation in Singapore. The full paper can be accessed here.

Vasuki Shastry, formerly with the International Monetary Fund, Singapore central bank and Standard Chartered, is an author and researcher based in Washington DC.

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