Font Size



Menu Style

Submit to FacebookSubmit to Google PlusSubmit to TwitterSubmit to LinkedIn
 (Edited Image Courtesy: DIPP)
‘Make In India’ (MII) campaign may be rocking. But manufacturing is hobbling. It is struggling to move towards MII’s daunting target of enhancing manufacturing’s share in gross domestic product (GDP) to 25% in 2020 from 16% in 2014.
If such negativity is despised, then one can perceive MII initiative at best as working in the ‘business as usual’ scenario. This is the conclusion anyone would arrive at. And for that, one has to piece together information dished out by Government in bits and pieces. This is because there is no report card on MII in public domain. 
The manufacturing’s share in GDP has inched from 16.3% in 2014-15 (year in which MII launch) to 16.7% in 2017-18. It was 16.8% in preceding two years. If the inertia persists, the share might rise to 17% by 2020.
As for jobs creation, the other day Government told Parliament that it does not collect data on employment generated under MII
Mind you, this flagship initiative of Modi Government is anchored to National Manufacturing Policy (NMP) that was notified by UPA Government in November 2011. NMP envisages creation of at least 100 million jobs in the course of attaining 25% share of GDP by 2022.
This 25% target was actually agreed in 2009 by State Industry ministers. NDA Government advanced the timeline by two years to 2020 under MII, which was unveiled in September 2014.
Under NMP, 16 National Investment and Manufacturing Zones (NIMZs) have been conceived. Of these, three have got central Government’s final clearance. Not one has, however, been completed. If even one was partly complete, Prime Minister, Narendra Modi, would have certainly unveiled it.
NIMZs are envisaged as large areas of developed land with the requisite eco-system for promoting world class manufacturing activity, according to Government. The snail’s pace development of NIMZ means slow creation of industrial infrastructure required for setting up of new production units. 
NMP also proposed “preferential purchases by government agencies of indigenously developed products and technologies”. This provision was obviously conceived to provide assured and ready market for products coming from existing and new factories. 
It took Government more than five years to invoke this provision.  In May 2017, the Cabinet transformed this decision into “policy for providing preference to 'Make in India' in Government procurements”. This was followed with notification of an order giving effect to the policy.
The Government Issued Public Procurement (Preference To Make In India) Order 2017 (PPP-MII) under General Financial Rules 2017. It mandates only local tendering for products for total value upto Rs 50 lakh for which enough local capacity & competition exists in the country. 
For bidding competition for products and services of higher amount, the Order specifies the manner in which preference is to be given to local supplier competing with foreign ones. It has capped margin of purchase preference at 20%.
While specifying 50% minimum local content in products subject to bidding, it left it to the nodal ministries to vary this percentage keeping in view the nature of product and the stage of value addition. The Order also lays down the mechanism for operating and monitoring preferential purchases at the national and ministry levels. 
To give effect to this Order, different ministries issued memorandums to all entities under their respective control, specifying products to be bought under the Order. Most memoranda also specified percentage of local content in products covered by preferential purchase. The ambit of Order is limited to products and services but also extends to construction contracts. 
The tenders notified after issue of the Order and ministerial memorandum led to flood of complaints against breach of PPP-MII policy. These complaints were addressed by Standing Committee chaired by Secretary, Department of Industrial Policy & Promotion (DIPP), the nodal department for NMP and MII. 
DIPP Secretary, Ramesh Abhishek, brought the problems in implementing PPP MII order to the attention of Prime Minister’s Office during December 2017.
This elicited a strong communication from Principal Secretary to Prime Minister, Nripendra Misra. He wrote: “It is very disturbing that the broad message has not been appreciated by various Departments. It should be the responsibility at the highest level in each Department to ensure that the tender conditions are strictly in sync with the public procurement order and each tender must be examined from the point of view of the interest of Indian manufacturers”.
Mr. Misra continued: “Needless to mention that both the quality and price considerations would not be compromised and adhere to the standing orders on the subject. The requirement of significant global experience in terms of trade performance may eliminate many domestic manufacturers. Any tender which is not sensitive to Make in India' message deserves scrutiny”.
He advised Mr. Abhishek to share this reply with secretaries of all departments. After this, Central Vigilance Commission (CVC) too stepped in. In April 2018, CVC directed Chief Vigilance Officers of ministries and public enterprises to ensure that restrictive clauses against indigenous bidders are prevented in contracts of value above Rs 5 crore
In June 2018, Finance Ministry also asked Financial Advisors in all ministries to ensure that tenders are compliant with purchase preference order.
Notwithstanding all this, the domestic bidders continue to file complaints against tenders with different ministries. The ministries/departments, in turn, issue caution/warning for putting conditions in tender documents that are at a variance with PPP-MII orders.
A case in point is Railways Ministry letter dated 19th December 2018 addressed to General Managers of all production units, workshops and zonal railways. 
According to the Letter, domestic manufacturers have been raising grievances to Railways Board and DIPP that “in few tenders floated by Railways and its PSUs, certain items only of foreign make are approved / specified for supply causing exclusion of Indian brads of such items.”
Pointing out that some tender documents specify foreign brands, the letter says: “indicating foreign make/brand in a tender even when sufficient capacities and capabilities exist, and thereby excluding local manufacturers from participation, is violative of PPP-MII Order”.
Asking for strict and full compliance with the Order, the letter adds: “It is pertinent to mention here that any violations of these instructions are mandated to be dealt with by initiating strict action against deliberate/inadvertent defaulters”.
The Government should monitor not just implementation of PPP-MII order but execution of entire NMP and MII.  The latter at present focuses on 15 manufacturing sectors and 12 service sectors. Action plans for each sector were prepared while launching MII or subsequently for sectors added to MII. 
While seeking consultancy for MII in April 2015, DIPP had indicated that it wanted to get feedback on implementation of action plans for all sectors covered by MII. If DIPP has got evaluation reports on MII, it should put them in public domain to improve implementation of NMP.  
Apart from fighting for preferential purchases assured PPP-MII, many companies have to grapple with problems in securing different approvals from Central and State authorities. Many projects have been delayed on this count, thereby delaying achievement of targets set in NMP & MII. 
Difficulties in obtaining environmental clearances have delayed many projects for a few years. Such delays existed during UPA regime. They continue to exist under NDA. This obviously shows that DIPP has not created a mechanism to prevent or minimize such delays.
Similarly, each sector has its own set of problems that might or might not be addressed promptly by authorities concerned.  The business ecosystem for pharmaceuticals sector, for instance, has been subdued due to aggressive expansion of price controls to more drugs and medical devices. Similarly, subsidy arrears, running into thousands of crores of rupees, have vitiated investment climate. 
The Government has to strike a balance between price controls/populism and wealth and jobs creation. The best way to reduce prices is to unleash competition in the entire value chain in each and every sector. A lot needs to be done to improve competition in several sectors and markets.  
The Government has also not focused on expediting linkages between mining and manufacturing sectors to give a leg-up to MII. Short as well as long-term problems bedeviling manufacturing are aplenty.  They have all reduced or eroded competitiveness of domestic manufacture. 
Unfortunately, Modi Government disbanded National Manufacturing Competiveness Council, which periodically studied competitiveness of different industries and made suitable recommendations to the Government. It also did not revive National Innovation Council, which was set up UPA to improve competitiveness of specified industries.  
There have also been delays in making key appointments in regulatory and appellate agencies. These and many other factors have made of ease of manufacturing difficult. 
All such problems are not captured and assessed in the ease of doing business (EoDB). The impressive rise in EoDB has thus created complacency in Modi Government about manufacturing challenges.  
The Government must now substitute complacency with a holistic approach to provide stable business climate to the manufacturing sector in particular and all business in general. It should be backed with a real-time resolution of problems encountered in projects execution as well as operation of plants.                                                 
Published by taxindiaonline.com on 9 January 2019
You are here: Home Manufacturing Make In India Fails to Fuel Manufacturing