STRUCTURAL

TRANSFORMATION OF
INDIAN ECONOMY AND NEED
FOR MAKE IN INDIA
MADE BY :
DEVANG SRIVASTAVA-2012UCH1708
ANKIT GAIKWAD-2012UCH1721
SAKSHI GARG-2012UCH1749

STRUCTURAL TRANSFORMATION OF INDIAN ECONOMY:

Over the last 68 years, the Indian economy has experienced
a gradual structural change.
At the time of independence, Indian economy was
predominantly rural and agricultural.
At the beginning years of the First Five-year Plan,
contribution of the primary sector (agriculture, forestry and
logging, fishing) in GDP at factor cost was largest followed
by tertiary sector and secondary sector respectively.
The share of the primary sector in GDP at factor cost
declined from 54.56% in 1950-51 to 16% in 2014-15 while
share of the secondary sector was 16.11% in 1950-51 and
increased to around 24% in 2014-15. The share of the
tertiary sector increased from around 32% to 60% during
this period.

 However, the pace of transition of the Indian economy from an

agricultural economy to an industrial one was quite slow since
1951.
It was in the decade of the eighties the economy emerged from
the phase of slow growth rate and deceleration.
Finally, a major shift in the macroeconomic policies in the
decade of the nineties accelerated the pace of the structural
transformation of the Indian economy and set India on a high
growth trajectory.
The industrial and service sectors registered relatively high
growth rates during recent period, agriculture and allied
activities experienced a relatively low rate of growth.
This underlines a major structural shift in the Indian economy in
recent years, with economic growth becoming more vulnerable
to the performance of industrial and service sectors and less to
the performance of the agricultural sector

 In order to keep the momentum of the structural

transformation of the Indian economy, investment should
be concentrated to those sectors which are strongly
integrated with the rest of the economy and have a
larger multiplier effect on growth and development.

In other words, the key or priority sectors are those which

can stimulate greater economic activities in other sectors
and investment should be concentrated to these sectors.

 SHARE OF GDP:

INTRODUCTION:
Make in Indiais an initiative of theGovernment of Indiato
encouragemultinational, as well as domestic, companies to
manufacture their products inIndia.
Through Make In India initiative, government will focus on
building physical infrastructure as well as creating a digital
network to make India a global hub for manufacturing of
goods ranging from cars to softwares, satellites to
submarines, pharmaceuticals to ports and paper to power.
Under the initiative, brochures on the 25 sectors and a web
portal were released.

These include:automobiles, aviation, chemicals, IT &

BPM, pharmaceuticals, construction, defence
manufacturing, electrical machinery, food processing,
textiles and garments, ports, leather, media and
entertainment, wellness, mining, tourism and hospitality,
railways, automobile components, renewable energy,
mining, bio-technology, space, thermal power, roads and
highways and electronics systems.
As part of Make In India initiative, foreign investment
caps in construction will be eased to enable greater
participation in the NDA governments 100 smart cities
project and affordable housing.
The Make In India logo is derived from Indias national
emblem.

LAUNCH & OBJECTIVE :

Prime Minister Narendra Modi launched the Make in India

programme on 25 September 2014 in a function at theVigyan

Bhavan.
On 29 December 2014, a workshop was organised by
theDepartment of Industrial Policy and Promotionwhich was
attended by PM Modi, hiscabinet ministersand chief
secretaries of states as well as various industry leaders.
The government of India also launched a website to
supplement the campaign, which is intented to answer each
and every query within 48-72 hours.
The Make In India website highlights each of the 25 target
sectors with statistics, reasons to invest, growth drivers, all
policies relevant to investors and the individual sectors,
government support, and opportunities for investors apart
from showcasing the live projects that have been undertaken.

 Making India a manufacturing hub and economic

transformation in India while eliminating the unnecessary
laws and regulations, making bureaucratic processes easier
and shorter, and make government more transparent,
responsive and accountable.
The 'Make in India' also attempts to enforce the inflow of FDI
in the country and improve services by partial privatization of
loss-making government firms.
The major objective behind this initiative is to:
Focus upon the heavy industries and public enterprises while
generating employment, empowering secondary and tertiary
sector and utilizing the human resource.
The initiative also aims at high quality standards and
minimising the impact on the environment.
The initiative hopes to attract capital and technological
investment in India.

VISION:
Manufacturing currently contributes just over 15% to the
national GDP. The aim of this campaign is to grow this to
a 25% contribution as seen with other developing
nations of Asia.

In the process, the government expects to generate jobs,

attract much foreign direct investment, and transform
India into a manufacturing hub preferred around the
globe.

NEED FOR MAKE IN INDIA

In the words of Prime Minister Mr. Narendra Modi , It is important
for the purchasing power of the common man to increase, as this
would further boost demand, and hence spur development, in
addition to benefiting investors. The faster people are pulled out of
poverty and brought into the middle class, the more opportunity
will there be for global business. Therefore, investors from abroad
need to create jobs. Cost effective manufacturing and a handsome
buyer one who has purchasing power are both required. More
employment means more purchasing power.
It creates More EmploymentMore new industries means more
new job opportunities. India has an unemployment rate of 8% and
according to the recent surveys India will require 55 million more
jobs by 2015. "Make in India" campaign gaining desired traction
will be a vitamin injection to the employment sector.

 It increases Industrial sectors GDP contribution to

our EconomyThe service sectors and Industrial sector's
GDP contribution to our economy has improved
considerably in the last fifty years whereas Agricultural
sector has taken a huge hit in GDP contribution to the
economy.

As perIndias share in global exports static in 2013,the

country's share in global export is a paltry 1.7%.Enhancing
the labor skills and employing more skilled labors in
manufacturing sector will make India produce higher quality
goods at much lesser cost than the rest of the world thus
increasing our global competitiveness in the sector. This will
also help in reducing our import costs by substituting
imported goods with domestic produce.

 Making this work will have huge impact on Indias GDP while
changing the entire graph of our employment sector .
Indias GDP contribution in Manufacturing(currently at 15%)
will increase substantially.

In India , the number of jobs in this sector have remained

low aggregating a minor growth rate of 1.8% from 37 million
to 53 millions.

This contrasts with the service sector which has seen an

increase of 6.5% per year , growing its share from 80
millions in 1993 to 150 millions today.

MAKING MAKE IN INDIA A REALITY:

MARKET FRIENDLY LAWS:
In the last 7 decades, growth of manufacturing firms has
been stifled primarily due to many archaic laws and needs
to be changed first.
1. Labour and Industrial Laws :
A manufacturing unit comes under the purview of
Factorys Act 1948 the moment it employs 10 or more
workers with power or 20 or more workers without power.
Industrial Disputes Act (IDA, 1947) requires that a firm
must take approval from the government for laying-off
workers or shutting the firm down if it employees 100 or
more workers.

2. Land Ceiling and Land Acquisition Laws:

The Urban Land Ceiling Ac (ULCA, 1978) was enacted

with a typical socialist mindset to avoid concentration
of urban land in the hands of a few rich individuals.
This has not been repealed by the state of West
Bengal.

A new act was passed in 2013 (GOI, 2014) - Right to

Fair Compensation and Transparency in Land
Acquisition, Rehabilitation and Resettlement Act
(LARR). LARR made it mandatory to return lands that
were acquired but not used for 5 years.

 FLOW OF FUNDS FROM ABROAD:

For the Make in India mantra to succeed, India will need

huge long-term investments in infrastructure, be it ports,
defence, industrial corridors, affordable housing, highways,
mass transit railways, and quite a few other sectors.
Savings generated within Indian economy will certainly not
be sufficient for this purpose. In fact, as per the World Bank
data, in the year 2013 Indias domestic savings rate was
27.8 per cent, much lower than 51.8 per cent, 52.1 per cent,
35.5 per cent, and 34.1 per cent of China, Singapore,
Malaysia, and South Korea, respectively (World Bank, 2015).

 There should be reasonable amount of transparency in the

system, furthermore we need to debureaucratise &
deregulate the steps involved in the execution of an initiative
& help simplify business procedure.
Eliminating the unnecessary laws and regulations & time
bound project clearances through a single online portal.
According toIndia Skills Reportlaunched in the 3rd CII
National Conference on Skill Development34% were found
employable Out of about 1, 00,000 candidates. The Report
not only captured the skill levels of talent pool but also
brought out the hiring estimates across major Industry
sectors in the country.
Corruption free:The real development will happen in not
just making the foreigners start their offices here but by
ensuring that they are sustained. Providing corruption free
environment will boost their morale and attracts more FDI
footprint.

 Improve Power Efficiency: Manufacturing sector faces

huge power shortage already so instead of increasing the
power tariff and cripple the already struggling sector, the
government should improve the distribution efficiency to
prevent power loss. It reduces the cost of power.
Improve Infrastructure and Logistics:Infrastructure
plays a major role in attracting FDI in Manufacturing sector.
Finished products need to be transported and connected
across rural & urban markets. Indias transport
infrastructure is less than desirable when compared to other
countries. Proper connectivity between rural and urban
markets has to be created.

IMPLEMENTATION:
In a short space of time, the obsolete and obstructive
frameworks of the past have been dismantled and
replaced with a transparent and user-friendly system that
is helping drive investment, foster innovation, develop
skills, protect IP and build best-in-class manufacturing
infrastructure.
The most striking indicator of progress is the
unprecedented opening up of key sectors including
Railways, Defence, Insurance and Medical Devices to
dramatically higher levels of Foreign Direct Investment.
The ministry has engaged with the World Bank group to
identify areas of improvement in line with World Banks
doing business methodology.

 An 8 membered investor facilitation cell (IFC) dedicated for

the Make in India campaign was formed in September 2014
with an objective to assist investors in seeking regulatory
approvals, hand-holding services through the preinvestment phase, execution and after-care support.

Also, the regulatory policies have been relaxed to facilitate

investments and ease of doing business.

Six industrial corridors are being developed across various

regions of the country. Industrial Cities will also come up
along these corridors.

Criticism surrounding Make in India

campaign:
There are enough evidences of siphoning billions of dollars
from developing countries to other developed countries
through MNCs .BBC Radio 4's File on 4 has learned that almost
100bn a year is taken out of Africa through accounting
practices - several times what the continent receives in aid.
Indians have to purchase the goods produced within the
territory of India but by MNCs. MNCs have more profit to keep
their plant in India .
Acquisition and grabbing of land in India by MNCs .
There have been the suspicion of return of black money to
India in the form of FDI through make in India

 Intenseindustrialization may lead to increase in pollution,

overcrowded cities, unhealthy residents and Lack of sanitation.

Labour reforms and policy reforms which are fundamental for the
success of the Make In India campaign have not yet been
implemented.

Make in India campaign might lead to over exploitation of

resources rendering them depleted in the near future.

Sustainable growth is not a parameter of this campaign.

So even if industries create job opportunities and economy, we

cant simply erect them recklessly only to become the next CHINA
!

CHALLENGES AHEAD:
Mr. Narendra Modi has raised the target for solar electric
capacity from 20,000MW to 100,000MW by 2022 at a cost of
maybe $100 billion. This is a serious blunder. It will sabotage
his Make in India plans by technically disrupting the whole
electricity grid, and raising the cost of a critical manufacturing
input electricity.

Indian electricity has long been uncompetitive: bulk power

costs Rs 6-7/unit or more in most states, one and a half times
as much as in competing Asian countries. Solar power will be
even more expensive, despite massive subsidies. So, Make in
India will take a hit.

 By 2022, 100000MW solar power will constitute maybe a

quarter of total power capacity. This will upset the whole grid,
since solar power disappears when the sun sets, just as
electricity demand rises to its daily peak, with homes switching
on lights and stoves. Meeting peak needs will require a big
cushion of idle thermal power during the day, a huge hidden
cost of solar power.

If Indian economy has to catch-up on manufacturing and attain

at least 25 per cent share in GDP, it needs skilled, educated,
and healthy workforce. Producing consistent quality output on
the shop floor and persistently providing professional services
requires a workforce that is educated and able bodied.

 A high IMR is a proxy for morbidity a departure from a

state of physical or psychological well-being resulting from
disease, illness, injury, or sickness. Therefore, the much
touted potential build-up of investments in manufacturing
by domestic firms and by technology driven FDI stands no
chance to succeed unless Indias workforce has basic
education and health to work efficiently on the shop floor or
anywhere in the supply chain.

India's small and medium-sized industries can play a big

role in making the country take the next big leap in
manufacturing. India should be more focused towards
novelty and innovation for these sectors. The government
has to chart out plans to give special sops and privileges to
these sectors.

 India must also encourage high-tech imports, research and

development (R&D) to upgrade 'Make in India. 'To do so,
India has to be better prepared and motivated to do world
class R&D. The government must ensure that it provides
platform for such research and development.

OUTCOMES OF MAKE IN INDIA:

FDI is surging:
Foreign direct investment between October and May was up
40% to $23.7 billion from the same period a year earlier. Net
investments by foreign institutional investors, or the money
coming through financial markets, totaled $40.92 billion in
the fiscal year ended March 31, roughly seven times as
much as in the prior year.
Industrial production is warming:
The pick-up in investments is starting to show in the
countrys industrial production numbers. Official data show
Indias industrial production rose an average 2.7% year-overyear in the seven month period from October to May.
Nothing spectacular one may say. But it is a significant step
up from the measly 0.6% increase during the comparable
period a year earlier.

 Foxconn bet billions :

Contract-manufacturing giant Foxconn last weekend
announced plans to spend $5 billion on factories and
research and development in the western Indian state of
Maharashtra. The company is one of the many looking to
produce in India as the countrys consumers spend more on
electronics.
GM doubled down:
General Motors Co. recently announced it will invest
another $1 billion. It has struggled to gain market share in
India but its decision to pour in more funds and retool so it
can make cars for domestic consumption and export shows
it expects things to improve.

 Uber is ramping up its roll out :

While it is a services company and not a manufacturer,
ride-hailing app Uber Technologies is ramping up its
commitment to India. India is already its second-largest
market in terms of cities served. To meet growing demand,
Uber recently announced will invest $1 billion over nine
months to build its network in India.

The government has said that it has, so far, received Rs

1.10 lakh crore worth of proposals from various companies
that are interested in manufacturing electronics in India.

Companies like Xiaomi, Huawei have already set up

manufacturing units in India, while iPhone, iPad
manufacturer Foxconn is expected to open a
manufacturing unit soon.

 Recently, Lenovo also announced that it has started

manufacturing Motorola smartphones in a plant near
Chennai.

Policies under 'Make in India' initiative:

New Initiatives: This initiative is to improve the ease of
doing business in India, which includes increasing the speed
with which protocols are met with, and increasing
transparency. Here's what the government has already
rolled out
- Environment clearances can be sought online.
- All income tax returns can be filed online.
- Validity of industrial licence is extended to three years.
- Paper registers are replaced by electronic registers by
businessmen.
-Approval of the head of the department is necessary to
undertake an inspection.

 Foreign Direct Investment (FDI):

The government has allowed 100% FDI in all the sectors
except Space(74%), Defence (49%) and News Media (26%).
FDI restrictions in tea plantation has been removed, while
the FDI limit in defence sector has been raised from the
earlier 26% to 49% currently.
Intellectual Property Facts:
The government has decided to improve and protect the
intellectual property rights of innovators and creators by
upgrading infrastructure, and using state-of-the-art
technology. The main aim of intellectual property rights (IPR)
is to establish a vibrant intellectual property regime in the
country .

 National manufacturing:
- To increase manufacturing sector growth to 12-14% per
annum over the medium term.
- To increase the share of manufacturing in the countrys
Gross Domestic Product from 16% to 25% by 2022.
- To create 100 million additional jobs by 2022 in
manufacturing sector.

CONCLUSIONS:
During the past 17 months there has been an increase of
35% in the FDI. Whereas there has been a considerable
decline in the FDI of many big countries like China , USA etc.

We have a strong, pro-industry government, global economy

is picking up, and our core advantages are still strong and
relatively unaffected from the global slowdown.

A good start has been made with the government

announcing its intent and making a few small yet important
changes to improve manufacturing sector.

 The next year is crucial to implementing the

announcements well, and seizing the opportunity to make
the right investments at a company level.

REFERENCES
http://www.allonmoney.com/investments/make-in-india-eventnarendra-modi/
http://www.thehindu.com/business/Economy/modi-to-launchmake-in-india-campaign-on-sep-25/article6422804.ece
https://www.quora.com/Will-Make-in-India-work-or-will-it-bejust-a-campaign
http://www.moneycontrol.com/news/cnbc-tv18-comments/ismodi-govts-makeindiasuccess_3264001.html
https://www.quora.com/How-is-the-Make-in-India-missiongoing-to-be-successful-and-how-long-will-it-take
https://www.quora.com/What-are-the-advantages-anddisadvantages-of-Make-In-India
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 http://www.mapsofindia.com/government-of-india/make-in-india.html
http://blogs.timesofindia.indiatimes.com/Swaminomics/100000mw-ofcostly-solar-power-can-sink-make-in-india/
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http://www.slideshare.net/jitendersharmaji/role-of-make-in-indiamission-for-poverty-alleviation-and-sustainable-development

THANK YOU