India tracks its economy as three sectors — agriculture, industry, and services. The industrial sector in India has witnessed various changes throughout its history and has come a long way in terms of reforms since the end of license raj in the year 1990. However, it still lags far behind in comparison to the services sector.
Post liberalization, the contribution of the agricultural sector to the overall GDP has steadily decreased. In the year 2013, it contributed only 14% to the overall GDP. Despite this decrease, the sector remains the largest employment source. Whereas the industrial sector accounted for 27% and is ahead of the agricultural sector, it lags far behind in comparison to the services sector that contributed 59% to the GDP.
The Prime Minister of India, Narendra Modi on September 25, 2014 launched the Make in India International campaign to provide a boost to the country’s industrial sector. The intent of the campaign is to woo young entrepreneurs and leading industrialists from around the world and encourage them to manufacture in India.
Since India relies heavily on services sector for its growth. The campaign aims to attract more investment in the industrial sector and bring it at par with the services sector. This would not only create more jobs but would also provide a balanced growth that is essential for sustainable development.
Although Indian carmakers have already had a competitive advantage due to the license raj. Until the license raj was in place, the Indian carmakers did not face any direct competition from the global car manufacturers, which nurtured the Indian industry in isolation and made it frugal. It is a direct result of the shrewdness and forward thinking of the Indian government that we see many Indian carmakers (TATA motors, Mahindra, Maruti, Force etc.) not only thriving successfully but also giving stiff competition to the global manufacturers. The Make in India campaign does not offer any differential advantage to the Indian carmakers since it has been tailored to attract foreign investment. The campaign, however, can be seen as a second wave of growth that Indian carmakers or Indian entrepreneurs can ride for their advantage.
The global car manufacturers and industrialists who were otherwise not so bullish about the Indian car market should now find these new measures conducive to sustain growth in an ever-expanding car market. The carmakers may now want to invest in India since this campaign would make it easy and more profitable for foreign companies to conduct business and manufacture products in India.
In the past, global carmakers have entered Indian car market via collaborating with Indian carmakers since it was advantageous for both for various reasons. One major advantage that Indian companies got is the technical expertise of the foreign companies. In return, the foreign companies found it easier to establish themselves in the market with the help of well-known Indian manufacturers that generally have an already well-established and vast service back up across the country.
The campaign should help the existing carmakers of India that are well established to leverage their strengths and expand further by making newer investments in R&D and other areas. The companies that make foray into the Indian markets may want to collaborate with Indian companies in joint ventures or technology transfers in return of an already well-established infrastructure and knowledge of the market.
We may also see Indian companies or auto-part manufacturers undergo some radical transformations as they collaborate with the global giants and foray into newer segments and products. Indian carmakers are better poised to take advantage of this second wave of growth since the pool of skilled work force has only increased and there is better overall infrastructure and availability of utilities like power, finance, transport, water etc.
India would be an ideal destination to manufacture cars since besides the surplus that it can produce for export, it would also be a great market for its emerging middle class.