Indian Defence Review

Further, on May 12, 2020, Prime Minister Modi also announced a special stimulus package of Rs 20 lakh crore, which equals to 10 per cent of India’s GDP, aimed at making India independent against tough competition in the global supply chain.25 On May 17, Finance Minister Sitharaman announced detailed economic measures that included increased borrowing limits for state governments, from three to five per cent of the gross state domestic product; privatisation of public sector enterprise (PSEs), except in strategic sectors; and various incentives for micro, small and medium enterprises (MSMEs).26

The series of policy reforms and notable improvements in the business regulatory framework has had a tremendous impact on the development of India’s ability to attract FDI and trade in the manufacturing sector.  In fact, the World Bank’s Doing Business 2020 report ranked India as one of the 10 most improved economies in terms of ease of doing business score, especially due to reforms in paying taxes, trading across borders, and resolving insolvency.27

Other positive developments included improvement in India’s ranking in award of Construction Permits, from 184 in 2014 to 27 in 2019; and in Getting Electricity, from 137 in 2014 to 22 in 2019. Among 190 economies, India now ranks 13 in Protecting Minority Investors and 25 in Getting Credit.28 The construction sector has seen the highest growth of FDI equity during the last two fiscals (FY 2017-18 to FY 2019-20) at 190 per cent, followed by the telecommunications sector at 67 per cent, the automobiles sector at 35.12 per cent, and the services sector at 17 per cent. 29 India has also successfully moved towards online procedures and approval processes for tax filing platforms, property transfer, and showing greater transparency.

Conclusion

India has a huge young demographic, between 40-60 per cent of the country’s population, which requires jobs. India would have to commit to more policy reforms to be able to further scale up its manufacturing capacity. It must continue to significantly invest in the development of physical infrastructure and digital connectivity—high-speed train networks, new airports, seaports, roads, and broadband. It is important to offer efficient connectivity between industrial clusters and cities ensuring good transport links and logistics that support an effective and reliable industrial eco-system, which meets the demand of the international supply chain.

India also needs to liberalise its education sector and invest in international education and research partnerships. These efforts should be fortified by a government-led public-private partnership investments in R&D, innovation, entrepreneurship, and the strengthening of the industrial supply-chain in high-value manufacturing sectors, which will contribute to the development of regional clusters. One such initiative is the C-130J programme that created a partnership between the Lockheed Martin research programme and Indian universities to work with local industries and mentors from the Defence Research and Development Organisation (DRDO) to help design specifications.30

To support industrial clusters, India must consider prioritising investment into alternative renewable energy sources, such as solar and wind power. Currently, India is struggling to provide cheap access to electricity and clean water. Cheap renewable energy can generate capability and reach remote rural areas across the country; the surplus can be used for electric vehicles, such as scooters and rickshaws, which can then be locally produced for domestic and export markets. At the same time, these green technology related energy management initiatives will also address externalities such as high levels of carbon emission, pollution, and poor air quality and contribute towards sustainable manufacturing.

Additionally, there is a need to improve and follow-through India’s regulatory reforms such as labour and land acquisition reform, commercial law approval processes and regulations, tax credits and grants for investors in the emerging high-value manufacturing technology as well as enforcement of contracts. India can also introduce incentives to encourage advanced technology innovations in areas such as 3D printing and automotive real-time processes in manufacturing.

Last, but not least, the Indian small and medium enterprises (SMEs) sector should be incentivised to become internationally competitive and export-driven. Both state governments and the central government must coordinate and introduce incentives that will draw FDI at regional levels, as has been seen in Telangana and Tamil Nadu. The government needs to further reduce red tape and overly complex approval processes and promote innovative and efficient business processes that will attract more foreign investors.

India can emerge as the next global manufacturing hub. In times of deep economic crisis, such as the one brought on by the COVID-19 pandemic, a swift government intervention through strong fiscal response and injection of capital into the economy is necessary. While the economy as a whole needs significant support, the government must see this as an opportunity to strategically invest in high technologies for priority sectors such as agriculture, electronics and electrical equipment, including computers, telecommunication and space. It should inject aggressive economic incentives and review the current business practises to bring in more trade and investments into advanced manufacturing sectors.

At the same time, the commercial sector, especially electronics and electrical sectors, must be incentivised to attract FDI from global electronic component manufacturers, review existing business models, and invest in upskilling and retraining as a move to enhance overall industrial capability and capacity. India should now turn to greater public-private partnership collaborative model, where the government and industry take collective responsibility for promotion and growth of the Indian manufacturing sector. Finally, India should capitalise on its diaspora and international industrial partnership programmes, such as the Access India Programme (AIP) introduced under the United Kingdom India Business Council (UKBIC), to generate new opportunities for innovation and entrepreneurship.