A decade of ‘Make in India’: Why our factory sector is looking up

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Subscribe to enjoy similar stories. Recently, the government marked the occasion of one decade of ‘Make in India.’ It was a trigger for many commentators to bring out their knives (sorry, keyboards) and point out that India’s manufacturing gross value added (GVA) as a share of total GVA has not risen, etc, contending that the programme has failed. Some find a way to see silver linings around clouds and some are adept at the opposite.

First things first. Manufacturing as a share of GVA or GDP is a ratio. A ratio can stay the same, or even decline, even if the numerator keeps growing steadily if the denominator grows at the same rate or faster.

It does not mean that the numerator is stagnant. Second, humans are not wired to do the counterfactual well. In other words, we don’t think about how well or badly the manufacturing sector would have done but for the government’s ‘Make in India’ related initiatives.

But this question has to be asked because the last 10 years were not normal. At least two major shocks buffeted the Indian economy and its manufacturing sector. The first shock was a credit bust.

Excess debt taken during the boom years had to be paid back as optimistic assumptions behind such borrowing and investment did not materialize in the post-2008 crisis world, as global growth disappointed. Indian exports could not grow at the same rate as they did before 2008, as global trade growth in the following decade trailed the levels seen in the earlier period. A reversal of fortunes in India’s manufacturing sector can be seen in capital formation growth rates in this sector, specifically among private corporate manufacturers with their relatively weak investments in machinery and equipment.