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Manufacturing in India before and after Make In India

By Gajendra Singh Shekhawat
Through domestic manufacturing under Make In India policy, India has achieved a record of $400 billion of goods exported, the next best being $330 billion achieved in 2018-19. Moreover, the export with the 12 ASEAN countries under RCEP, with whom India has regional trade agreements has increased from $25.13 billion in 2015-16 to $42.32 billion in 2020-21

Today Make in India’s success is well known but what has not often been discussed is the critical analysis with the UPA Government’s attempts at manufacturing. The Previous Government bet on the Regional comprehensive economic partnership (RCEP), a free trade agreement with 15 member countries excluding India constitutes 30% of the global population and GDP to boost manufacturing in India while the present Government has bet on Make in India as it has pulled out of the RCEP in 2019. This article is a comparative study of both these approaches.The 14 RCEP member countries contribute to 70% of our trade deficit, thus India being clubbed with them was a loss-making proposition citing its already weak position. Moreover, out of these 14 countries, India already has a regional trade agreement (RTA) with 13 countries, thus it had nothing new to lose by being a part of RCEP, the only country which had to gain was China, which doesn’t have an FTA with India and would have gotten exclusive access to the Indian market through RCEP. The Modi-era Make in India (MI) policy focuses on increasing domestic manufacturing before entering into any agreement where it is clearly going to lose. Through domestic manufacturing under MI policy, India has achieved a record of 400 billion dollars of goods exported, the next best being 330 billion achieved in 2018-19. Moreover, the export with the 12 ASEAN countries under RCEP, with whom India has regional trade agreements has increased from $25.13 billion in 2015-16 to $42.32 billion in 2020-21, although India still struggles to decrease the trade deficit with them which stands at $25 billion.

RCEP proposes lifting of tariff on 90% of all products, thus Indian market gets opened up for huge imports from RCEP countries, while at the same time, India doesn’t get any guarantee from China to respect WTO obligations wrt non-tariff barriers, which it uses against India, especially in Pharma and IT. MI focuses on creating self-sufficiency in manufacturing in sectors where China creates non-tariff barriers, for example, India reduced dependence on API from China to 24 from 48. Under the Make in India scheme, PLI Scheme for 3 verticals in Pharma worth 21,000 crores has been launched and pharma exports witnessed a growth of 103% since 2013-14, from Rs 90, 415 crores in 2013-14 to Rs 1,83,422 crores in 2021-22.
In areas where India has dominance, RCEP doesn’t provide any special provision for the country to grow, thus we can’t leverage our own strengths while having to play according to our weaknesses. MI is a holistic scheme that understands to increase dominance in areas where it has strength, i.e., agriculture and allied products while slowly growing in areas where it has been traditionally weak, i.e., defense products. In 2009-14, Agri exports stood at 89 thousand crores, which increased to 1.93Lakh crore between 2014-19 and in 2021-22, it rose to a record high of 3 Lakh Crore. In 2014, India’s defense imports were 40 times the size of India’s defense exports, this has changed under Make in India, the value of defense exports during the financial year 2021- 22 has been Rs 14000 crore. In imports, compared to 2012-16, the 2017-21 period saw imports falling by 21 percent, thus Make in India has started bearing fruits in previously disadvantaged sectors.

In sectors wherein there has been a traditional deficit in certain product segments being manufactured in countries listed in RCEP, there is no such guarantee of creating shared infrastructure in importing countries aimed at reducing huge trade deficits between countries and balancing trade, thus RCEP is skewed towards dominant countries, especially in lucrative areas that require extensive technology and high skills. In MI, the Government realised that whenever trade between China and India has grown, there has been a gradual yet steady shift of lucrative, high skill tech-intensive mobile phone manufacturing towards China. Today imports of mobile phones from China have dropped by 55 percent to $626 million in 2021-22, from $1.4 billion in 2020-21. On the other hand, due to MI, India will be exporting mobile phone worth 43,500 crore in 2022 which is a jump of 75% as compared to the previous year.In RCEP, there has been no mention of an auto trigger of stopping imports once an upper threshold of imports has been breached in any segment. The flooding of cheap imports without any protection to the domestic market discourages domestic manufacturers to increase their competence at least in sectors where the RCEP countries can compete. In MI, those products that don’t require high training or huge increase in manufacturing competence but were being imported were identified. In toy manufacturing, China had lion’s share but due to an increase in domestic manufacturing competence under MI, the import of toys in FY21-22 have reduced by 70% to $110 million (Rs. 877.8 cr.) and export worth $326 million, an increase of over 61% over $202 million during FY18-19 has been achieved.

Another major problem with RCEP was non-clarity on the Rule of origin, Trade circumvention often happens when countries like China dump products from countries like Indonesia which enjoy tax concession with India. Understanding the implications of rule of origin, the countries that have FTA with India have to show credible proof of value addition to the product being exported to India. Value addition through assembling in India is also important sector for Make in India. China is a global assembly hub, but due to Make In India, assembly giants like Foxcon, Pegatron, Wistron have all set up assembly plants in India.

RCEP doesn’t take into consideration the geopolitical impact of importing/exporting certain products, or those products necessary for a nation’s security and sovereignty. MI policy understood that trade can be weaponised against India for geopolitical ends thus in critical sectors like Semiconductors, Government came up with a $10 billion worth PLI scheme for semiconductor design and manufacturing. It was never imagined that Semiconductors manufacturing was possible in India, despite it being a $27 billion domestic market, but today, Vedanta and Foxconn are investing Rs 1.54 lakh crores to set up India's first semiconductor production plant in Gujarat, while other 23 applications are in various stages of development. Similarly, India is proud to roll out 100% made-in-India 5G services, architecture and infrastructure.