World not ready to Make in India? Samsung plant masks Modi govt's struggle

Despite a sleek marketing campaign, the world isn’t quite ready to ‘Make in India.’

Last week, Indian Prime Minister Narendra Modi and South Korean President Moon Jae-in celebrated the inauguration of what Samsung Plant called the world’s largest mobile phone factory. At the splashy event just outside New Delhi, Modi said the facility was “extremely important” for his 'Make in India' initiative to boost manufacturing to 25 per cent of India’s economy by 2020 and create millions of jobs. Samsung said the plant was a “shining example” of the success of the program.

But the investment is more the exception than the norm. Data from the World Bank and the Reserve Bank of India (RBI) show manufacturing hasn’t received a significant boost since Modi took office in 2014.

While India’s economy has overtaken France to become the world’s sixth largest, manufacturing has shrunk to about 15 per cent of gross domestic product (GDP) from a peak of 18.6 per cent in 1995, according to the World Bank. Other data show new investments in India have dropped and stalled projects are on the rise.

After note ban, banks flush with cash but India Inc in no shape to borrow

“Demonetisation has made banks flush with funds, and they will lend it to productive sectors.” — Power Minister Piyush Goyal, November 26, 2016.

It won’t be quite as easy as Goyal said.

Rising non-performing assets (NPAs) and sluggish economic growth sparked a 60% decline in corporate borrowing over the last six years, according to an IndiaSpend analysis of Reserve Bank of India (RBI) data, inhibiting the anticipated lending bonanza to companies from banks after demonetisation.

Now, after the government scrapped 86% of India’s bank notes, by value, there are growing indicators of a further slowing.

Automobile companies are witnessing the sharpest fall in deliveries to dealers in 16 years, the Times of India reported, home sales have hit a six-year low, NDTV Profit reported, and bank credit to infrastructure companies declined steadily over the first eight months of 2016-17 and contracted 6.7 per cent in November, the Indian Express reported, quoting RBI data released on January 10, 2017.

So, the Rs 12.44 lakh crore that has now returned to the banking system may be difficult to lend to the corporate sector.

“Deposits can be deployed only if interest rates are cut. Without reducing interest rates, demand won’t rise,” said Nilanjan Ghosh, economist of the Observer Research Foundation, a think tank. “The assumption is that demonetisation has led to higher deposits, resulting in larger cash reserves, allowing banks to advance loans and earn interest. This, in turn, will impact profits, strengthening the core capital of banks.”(Read More)