Prof. M.K. Bhat
Prime Minister Mr. Narender Modi through his Make in India campaign has made a big appeal to investors worldwide and the response until now has been positive by way of big announcements about investment from Japan and China worth $35bn, $20bn respectively. Other countries too have shown their interest and the same story of big investment is likely to be repeated in America. These announcements can be exciting headlines for news papers but the question arises whether these assurances will actually get translated into investment in the country or not and further can these foreign investments provide a ready solution to our economic problems of poverty, unemployment, low manufacturing , low economic growth rate and inflation or not ? Investment flow takes place as per the available investment environment in a country. According to the World Banks ease at doing business report India stood at 134 rank out of 189 countries in 2014.
The much hype about foreign direct investment in recent years could not even reach to the level of 2% of our GDP. High inflation, corruption, low infrastructure, obsolete labour laws, low purchasing capacity, difficulty in land acquisition and its high costs are acting as a big hindrance to the flow of funds in the country. The lack of proper business environment has made even domestic business firms to invest abroad. Although the business sentiment has slightly changed towards positivity with the change in government but much remains to be done. The Prime ministers concept of minimum governance is yet to be practical at the lower level. To start a business in India it needs an entrepreneur to follow minimum 12 procedures which on an average take 27days.
It is no doubt that the present government in order to escalate the manufacturing rate to 10 percent on a sustainable basis has formulated an eight member expert team to redress the grievances and to handle queries of domestic and foreign investors within 48 hours and if they fail, it will go to the designated office of the concerned department who will respond within 72 hours. It may also suggest reforms to center/ state on policy issues. Make in India is a good idea to convey the investors about the ease to invest in India and upgrade its ranking in the world. India identified nearly two dozen areas like auto, food processing, information technology tourism and entertainment etc where it wants foreign investment. The government has also felt the need for de bureaucratization and deregulate the system to make the mind set from licence givers to partners in investment.
Prime Minister Mr.Narender Modi is going to invite who is who from the different countries of the world for make in india and sell to the world as made in india. He in his inauguration of make in India campaign has tried to convey the corporate world that he means business. He has assured the business community in his speech transparency, accountability and reduction of bureaucratic process. He has conveyed a need for developing business friendly environment with minimum governance. These big industries will have three big things in India namely democracy, demographic dividend and demand for goods. It may be pointed out here that democracy gives us an edge over China and the smooth transfer of power is in itself a big assurance to the investors. At present 65% of population is below 35 years of age but unskilled labor cannot be of much advantage to them. The demand can increase only when the jobs will increase, the low purchasing power due to inflation is a big hindrance in the demand of goods.
On the optimistic side, the recent moves by way of relaxations in defence, construction and railways may get more foreign direct investment. The make in India campaign and stress on skill, infrastructure development and reduction in bureaucracy will certainly increase foreign investments. It is required badly in critical areas but too much attention to foreign direct investment cannot solve our problems. Big firms generally resort to labor saving techniques so the employment generated by such units is quite low. It can escalate the growth rate but may lead to income disparity many more times. There will be more billionaires and people struggling with poverty to get their two time meals. They may encroach the market of Micro, small and medium enterprises by dint of their technological and managerial capability. It seems that government is under stress to remove white collar unemployment in the country perhaps because they can speak.
It is not out of way to mention here that India bears a good domestic saving rate of 30% of GDP at present. This saving rate comes from the household sector and can be an asset for the economy if utilized for escalating investment in the country.
The solution to the economic problems of India lies in the strengthening of micro small and medium industries both in the manufacturing and service sector. These units posses the potential to bridge the gap of economic inequality in the country. India has 48 million small and medium enterprises next only to china with 50 million. They are the biggest employers of work force next only to agriculture. They contribute 40% of the country’s exports and 45% to country’s manufacturing. They are generally unregistered and start their operations from the grass root level. Less attention to these units in no way can help India to grow inclusively.
They generally require locally available technology so the import of technology will not be required. They need to develop marketing techniques, the finance is a big issue with these units as 93% of MSME have to dependent on their self finance. The present government in its budget has extended the investment limit in such units. They need financial support and marketing guidance to change their fate. There is a great need to modernize them so that they can be competitive.
These units are widely dispersed in the country and produce diverse range of products. India needs to spread its industrial network rather than concentration of economic power in a few hands. Competition between unequal’s can be fatal to the weaker sector. MNCs may create competition which can be resisted by big units only and may lead to the closure of large number of small units.
The big investment can quickly glitter the things but will not be a permanent cure to our problem of unequal development, unemployment or poverty There is a need for concerted action for the development of small scale sector too .The foreign direct investment should act as a big push for the growth of the economy. It is rightly said that no business is without cost, the same applies to foreign investments too. It may be held that the overdependence on foreign investments can be fatal in the long run if it fails to develop spillover effect for the welfare of masses.
(The author is Deputy Director (MAIMS) Guru Gobind Singh Indiraprastha University Delhi)
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