Modi's 'Make in India' will definitely make doing business easier

The animal spirits in manufacturing that Narendra Modi hopes to ignite with his Make-in-India campaign will be symbolised not by the lumbering elephant, or the much-loved tiger metaphor, but the majestic lion.

The lion is Make-in-India’s mascot. The lion unleashed today (25 September) by the Prime Minister is Gujarat’s pride, and the symbolism suggests that Make-in-India will seek to extend the Gujarat model of business-friendly policies to the whole nation. The key to Make-in-India’s success, however, lies with the states. Modi can deliver only half of what he promises if the states don’t mount the lion.

As launches go, the setting could not have been better. The who’s who of India Inc was in attendance (Mukesh Ambani, Cyrus Mistry, Azim Premji and Yogi Deveshwar, among others). A neat easy-to-navigate website offered potential investors a quick peep into the 25 sectors where India wants to push labour-intensive manufacturing. A brochure encapsulating a tweaked National Manufacturing Policy (NMP), complete with promises to steadily deregulate and delicense more and more areas of manufacturing, completed the offering.

Among the dozen delicensing and deregulation measures unveiled during the programme were the following: making the process of applying for licences online with single-window clearances put in place by 31 December 2014, extending the validity period of licences to three years, excluding major components of defence products from licensing, deregulating dual use items (ie, items with both civilian and military use), and self-certifications for most non-risk, non-hazardous businesses. (Read more about these details in our live blog of the event here ).

Coming as it does just as the PM is about to depart for a five-day business and political visit to the US, Make-in-India is targeted not only at Indian investors, but global ones as well. Though the event today at Delhi’s Vigyan Bhavan was largely attended by Indian business leaders, there were some global voices too - including Phil Shaw, CEO of Lockheed Martin India. India, he said, had the advantage of having a young workforce, and “we believe it is the epicentre of innovation.” (To check what Ambani, Premji, Chanda Kochhar and Cyrus Mistry said, read here ).

While businessmen will say nice things in the presence of a prime minister - they may have said much the same if Manmohan Singh was the one announcing the policy and not Modi - two things are different. More homework appears to have been done this time than at any time in the past. And more businessmen believe Modi can deliver on many of his promises.

As we all know, the National Manufacturing Policy (NMP) was announced with much fanfare by UPA Commerce and Industry Minister Anand Sharma as far back as 2011, but it remained a dead letter as the Manmohan Singh government got embroiled in all kinds of scams and did many things to ruin the economic climate by legislating growth-retarding laws. Not surprisingly, business sentiment went down and India Inc doubted the government’s ability to deliver on the policy.

The NDA version of the NMP is not substantially different from what the UPA proposed and the targets are to boost manufacturing growth to 12-14 percent (currently hovering in low single digits), increase manufacturing’s share in GDP from 16 percent to 25 percent, and create 100 million jobs by 2022.

The difference between then and now is actually only Modi - and that is why the same NMP is more believable.

With all his dedication to execution, the one thing one can expect Modi to do is improve India’s rankings in terms of the ease of doing business. One may not be sure of his commitment to big-ticket economic reforms (privatisation, subsidy reductions, et al) or dramatically changing market-unfriendly, growth-inhibiting laws like the Food Security Act or the Land Acquisition Act, but Modi is seriously committed to removing the hurdles to doing business.

This year, India ranked 134 - down from 131 in 2013 - in the World Bank’s measure of the ease of doing business. The NMP and the Make-in-India policy may not achieve big increases in manufacturing’s share in GDP - for that requires big reforms in factors market (labour, land), for which the government may not have the legislative majorities needed - but Modi is sure to do all that he can to change whatever is possible with pure executive action.

The Make-in-India initiative will thus improve India’s ease of doing business dramatically over the next five years, but once this happens, manufacturing will start improving substantially. The larger goals of the NMP cannot be achieved by the centre in isolation. Real changes have to happen at the state level, and for this federalism and devolution of financial powers to states may be more important than a Make-in-India policy or an NMP. A Rajasthan under Vasundhara Raje has grasped this, but it is not clear if other states are eager to make changes.

What Modi can definitely deliver is a change in the central government’s attitude to business. And that is no mean gain for an India Inc bruised and battered by UPA’s wayward governance.