- 1 What Make in India Scheme says ???
- 2 Distribution network in India:
- 3 Some more interesting Statistics about MSME sector of India:
- 4 Expected changes from MSME Sector:
- 5 Some are the MSME imperatives which would also require some consideration:
- 5.1 Skills development:
- 5.2 Business environment to support and nurture startups:
- 5.3 Global competitiveness and access to technology:
- 5.4 Women entrepreneurship:
- 5.5 Defence-
- 5.6 High government allocation for defence expenditure.
- 5.7 Following are some foreign investors in defence sector-
- 5.8 Creating a robust defence industrial base in India will require several attitudinal shifts.
- 6 Ranking in in ease of business –
With 283 seats in Lok Sabha, thr Narendra Modi Government came into power. With lots of innovative programmes during its initial days like Swatcha Bharat, Atal Pension Yojana and one of the most popular one is Make in India Concept.
Basics of Macro- Economics states that a nation, if it needs to survive and grow in long run, it needs to concentrate on its manufacturing sector. Any nation cannot sustain only on service and agriculture for longer time. This is the basic concept behind “Make in India.”
Till date, India is known as Agricultural based economy. Even today, if the rainfall fails, yearly growth of world’s largest economy is majorly affected. This trend is noticed in India since Independence. This is a huge failure of Indian Government as well as the country as whole of still not implementing the river linking project, failure of planning the rain water management and finally lack of political will from our so called respected politicians.
Also our almost 70% of population stays in Rural areas and 65% of the total population is engaged in Agriculture which contributes approximately 18% of the total Gross Domestic Product. In contradiction to this, there are approximately 20% of population working in service industry which contributes almost 60% of India’s Gross Domestic Product. Manufacturing sector contributes to 42% of Gross Domestic Product and 15-20% of working population is employed in that sector.
This is the present scenario of India’s Economy. The above mentioned figures are exactly opposite of developed nations like Russia, USA, China and some stable European countries have.
Now, in order to shift the huge working population from agriculture to manufacturing and service sector, India as a whole nation need to create huge job opportunities for youth. In order to create jobs, their needs to be huge corporates opening their branches and expanding their business in India. This gives birth to the Make in India Concept.
What Make in India Scheme says ???
The answer to this question says that, India is huge market for new products. India’s huge population is always seen as a big market place were any product can be sold. Now, the Government of India through its Make in India concept is striving to make India a big place for manufacturing products. These will bring new companies in India, will create huge quantum of jobs and will lead to overall development of the nation.
Some basic points which forced the Government to move towards Make in India are:
India is agriculture based economy. Still the Agriculture is not developed to the extent expected over the period of time. The exports from agriculture are rising at a freezing rate and in some years the exports have even decreased as compared to previous year. In order to develop the farming sector, Government of India offers wide range of subsidies for new projects undertaken by farmers. For example:
If a farmer intends to convert his irrigation system into Drip irrigation, Government provides 40% cost as subsidy to that farmer. Rest of the amount can be taken as Loan from Bank. All banks are always keen to grant loans to farmers who intend to develop his farm and repay the loan.
Once drip irrigation system is completely installed, the expected crop from that farm increases at least 50% of the existing one. Though there are certain geographical issues regarding drip irrigation still till date less than 10% of farmers use this technology for farming.
In addition to this, our country has one of the worst water management techniques in the world. In North India, there are floods every year were at the same time, in the state of Rajasthan and its nearby states water scarcity each year.
Hence, this is one of the basic reason for Make in India Project.
65% of India’s population resides in rural areas. Rest of the population though less in number but amounts to major portion of total consumption in the nation. This shows that goods are produced in one area but they are demanded in whole country. This creates a huge scope for transport industry in India. The transport sector is developing but still has lack of high technology and infrastructure required. Also the modes of transport like Roads, Railways, Waterways and Airways are not developed to the expected level.
It is usually said that once the mode of transport is developed the country as whole starts growing leading to overall development. There are many examples which in order to grow had firstly developed modes of transport like:
United States of America
And many more. This list is huge. But modes of transport are treated as basic requirement for initiating the growth of whole economy.
Again in order to develop whole modes of transport and the transport industry, we need huge capital for long term. For this, we need foreign investment which is one of the major intention of Government under Make in India Project.
India is a country of youth. 65% of total population is less than age of 40. Almost half of them are less than 25 years of age. This creates a huge scope for Government of India to use this youth as workforce. But in order to utilize this workforce to its fullest, we need to create those many jobs in order to develop their standard of living. In order to create those many jobs, we need new companies to set up their plants in India as well as existing companies to expand their business. To do this, they should be offered a wide range of business friendly environment which would promote them as business and also lead to an overall development of the nation.
So, this thing to happen, we need to change our license rules and create business friendly environment. This is also one of the major intention of Make in India Project.
Distribution network in India:
India being one of the largest country with respect of geographical area, it needs to have strong distribution network for smooth functioning of the economy. After 60 years of Independence, India is lacking majorly in the area of distribution of goods throughout the country. Major distribution is Government run entities at a great efficiency. This leads to almost 4% of total produce is wasted only because it was not stored properly or not distributed within the stipulated time period. At the same time, there are states were people lose their life only because of lacuna in the food supply system in India. Make in India intends to increase the road network by almost more than 7,000 km till 2017. This will not only increase the connectivity but also in turn decrease the wastage of goods and lead to overall development of the nation as a whole.
The make in India also concentrates on some special like women employment, financial inclusive growth for economically backward class. Developing capabilities for reducing import burden and dependence on overseas for local demand fulfillment. Enhancing and widening export capabilities and becoming globally competitive, developing global technologies and innovation. Developing infrastructure for improving standards of living for wider population as well as for improving business environment and capabilities.
After discussing the need for make in India, it’s time to discuss various important aspects of it. Being a developing nation, Micro Small and Medium Enterprises are one of the most important part of the economy in India, not only with respect to sale and contribution to GDP but also with respect to employment generation. It is observed that, 65% of the total employed are employed with MSME enterprises. Also they are expected to generate employment more than that of huge corporates. As on date, MSME sector is the second largest sector to provide employment after agriculture sector. In addition to this, Micro Small and Medium Enterprises contributes to nearly 8 percent of the country’s GDP, 45 percent of the manufacturing output and 40 percent of the exports. They are the nurseries for entrepreneurship and innovation. They are widely dispersed across the country and produce a diverse range of products to meet the needs of the local markets, the global market and the national and international value chains.
This shows the importance of MSME Sector in India. Though they contribute to huge extent in the growth of economy but in recent past their contribution is reducing and in some industries it is even negative. With manufacturing sector as a whole having been less than robust, and the employment in the manufacturing segment having actually declined, the government came out with a Manufacturing Policy nearly two years ago in 2011. However, many of the measures proposed in that policy will have a long gestation period. Meanwhile, with growing concerns about the short and medium term, the Cabinet Secretary constituted an Inter-Ministerial Committee to recommend how the manufacturing can be accelerated in the MSME sector. The committee submitted its report in the month of September, 2013. The recommendation mentioned in the report are in process of implementation as per Government of India.
As the basic intent under Make in India is to be bring in foreign investment, the MSME sector needs to maintain its efficiency in order to withstand the competition from foreign companies. Also in addition to this the foreign companies would have attacking marketing strategy in order to promote their products and also planned expansion strategy. In comparison to this the Indian MSME enterprises are more of a stable kind of establishment who are not much interested in expansion and development. They are majorly interested stabilizing the organization and maintaining the profit margins as well as the profits volume.
Despite constituting more than 80 % of the total number of industrial enterprises and supporting industrial development, many MSMEs in India have problems such as sub-optimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenario.
In spite of the increasing avenues of funding for MSMEs, credit penetration in this sector is still low. The primary reasons for this are insufficient credit information on MSMEs, low market creditability of SMEs and constraints in analysis. To tackle this problem, the SME Rating Agency of India (SMERA) was launched in 2005 by SIDBI in association with Dun & Bradstreet (D&B), Credit Information Bureau (India) Ltd and leading public and private sector banks.
Some more interesting Statistics about MSME sector of India:
There are approximately 46 million Micro, Small and Medium Enterprise sector enterprises across various industries, employing 106 million people. Overall, the MSME sector accounts for 45 percent of Indian industrial output and 40 percent of exports. While most of the sector is un-organized (approximately 94 per cent), informal and un-registered, initiatives to have more enterprises registered are well underway. The contribution of the MSME sector to India’s GDP currently stands at ~8 per cent for 2011-125, and is growing at a rate higher than the projected GDP growth rate. The contribution of MSME segment to the GDP in some of the global economies is in the 25-60 per cent range. MSME in India has the potential to increase the share of contribution to GDP from the current 8 per cent to about 15 per cent by the year 2020.
With the increase in MSME contribution to the GDP, there is a potential to increase its contribution to employment to over 50 per cent over the next decade. It is also vital for the informal MSMEs who are currently not registered need to be made part of the formal MSMEs eco system. Growth incentives in the form of privileges and direct benefits for the MSMEs will encourage registration and participation in the growth opportunity. Typically, MSME sector can provide comparatively larger employment opportunities at comparatively lower capital cost especially in the rural and remote areas, by becoming part of the industrial ecosystem and act as ancillary units for large enterprises to support the system in growth.
India needs to create 10 to 15 million job opportunities per year over the next decade to provide gainful employment to its population. Current MSME employment is at 28 per cent of the overall employment. MSMEs can contribute significantly to employment generation and development of the Indian economy. The MSME sector is one of the key drivers for India’s transition from an agrarian to an industrialized economy. MSMEs account for a large share of industrial units. The total number of enterprises in MSME sector was 46 million with total employment of 106 million. It is also critical to see that adequate growth is met across services, manufacturing and agriculture segments to ensure holistic and stable overall economic growth. The current growth of MSME is non-uniform and there exists a significant gap in growth of enterprises across services and manufacturing sectors. Steps to lower this gap must be taken for a balanced growth outlook.
Expected changes from MSME Sector:
Considering the expected growth trends in the top industry sectors and certain opportunity areas, MSME share in these growth sectors can be increased significantly. MSME can provide strong backbone to industry growth by serving as quality suppliers and vendors as well as customers to large companies across sectors. MSME can be part of the eco system for the industry sector and add value in the initiatives of cost efficiencies and global competitiveness.
The contribution of the services, manufacturing and agricultural to the overall exports from India is fairly skewed. While export of services led by IT sectors have grown significantly in the last decade, the contribution to exports from manufacturing output has been largely stagnant. India’s share of services exports in world exports of services was 3.3 per cent in 2011 and has been increasing faster than the share of Indian merchandise exports in world exports. During 2012-13, Indian merchandise exports showed a slight negative growth rate of around 2 per cent as compared to a positive growth of 21.9 per cent during the financial year 2011- 122
The share of MSMEs in India’s total exports was estimated to be around 40 percent in 2011-1223. The share of the top four commodities account for about 60 per cent of total MSME exports. While globalization presented a number of challenges for the manufacturing MSMEs, it also opened up ample opportunities to shore up the growth of the manufacturing sector. India can seize the opportunities provided by the dynamics of globalization which has resulted in a dramatic shift of manufacturing to developing countries over the last decade. India can significantly diversify its export portfolio, both in terms of products and goods exported as well as regional coverage.
A quick look at the share of key products exported indicates that there is considerable scope to diversify current portfolio. There is immense potential for export of goods such as fine chemicals, engineered products, plastic, processed / packaged food etc. where MSME can play a crucial role. Even in terms of regions, geographies like Latin America, Eastern Europe and Africa are largely untapped, especially in the MSME sector. These regions typically comprise of emerging economies and offer significant consumer base which can be milked.
Procurement of public sector from MSME:
Priority sectors like healthcare, education and infrastructure are likely to see even greater investment from the government and PSEs. Under the 12th Five year plan, a cumulative planned expenditure of nearly INR 36 lakh crore is likely to transpire over the next four years spread across the priority sectors. Here again, there is immense potential to tap into for the MSMEs and get a larger share of the pie.
The current policy mandates all Central Government Ministries/Departments and PSUs to procure 20 per cent of their annual procurements from SMEs. This Policy is applicable only to Ministries and Departments of Central Government and Central Public Sector Enterprises and there is a need to include the State Governments as well as large enterprises to formulate a similar policy at their respective level. The public procurement policy should be looked at not only as a means for enlarging the market for MSMEs, but as a means of building enduring professional relationships between the government, large enterprises and the MSMEs. Such a policy can systematically enable MSMEs to enhance production and strengthen the vendor development mechanisms in the country. In March, 2012, it was proposed that the Central Government Ministries, Departments and Public Sector Undertakings mandatorily set an annual goal of procurement from MSME for a period of three years starting financial year 2012-13, with the objective of achieving an overall MSME procurement of minimum of 20 per cent, of total annual purchases over a period of three years. Annual goal of procurement would also include sub-contract to MSMEs by large enterprises and consortia of MSEs formed by National Small Industries Corporation.26 The Public Procurement Policy also makes special provisions for MSMEs owned by Scheduled Castes or Scheduled Tribes. Out of 20 per cent target of annual procurement from MSMEs, the policy, as a sub-target earmarks 20 per cent (i.e 4 per cent out of 20 per cent) for procurement from MSMEs owned by Scheduled Castes or Scheduled Tribe entrepreneurs.
Some are the MSME imperatives which would also require some consideration:
Promoting a culture of innovation and entrepreneurship
As an emerging investment destination of foreign capital, technology and products, there is a strong need for an innovation strategy to give a competitive edge to the domestic industries and help them compete in the global marketplace. Also, with the rising inequality in Indian society due to skewed availability of opportunities and resources, promoting innovation will help complement the inclusive growth fundamental. From the perspective of employment generation as well, creating a suitable business environment to nurture and promote entrepreneurship is critical for large scale employment creation. Typically, entrepreneurship tends to be innovation-driven and can also help generate solutions to India’s myriad social and economic problems such as skill development, affordable health care, energy dependence, urbanization, waste management, and financial inclusion. Entrepreneurship-led economic growth is more robust and inclusive.
MSME largely comprise first-generation entrepreneurs and the managerial competence require mentoring and support mechanism.
Business environment to support and nurture startups:
India needs an entrepreneurial ecosystem that encourages innovative startups. Risk taking should be encouraged and entrepreneurs should be supported to overcome roadblocks.
Global competitiveness and access to technology:
India should create an environment for MSME joint ventures to enable Indian MSMEs to partner with their global businesses and evolve to global levels on innovation, adapting to new technologies and attention to quality.
Women entrepreneurs make a significant contribution to the Indian economy and should be encouraged to participate in the MSME growth story. There are nearly three million MSME’s with full or partial female ownership. Collectively, these women-owned enterprises contribute 3.09 percent of industrial output and employ over 8 million people. Approximately, 78 percent of women enterprises belong to the services sector. Women entrepreneurship is largely skewed towards smaller sized firms, as almost 98 percent of women-owned businesses are currently micro-enterprises.
Finally in addition to all this, MSME Sector needs to focus on the most important part that is Technology. Technology is increasingly seen as business enabler and a vital tool for bringing in process efficiencies and higher degree of standardization. In order for MSMEs to develop a competitive advantage to operate in the global market, a strong focus on implementing new age technology, developing indigenous technology as well as technology collaboration with global partners is likely to play a crucial role. Technology plays a pivotal role for MSME to help them stand up to the stiff competition from large enterprises and imports. A strong technology-enabled sector levels the playing field, to a great extent, between MSMEs and their established counterparts globally. The increasing pace of change is rapidly driving customer, businesses and technology firms in a tight embrace, with the convergence of disruptive technologies eroding the boundaries separating them. Businesses are becoming more and more agile, and technologies such as social media, mobility, analytics and cloud computing are coming together to unleash great value and opportunity. This convergence – also known as SMAC (Social Media, Mobility, Analytics and Cloud Computing) – will emerge as a key business enabler over the next few years. In the context of the Indian MSME sector, there is a gradual adoption of the SMAC amongst the urban enterprises – at least aspects of mobility and social media. With respect to developing indigenous technology, across sectors like IT, Electronics, Manufacturing, Pharmaceuticals and Biotechnology, various industry stakeholders, industry bodies and associations, academia, government and large enterprises – need to come together to help pull MSME one notch up in the value chain and lead them to focus on innovation and automation. Local institutions and academia can help set-up cluster specific incubation cells to provide guidance in terms of technology implementation, development and scaling up. Institutions should also collaborate with the industry, particularly MSME, on research initiatives and help provide technology support to commercialize innovative products and service ideas.
The two defence giants—the US and China—have contrasting manufacturing models, with dependence on private and government sector, respectively. Excellence in the US is driven by the capital markets and in China by the fear of instant retribution. The US allows fully owned subsidiaries of foreign defence companies such as Airbus, BAE, Saab, Rolls Royce, Elbit, etc, while China doesn’t.
There are similarities, too. Both the US and China have a fierce will to dominate the world through a robust economy and a strong military. Both draw heavily on experts from their industry, universities and the SME sector; and use sale of defence products as a strategic tool in diplomatic negotiations.
In the late 1970s, the Chinese realised that their defence industry was becoming a ‘golden rice bowl’—rich, yet begging for more. Undertaking radical reforms, they were the fifth-largest arms exporters by 1987 and, in 2014, the third-largest.
In contrast, India, with the third-largest military and the seventh-largest defence budget, is totally dependent on the West for critical equipment. Several parliamentary committees and experts have highlighted a shortage of fighter jets, helicopters, submarines, missiles, artillery, assault rifles and ammunition, etc. India’s battle-readiness vis-a-vis the China-Pakistan alliance is getting worse by the day. This needs to change.
Achieving self-reliance and reducing dependence on foreign countries in defence is a
necessity today rather than a choice, both for strategic and economic reasons. The
Government in the past has created production capabilities in defence in form of Ordnance
Factories and Public Sector Undertakings to cater to the requirements of our Armed Forces.However, there is a need to enlarge the role of Indian private sector as well to developcapabilities and capacities for production of various defence equipments.
Many blame our current state on poor government support to DRDO and DPSUs, ‘import-obsession’ of the forces and dubious defence deals in the past. While some of it is true, the fact remains that the state monopolies have failed on most counts, barring a few exceptions. Monopolies breed complacency, mediocrity and arrogance. Parrikar, who suffered DRDO’s arrogance as a young entrepreneur, has lamented how they ‘treat the supplier as dirt’.
The private sector is the employer of India’s best engineering and scientific talent. Thanks to their pathological disdain for the private sector, DRDO and DPSUs have systematically sidelined this vast talent pool. Their aloofness is camouflaged under the term ‘national security’, as if DRDO and DPSU employees are the sole preserve of integrity and patriotism.
DARPA, the US equivalent of DRDO, led by Delhi-born American scientist Dr Arati Prabhakar, has just around 140 technical personnel and no labs. It depends entirely on American industry, universities, government labs and individuals for cutting-edge research for the mighty US forces.
The 52 labs of DRDO and the 41 factories of OFB need to be audited for their output and the feedback from the end-users—the forces. The top 5-10 labs and factories may be retained, while the rest should be privatised or shut down if there are no takers.
Defence and manufacturing sector are keen to invest in India because :-
- India is third largest armed forces in the world.
- With 40% of budget spent on capital acquisitions.
- 60% of requirements met by imports
India is planning to invest INR 250 Billion in next 7-8 years. India’s current requirements on defence are catered largely by imports.
The opening of the strategic defence sector for private sector participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business. Besides helping build domestic capabilities, this will bolster exports in the long term. The government policy of promoting self-reliance, indigenization, technology upgradation and achieving economies of scale and developing capabilities for _exports in the defence sector.
High government allocation for defence expenditure.
Defence Production Policy, 2011 to encourage indigenous manufacture of defence equipment. Defence Procurement Procedure (DPP) has been amended to provide for the following :
- Preference to ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ over ‘Buy
- Simplification of the procedure for ‘Buy and Make (Indian)’.
- Clear and unambiguous definition of indigenous content.
- Provision for Maintenance TOT to Indian Industry partners.
Following are some foreign investors in defence sector-
- BAE India Systems (UK)
- Pilatus (Switzerland)
- Lockheed Martin (USA)
- Finmeccanica (Italy)
- Boeing India (USA)
- Raytheon (USA)
- MBDA (France)
- Raffel (France)
- IAI (Israel)
- Rafael (Israel)
For the first time, a Defence Export Strategy has been formulated and has been put in public domain. The strategy outlines specific initiatives to be taken by the Government for encouraging the export of defence items. It is aimed at making the domestic industry more sustainable in the long run as the industry cannot sustain purely on domestic demand. A
Standard Operating Procedure (SOP) for issue of NOC for export of military stores has been finalised and has also been put in public domain. Requirement of End User Certificate (EUC) to be signed and stamped by Government authorities has been dispensed with for most of the defence items, particularly parts, components, sub-systems and sub-assemblies. This will largely ease out the export by the domestic industry. A web-based online system to receive applications for NOC for export of military stores has been developed and has been put in place.
There is a big opportunity in the defence sector for both domestic and foreign investors. We have the third largest armed force in the world with an annual budget of about
US$ 38 billion and 40% of this is used for capital acquisition. In the next 7-8 years, we would be investing more than US$ 130 billion in modernization of our armed forces and with the present policy of MAKE IN INDIA, the onus is now on the industry to make best use of this opportunity for the benefit of both the business as well as the nation. Besides, under offset more than Rs.
25,000 crore obligations are to be discharged in next 7-8 years.
While on the one hand, Government is making necessary policy changes with regard to procurement, investment including FDI, licensing, export etc., the industry also needs to come up and accept the challenge of up-gradation in terms of technology and required investments. Defence is the sector which requires huge investments and technology and is driven by innovation. The industry, therefore, has also to change its mindset and think for long term rather than temporary gains. We need to focus more on Research and Development and state of the art manufacturing capabilities. The Government is fully committed to create an ecosystem for the domestic industry to rise and to provide a level-playing field to all sectors of industry, both public and private.
Creating a robust defence industrial base in India will require several attitudinal shifts.
- Our target should be the global market and not just domestic. We have done that in the space sector, with Isro routinely launching satellites for the UK, France, Germany and Singapore. It’s tough but not impossible.
- The armed forces leadership should identify 8-10 technologies critical to India. The list may include missiles, stealth systems, cyber-security, avionics, communication systems, electronic warfare, super-alloys, composites, etc. The rest can come off-the-shelf. China is pragmatic enough to use imported engines for its fighter jets, while working hard to develop its own. Their strategy of ‘import, innovate and export’ has worked wonders.
- Allocate at least 10% of the defence budget to R&D. Every R&D project and manufacturing contract should be bid out, with nothing going to state entities on a nomination basis.
- Consolidate orders instead of each service headquarter doing its own thing. Going for a common platform along with customisation for different end-users makes better commercial sense.
- Create 4-5 world-class defence and aerospace manufacturing hubs. Provide 10-year tax holidays. Establish a Defence Industry Promotion Fund (DIPF) for seed-funding of MSMEs.
- Lastly, the defence ministry should engage better with the private sector. In the West, military procurement is handled by professional consultants with deep knowledge of supply chain, manufacturing, finance and legal issues; under the supervision of their defence ministries. This leads to faster deal closure, better contracts, reduced project costs and lower risk of obsolescence.
Ranking in in ease of business –
The Rafale fiasco is a good case in point. For making India an investment hub, the first and foremost importance step would be to create efficient administrative machinery which would cut down on delays in project clearances. Economists say that India has been very stringent when it comes to giving procedural and regulatory clearances. Besides a time bound clearance from all regulatory authority would create a conducive environment for business.
The Prime Minister acknowledged that India being ranked low on the ‘ease of doing business’ ranking by World Bank and added that he has started to sensitize the Government officials in this regard. On his recent meeting with World Bank President Jim Yong Kim, Modi said “World Bank President was also expressing this worry. Probably we were 135th in the world at that time. If we have to come to 50 from 135 then Government alone can do this. If Government brings transparency in its decisions and rules, pushes works with simplicity we can occupy number 50 from 135 in ease of doing business,”.
Delay in getting regulatory clearances lead to rise in cost of production. A leading multinational automobile major said “costs of production in India increase because of various government policies, procedures, regulations and the way some of the laws are implemented,”. The quicker the government addresses these challenges it’s better for the industry to set up facilities in the country.
For providing better infrastructure for the industry, there has been a big constraint in term of land acquisition.
Often land acquisition for the industrial purpose run into trouble at the local level. This trouble is mainly because of the local political interference as well as the political instability prevailing in major part of the country. This was all about ease of doing business and defence industry as aimed by Make in India Concept.