The proposed Land Bill 2014 under Modi government was propane to resurrect the manufacturing growth and lure investment in infrastructure. But, the Bill was defeated by vehement protests from oppositions. It seems that Modi government will opt for reverting back to the UPA made Land Act 2013, till BJP achieves majority in Rajya Sabha. This means that the two crucial issues – consent of farmers and Social Impact Assessment for infrastructure projects – will continue to be the important barriers for the investors.

Production of any kind of goods requires land. Delay in acquisition of land is disastrous for investors. They have been observed in West Bengal and Orissa - Tata Nano project in Singur and POSCO’s mega steel project in Orissa. Under the Land Act 2013, acquisition of a land requires more than four and half years. This means that any major fresh investment either in infrastructure or in product manufacturing requires more than four to five years to be under operation. More than eleven thousand projects are pending for clearances.

Given the mutilated land acquisition law, the only option remains open for the investors is to invest in brown-field areas through Mergers & Acquisition, where land is already available. Can the Mergers & Acquisition drive the real aim of Make in India, that is, buoyant employment opportunities and diversification of industries in the country?

The amendments proposed in the new Land Bill 2014 by the Modi government would have eased the rules to acquire the land. These would have unleashed a leg up for the government to clear several projects, which are held up due to lag in the Land Act 2013. These projects include industrial corridors, building smart cities, express high ways, bullet trains. DMIC and POSCO mega steel plant are the notable examples of the fallout of the Land Act 2013

The ill-fated Land bill will impart a major shock to the investors. Modi’s assurance for red carpet instead of red tape amazed the foreign investors. FDI increased by 40 percent in 2014-15. Their hopes were ignited by Modi’s political supremacy and assertion for a investor- friendly culture in the country. Reversing back to the Land Act 2013 will hit the hopes of the investors.

Given the land acquisition a crucial blockade to manufacturing and Merger & Acquisition is not the only appropriate step, focus should be made in such areas where the big land acquisition is not the formidable factor for the success of Make in India. Such areas are investment in Small and Medium Scale industries and Supporting Industry. As SMEs are too small to gear up the Make in India campaign, Supporting Industry will be an ideal concept for Make in India. Supporting industry has proved backbone for the success in manufacturing in South East Asian countries, like in Thailand, Malaysia and Vietnam.

Supporting Industry is a Japanese-made English name, introduced first in Japan. It gained popularity in mid-1980s, when Japanese yen plunged into up-valuation. This led Japanese goods loosing competitiveness, resulting damage to their export market – the base for Japanese economy.

The term Supporting Industry was used to refer to those SMEs , who produced parts, components, casting, forging, plastic moulds and tools to support Assembly Type industry. Supporting Industry is a group of manufacturing firms operating within a country. Assembly Type industries refer to automobiles, mobile phones, computers, electronics, precision machinery, medical equipments, instruments and industrial machinery, which are also operating in the same country. They manufacture and assemble products after procuring parts, components, casting, forging, moulds and tools from Supporting industries. Parts and components occupy about 80- 90 percent of assembled industrial products.

Globally, manufacturing has changed its track of growth. India follows too. It is in the transition stage from resource based industry to Assembly Type industry. Resource based industry requires large land, such as steel, metal, cement, food processing. In comparison, Assembly Type industry requires smaller land.

Japanese investments in India are the cases in point. Notwithstanding prolonged impasse over the Land Bill, the Japanese investors were euphoric to invest in India in Assembly Type Industry. Sony is contemplating to re-start manufacturing TV in India. Honda Motors is assertive to make India a manufacturing base. Igarashi Electric Works is reinventing to re-enter India.

From the Japanese perspectives, Supporting Industry was the driving force to upgrade industrial structure from labour intensive SMEs to capital intensive large industries. In the background of high yen value, Supporting Industry was essential for capital intensive ones to remain competitive

But, in India, policies on SMEs are the hindrances to the growth of Supporting Industry. In Micro, Small & Medium Enterprise Development Act, 2006, cap on investment (Rs 10 crore in plant and machinery) and foreign investment ( upto 26 percent) – arrest the growth of SMEs as ancillary industry, which require new technology. Growth of SMEs as Supporting Industry is critical for the development of large Assembly Type manufacturing. The growth of Supporting Industry depends upon continuous adaptation to new technology, required for Assembly Type Industry. In such scenario, restriction on capital investment impedes the growth of SMEs as Supporting Industry.

Therefore, SME policy should be reinvented and a new concept of Supporting Industry should be invoked. Supporting Industry should be defined as the companies who largely produce components, parts, tools and moulds for Assembly companies. At least, 60 to 70 percent of the production of Supporting companies should consist of components, parts, tools and mould for Assembly companies. Supporting industry should be free from cap on investment. It requires continuous changes in investment to induct modern technology and keep pace with the growth of Assembly industry. Given the financial fragileness of the SME led Supporting Industry, government run financial institutions or guarantee scheme should be developed. Thailand introduced a comprehensive SME & Supporting Industry development plan in 1999. It included measures like Public Guarantee Corporation, SME bank, introduction of registered SME consultant, adoption of travelling technical advisors and others. India has much to learn from Thai experience. (IPA Service)