Modi launches new drive to turn India into world's factory

But experts say big reforms like GST needed for manufacturing to take off as imports still cheaper

Prime Minister Narendra Modi has sought to infuse some fresh energy into plans to convert India into a manufacturing hub, launching a week-long series of programmes under the Make in India initiative to attract investments and woo global manufacturers.

Officials say some 8,000 domestic manufacturers and 1,000 foreign delegates from 68 countries are taking part in the activities, including seminars and business meetings, where investment deals are expected to be announced.

Singapore is being represented by High Commissioner to India Lim Thuan Kuan. Singapore firms are expected to sign an agreement with the Maharashtra state government during the week.

Said Mr Modi at the inauguration of the event in Mumbai yesterday: "Make in India is an opportunity to take stock of how we have performed and what could be the road ahead. The event showcases different aspects of the progress we have made. It is the biggest multi-sectoral event ever held in India."

Since coming to power in 2014, Mr Modi has been trying to encourage foreign and Indian firms to manufacture in India, and to boost the share of manufacturing from 15 to 25 per cent of the gross domestic product in 10 years, while creating millions of jobs.

Mr Modi (centre) after officially opening the exhibition centre during the Make in India week in Mumbai. Some 8,000 domestic manufacturers and 1,000 foreign delegates from 68 countries are taking part in the event. PHOTO: REUTERS

He has opened up the economy in sectors such as defence, and sought to simplify rules and regulations in various sectors. This has borne fruit, with India now becoming the top destination in the world for foreign direct investment.

Still, the initiative has yet to gain the expected traction, with industrial output contracting by 3.2 per cent in November and 1.3 per cent in December from a year earlier.

Experts said plans to convert India into a manufacturing giant like China could be realised only if Mr Modi improved the ease of doing business on the ground by bringing about big reforms like the goods and services tax (GST).

Mr Rishi Sahai, managing director of investment bank Cogence Advisors, said: "Manufacturers are worried about labour reforms, land acquisition and GST."

It does not make economic sense to manufacture in India without GST as goods invite multiple taxes when they pass through states, he said. "For instance, with solar equipment, Chinese imported goods are still 20 to 25 per cent cheaper than those made in India. So it's still cheaper to import than manufacture in India," Mr Sahai added.

Mr Modi has faced difficulties in pushing through major reforms through Parliament, where the ruling Bharatiya Janata Party does not have a majority in the Upper House.

The GST missed its April 2016 roll-out following opposition from the rival Congress in Parliament.

Experts and businessmen said changes on the ground were taking place slowly. Any campaign needs the environment on the ground to be conducive, said Maharashtra businessman Y.H. Gharpure.

Business tycoon Ratan Tata was quoted by the Indian media as saying that the "real test comes when (manufacturers) are making their due diligence to decide whether India is the place to invest, not just on the basis of Mr Modi's promises".

Still, the initiative has had some impact. Last year, Foxconn announced a US$5 billion (S$7 billion) five-year plan to set up a semiconductor plant in Maharashtra.

Said Professor N.R. Bhanumurthy of the National Institute of Public Finance and Policy in Delhi: "I think it is too early to judge this kind of long-term policy initiative.

"I think we need to wait and watch for some more time."

A version of this article appeared in the print edition of The Sunday Times on February 14, 2016, with the headline 'Modi launches new drive to turn India into world's factory'. Print Edition | Subscribe