India is not trying to replace or substitute China, says Rajesh Kumar Singh, Secretary at the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
Can India replace China as a global manufacturing hub? What are the challenges before Indian manufacturing, and is there anything stopping India’s eastern states from taking the manufacturing leap? DPIIT secretary Rajesh Kumar Singh answered these and other critical questions in a recent exclusive interview with Outlook Business
India is not trying to replace or substitute China, says Rajesh Kumar Singh, Secretary at the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
In an exclusive interview with Outlook Business, Singh said that the Government of India’s goal is to ensure that manufacturing forms a higher share of India’s gross domestic product (GDP).
The DPIIT secretary also shared his thoughts on the ‘Make in India’ campaign, the production-linked incentive scheme, the state of Indian small and medium businesses and why some states are doing better than others in improving the ease of doing business.
Edited excerpts
Do you think India can become an alternative to China, which has earned its place in the global supply chain through decades of capacity building?
We are not necessarily trying to replace or substitute China. It has become the factory of the world after many decades of economic transformation. What we are trying to do is get a more balanced economy of our own, which has a higher share of GDP from the manufacturing sector.
We are trying to do that through a number of strategies: Firstly, we are trying to fix our logistics space by investing heavily in physical and digital infrastructure, to take care of the basics. We want to reduce the cost disabilities faced by our manufacturing enterprises. Secondly, we are trying to ensure ease of doing business; be it in terms of starting a business, in terms of taxation where we have reduced taxes particularly for new enterprises, or in terms of the GST [goods and services tax] which for the first time created a true national market.
Finally, besides the public sector capital formation, the government has constructed 28 kilometres of new roads every day and doubled the airports. We have gone beyond the promotional ‘Make in India’ campaign. We want to put money where the campaign left off through the PLI [production-linked incentive] scheme. The best part of the (PLI) scheme is that it pays for itself because it is linked to sales and those sales are taxable. It is a virtuous cycle in the sense that we provide the incentives at the back end of the investments and sales cycle.
Since you are currently focused on only 14 sectors under the PLI initiative, what are the exact parameters on which you plan to assess their success to roll out further such schemes?
When these schemes for 14 different sectors and 10 departments went to the government for approval, all of them had laid out certain projections in terms of investment, employment and sales targets. These are the targets against which we are monitoring the achievements of these schemes.
And let me tell you how to do this.
In at least nine of the 14 sectors, investment has been higher than what was projected at the end of the last financial year. Investment has come to the tune of about Rs 1.13 lakh crore overall. In terms of sales, we have exceeded Rs 9 lakh crore, and in terms of exports, we are close to Rs 3.5 lakh crore.
In terms of employment, we have reached 8 lakh of employment. The targets are in line with the projections, but that is also because we have overachieved on investments and sales in certain sectors like mobile manufacturing, medical devices, etc.
And that has masked the sectors where growth is slower or where the takeoff has been delayed, such as steel and textiles. That is the broad picture. We have met our cumulative targets, but some nine or 10 sectors have done better. Two or three sectors have lagged, and a couple are in the gestation period.
An official review came out before the end of the previous financial year, which suggested that the progress was not uniform across the sectors. One laggard at the time was the auto sector that was supposed to do much better than it did.
The PLI scheme has fairly stringent domestic value addition [DVA] norms. The scheme is well thought out and covers the entire value chain by tackling both car manufacturers and component manufacturers. A threshold of 50 per cent DVA has been kept in both. But now, increasingly, several manufacturers have achieved the DVA threshold. Two have achieved it in the automobile space, at least one in the two-wheeler space and several in the auto component space.
Our conviction is that the scheme is now about to take off. The feedback I have from the ministry of heavy industries is that they expect the entire amount to be fully utilised and in fact, they will probably run out of money. In the sense, they will use it even before the closing date.
How are different thresholds for domestic value addition arrived at for these schemes? For example, PLI for the auto sector has a threshold of 50% value addition, while the threshold in the scheme for mobiles is related to incremental sales.
There have been incremental sales for almost all (sectors) but the domestic value addition (DVA) threshold has varied. They did not have such a threshold in mobiles and electronics, mainly because the supply chain is so global that it was not possible at that stage to fix a very stringent value addition.
On the other hand, we have a very robust auto component sector. As a result, we could fix an ambitious 50 per cent DVA target. Similarly, for example, for white goods, which are under DPIIT, I think we kept a target of 25 per cent in the first year and took it up to 75 per cent in the third year.
So, there are different DVA targets depending on the strength of the entire supply chain in that sector. For example, in food processing, there is no import allowed at all. It is entirely 100 per cent domestic value addition. Some very minor things like additives, spices and flavourings are allowed to be used as an imported commodity.
It depends on that sector’s strength, and in the case of electronics, a different set of criteria was used. But in most other sectors, you will find the DVA targets are strong.
Do you think the 50% target DVA may be too stringent?
We do not think so. As I said, two automobile makers have met the target. Ola has met it in the two-wheeler space, and several have met it in the auto components space. Maybe it was a slightly tough ask, but that is alright, it is part of the game. The scheme was announced with a certain criterion. You cannot change those criteria midway. If we did, we would be changing goalposts, and that would not be fair.
With this thrust on local manufacturing and reducing India’s reliance on imports, how is the government going to ensure the quality of output — because eventually goods produced will have to be export worthy?
India was not using quality control orders (QCO) much in the past. But now, we have started using them extensively. We have initiated development of some 60 new QCOs, covering more than 300 product standards. Out of these, 33 have already been announced, covering some 150 product standards. These include areas of consumer safety like electrical accessories, furniture, hinges, copper products, door fittings and even footwear.
All of these are designed to ensure better quality, safety for the consumer and that our standards match the best in the world.
So, that system is on. In many cases, we have had to provide some relaxations where industry was not fully ready. But the path is very clear. India will gradually make most of its consumer products. We will have to face QCO mandates and BIS standards. Manufacturers will have to meet those standards to sell in India’s market.
How do you think medium and small enterprises (MSMEs) can be nurtured to make better products and create more employment, especially after the hit they suffered due to the pandemic and reforms like demonetisation and GST?
First, as far as PLI is concerned, of the 733-odd applications on the PLI scheme, there are 176 MSMEs. Most of them are in food processing, but some are also in areas like white goods, telecom, pharmaceuticals and medical devices.
But more generally, as far as MSMEs are concerned, obviously they were dealt a blow, particularly due to the pandemic.
At the time, the government announced at least three different schemes: there was the Emergency Credit Line Guarantee Scheme — a working capital loan of Rs 2 lakh crore as part of the Atmanirbhar Bharat package; there was also the Credit Guarantee Scheme for subordinate debt of stressed MSMEs; and a Fund of Fund Scheme.
So, I think the government tried to sort of help them out. But the fact remains, and I do agree that credit enablement and enhancing access of MSMEs to credit is the single-biggest problem they face. This is a subject of course of the Department of MSMEs, which is a sister department.
I think they are working out a fairly ambitious plan to digitise the MSME sector and try to formalise it by creating a digital platform for MSMEs. Enabling credit to the MSME sector is probably their single-biggest problem.
The steps they (the MSME department) are taking, we hope, will increasingly formalise the number of MSMEs in the country. And hopefully give them the chance to improve their access to both Indian and international markets.
So, I won’t be wrong if I say MSMEs are crucial to the vision of Viksit Bharat and Atmanirbhar Bharat, and we must get MSMEs going again for PLI to realise its full potential?
Yes, they are critical to it. The MSME is one sector for which a lot of work needs to be done. We are increasingly trying to reach out to MSMEs through the Open Network for Digital Commerce (ONDC). We want to get them to access e-commerce through a democratic platform like ONDC, so that they can start selling their products to other parts of the country, and eventually maybe internationally as well.
As far as the PLI scheme is concerned, some elements of the scheme focus on creating national and global champions. But each of these global champions obviously has to have a vendor base. The MSME sector is critical for that. That is why when I say out of 733 applicants, 176 being MSMEs is not such a bad number.
The National Single Window system is a well-intended effort by the government to cut red tape, yet a lot of industry players and MSMEs are not using it. What could be the reasons?
I think what has happened is that different digital platforms have been developed by different ministries and state governments over time and integrating that with the national single window is taking time. Essentially, that is the reason. The full integration of our departmental portals, and even more so the state government portals, are not fully done. It is an ongoing process. Some six states are in the final stages of achieving that — what we call reverse integration. Once that happens, you will see more traction.
We have also taken an important step this year in making PAN the single business identifier for people to use as login ID or single sign-in kind of a thing for the national single window, so that their details automatically get populated once they use their PAN as their single identifier. That process was also completed with the Department of Revenue. We hope that this combination of reverse integration with the states, using PAN as a single, common identifier, and that 32 ministries are integrated on NSWS will increase traction on the platform. But I agree this is work in progress.
Is there also a lack of awareness?
To an extent, yes. Perhaps, only the bigger players are using it. As of now, we have received some 4.88 lakh applications on the NSWS [National Single Window System], out of which 3.26 lakh applications have been granted. Some applications like FDI [foreign direct investment] etc. come directly only through the NSWS.
The DPIIT recently conducted a cost of regulation survey across states. What can the Centre do to help states that are laggards in ease of doing business?
The cost of regulation study has been done. We are just going through the final process of talking to the survey agency, ensuring everything is correct. We will probably put it in the public domain. Not now, because now is not the time, but maybe right after the election process is over.
The insight it will give us will be two-fold. First, it will provide clearer data for some 13-odd services across states, which will therefore, hopefully tell some states that they are high in one area and maybe not in others. Wherever they are high, they can benchmark themselves and try to reduce their cost of regulation because obviously that affects their competitiveness as an industrial destination.
Second, the study that I have seen indicates that a significant amount of intermediary costs is still there despite all the digitisation efforts that have been made. This means that we have not been able to provide companies and businesses with sufficiently simplified sets of procedures. And as a result, they still rely on chartered accountants, architects, and some intermediary firms to get them these kinds of clearances for their factories and enterprises.
Those are the two insights maybe the states will have to work on. We will also work with them through the ease of doing business ranking where some of these items will be included in next year’s business reform plan.
What is stopping industry from setting up manufacturing plants in eastern India, in states like Odisha and Jharkhand, where law and order is not a problem?
(The) short answer is Odisha is seeing huge amounts of investment in its industry now. There still are law and order problems in Jharkhand, so I would not rule it out there. Overall, the business environment needs to improve. The formula is the same for others. Both political and administrative leadership must rise to the occasion and provide that kind of flexibility.
You would see significant investments happening in Assam as well. It is very clear that when you provide decisive leadership and improve the ecosystem, then industry will come to you. And of course, we are trying to trigger them by somewhat region-specific industrial development schemes.
We have just announced a major industrial development scheme for the Northeast, which provides money to businesses to set up both service and manufacturing enterprises there. We will be providing them with some capital subsidy as well as some return on their GST for about five years. The Government of India is doing its bit.