More foreign companies quitting India is bad news for ‘Make in India’

By Bhalchandra Chorghade, Editor, CNCTimes.com

A series of bad news has hit India’s ‘Make in India’ plans last week. First the American automaker Ford announced on May 12, that it was abandoning its plan to make electric vehicles (EVs) in India for exports, withdrew from the productivity-lined incentive (PLI) scheme it had applied for (and received approval) and revived its plan to relocate its existing manufacturing facilities out of India. This is because of its mounting losses and slowdown in the passenger vehicle (PV) market after the pandemic hit.

Then, on May 13, another American automaker Tesla declared that it had put its plans to sell EVs in India on hold, having failed to get lower import taxes. Tesla’s decision comes after year-long talks with India. Tesla first wanted to test the demand for EVs in India by selling its vehicles manufactured in the U.S. and China and for which it was seeking lower tariff, India wanted it to first manufacture EVs here before it would offer lower tariff.

While Tesla’s decision amounts to a potential loss of business and employment, Ford’s quitting would mean a net loss of 4,000 jobs at its two manufacturing units in Tamil Nadu and Gujarat and loss of investments by its dealers who have also generated jobs. Ford had been operating in India since 1990s.

Ford is the fifth major multinational automaker to quit India since 2017, after General Motors, Man Trucks, Harley Davidson and United Motors. According to the Federation of Automobile Dealers Association (FADA), the implication of these five quitting means a total loss of 64,000 jobs and dealer investments of ?2,485 crore.

A similar grim picture is evident from the annual reports of the Ministry of Corporate Affairs (MCA). A plain reading of its annual reports shows a decline in (i) the growth of registered foreign companies (ii) new registration of foreign companies and (iii) “active” foreign companies during FY14-FY21.

From a high of 3.9% in FY16, the growth of registered foreign companies has fallen to 1.5% in FY21; new registrations have fallen from a high of 216 in FY14 to 63 in FY21 and “active” companies have fallen from 80% in FY14 to 66% in FY21.

India has been talking about turning itself into a global manufacturing hub for which it had launched the mission mode ‘Make in India’ programme in 2014 with great fanfare. To realise this, India should have tried to persuade manufacturing companies shift their bases from China in recent years, for economic and political reasons, to come to India. It said it was doing so but its lack of sincerity of efforts is telling.

Parliamentary Standing Committee report of 2021, “Attracting investment in post-Covid Economy: Challenges and Opportunities for India”, made a revealing observation while talking about foreign companies shifting out of China. It said: “However, it is learnt through media reports that most of these companies shifted their base to Vietnam, Taiwan, Thailand, etc. and only a few came to India.”

India had launched this programme to raise the share of manufacturing to 25% of GDP. A look at the official statistics, however, suggests that has not happened. As percentage of gross value added (GVA), the share of manufacturing fell from a high of 18.4% in FY18 to 17.8% in FY21. In FY22 (AE2), it is expected to go up to 18.2% – which is well below the 25% level.

With the GDP growth of FY22 (AE2) at 8.9%, India is back to being the fastest growing major economy. It translates into 1.8% growth over FY20, suggesting that the GDP has reached the pre-pandemic level. But this headline number hides the pain apparent in the economy as the earlier datasets (activities of foreign companies, IIP, CU, automobile sales) reveal.

Instead of celebrating 8.9% growth, India needs to review its manufacturing policy and ‘Make in India’ programme to ensure that more foreign companies are attracted to India to set up manufacturing activities, rather than flee.

https://www.fortuneindia.com/opinion/more-foreign-companies-quitting-india-is-bad-news-for-make-in-india/108180

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