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How Has Modi’s ‘Make in India’ Campaign Performed?

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Aug. 31 2016, Updated 1:04 p.m. ET

“I will make such a wonderful India that all Americans will stand in line to get a visa for India.” –  PM Narendra Modi, 2015

We recently visited both Mumbai and Delhi. Arriving at the airports in these cities is now a very civilized affair. The new airport buildings are immaculate, tastefully designed and air-conditioned – a pleasant surprise for those accustomed to arriving in the India of old. The impact of investment is clear to see – both airports were developed under transformational public private partnership (PPP) models.

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A short drive out of Mumbai airport and we were met by the noise, unusual smells and brutal traffic that all give the city its unique character. We frequently came across slum areas. The government has struggled to relocate slum dwellers, a reminder that India is a democracy where everyone has civil rights. That said, the government’s aim of achieving a ‘Slum-free Maharashtra by 2022’ will be a formidable challenge. Even more difficult to get accustomed to is the sight of young children roaming the streets, knocking on car windows for a few rupees. The contrast between the haves and have-nots is made starker by the numerous impressive buildings popping up around the city, including Trump Tower near to some of the slums.

Adding to the frenetic atmosphere, our journey finished with our driver taking a so-called ‘shortcut’ down a road with fast oncoming traffic. The whole experience highlighted that while some investment has taken place and more is to come, infrastructure is still poor. It’s therefore no surprise that Prime Minister Modi has announced the ‘Make in India’ campaign, which aims to boost India’s historically low infrastructure and manufacturing base, and create jobs and boost skills across 25 sectors of the economy. One of the key proposals is Smart Cities – a flagship program that aims to create 100 world-class cities over the next five years. The program has backing from various governments, including the UK, China and Israel. The eight $90 billion Delhi-Mumbai Industrial Corridor – one of the world’s largest infrastructure projects – will connect Smart Cities in a high-tech industrial zone spanning 1,500 km. Roads, power and transportation are all key target areas of ‘Make in India’.

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Between July 2014 and June 2015 over 1,400 new investment projects were proposed, with a total value of around 7.8 trillion Indian rupees (or INR), or $120 billion. The creation of brand new roads connecting India and the emergence of a burgeoning middle class will incentivise Indians to buy cars. There is incredible opportunity for growth – India has around 18 cars per 1,000 people, compared to China’s 130 and Brazil’s 250.

In the railway sector, deals that were stalled for 10 years are being fast tracked. Major multinational industrial corporations are leading bids for setting up railway manufacturing units in Bihar. These would be the first projects that include large foreign companies undertaking foreign direct investment (FDI) in the railway sector.

In the defense industry, a large internationally-based conglomerate that manufacturers many products, including weapons, was selected to provide $800 million worth of 100 howitzers. Half of the parts are expected to be built in India. India spends about $15-18 billion on defense each year and an increasing amount is being spent domestically. An Asian electronics firm plans to spend $5 billion building 10-12 facilities in Maharashtra, potentially employing up to 50,000 people. One of the main opportunities will be in the logistics sector, particularly warehousing, which will benefit greatly from eventual implementation of the uniform goods and services tax, growth of e-commerce and manufacturing through the ‘Digital India’ and ‘Make in India’ initiatives.

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Logistics is another sector where India could attract foreign investment attention. Modi had passed on a message to the chairman: “Tell him to get on a plane and go see the world’s best logistics parks and then come back and build them in India.” Among the key drivers of the transformations taking place has been an opening up of the Indian economy to greater foreign direct investment (FDI). Notably, the Modi government has raised the limit on FDI in the defence sector from 26% to 49% and allowed over 50% FDI in the nation’s railway sector for the first time. The construction, agriculture and banking sectors are also set to benefit from greater FDI flows. In aggregate, FDI flows rose by around 24% year-on-year to $42.2 billion in 2015, and by 50% compared to 2013. This now more than covers the current account deficit, which was $15 billion over the first three quarters of 2015, and we expect to be approximately $19 billion, or about 1% of GDP for the full year. This is coming at a time when global FDI flows have been under pressure and is significant for India given it will provide a buffer in the event of portfolio capital outflows. Given government policies to open up key sectors like insurance and defense, there is scope for a sustained improvement in FDI flows.

Market Realist – According to a statement to the Rajya Sabha by the Minister of State for Finance, Arjun Ram Meghwal, domestic and foreign companies like General Electric (GE), Toshiba (TOSBF), Pepsi (PEP), Mercedes-Benz (DDAIF), and Isuzu Motors have already made investments in the “Make in India” scheme between 2014 and 2016.

The minister has also stated that FDI inflows to India (EPI) (IFN) increased by a whopping 46% during October 2014 to May 2016 in response to the Make in India campaign launched in September 2014. FDI inflows were reported to have increased to $61.6 billion over the period in comparison to the $42.3 billion reported as inflows between February 2013 and September 2014 (Source: Deccan Chronicle). This shows that the Make in India campaign is off to a great start, though there is much more work to be done to fulfill its objective.

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