The 25 industries, highlighted in “Make in India “, is a gamut of all industries. The campaign missed special characteristics of the industries which can determine their comparative advantages over other countries. They were exhibited with facts and figures, but without catapulting any special attractions which can compare with East Asian and South East Asian countries. Given the exponential growth potential in the world, the sectors like leather, defence, oil and natural gas, mining and space have limited scope to woo the investors. Leather exports are restricted by the World Society for Protection of Alliances, with the No Fur campaign in the world.

FDI liberalization in defence will fail to stoke foreign investment. There are two factors which will cast shadow over the liberalization. First, the propensity of investment in defence lies with the big houses and not the SMEs. In the current global investment trend, SMEs are actively participating in the international production network, steered by growing FTAs in the world. Second, since the defence production should primarily be sold to Ministry of Defence and the government does not give any guarantee for purchase, FDI in defence is unlikely to stir up the investors’ sentiment. Export of arms and ammunition are subject to stringent regulations applicable to national Ordinance Factories. Investment spree in oil and natural gas is murky since the country is deficient in oil reserves. The private investors in refineries are disillusioned with government heavy subsidy on major petroleum products, such as, subsidy in kerosene and LPG.

More doses of policy liberalizations were put to create a renewed interests among the foreign investors in construction work. Lock in period for 3 years were abandoned. Mandatory requirement of 10 hectares in case of serviced housing plots was done away. But, where is the land which is the main requirement of FDI in construction? After the new Land Acquisition Act, 2013, no fresh land was allocated. It takes 3-4 years to acquire a land under the new law.

Given the rapid growth of FTA, global manufacturing has made a rapid transformational shift to cross-border manufacturing activities. This churned a new concept of manufacturing, that is, expansion of manufacturing capacity in overseas by One plus One strategy. This gave birth of China +1 and Thailand +1 strategy to the foreign investors. Foreign investors, who flogged into China and Thailand, are restricting their expansion plan in China and Thailand and diversifying their expansion in low cost and low political risk countries, such as in Vietnam, Myanmar and Indonesia. This gives a leg up to the foreign investors to insulate their investment in China and Thailand after China plunged into loss of low cost production and Thailand embraced political turmoil. China+1 and Thailand +1 strategies are gaining prominence among the Japanese investors mainly. FTA became stimulant to the China +1 and Thailand +1 investment strategy to the Japanese investors.

Make In India did not offer any new fiscal incentives. Fiscal incentives are one of the core demand of the investors. At 33 percent corporate taxes and 26- 28 percent custom duty , business taxes are one of the highest India in the world. With per capita income reeling under one of the lowest in the world and combined with high business taxes, the large domestic demand in the country, the main driver for investment according to Modi government, remains ineffective. They act counter to the expansion of domestic demand and nail the investors sentiment to invest in India.

Mr Modi does not believe in incentives. Mr Modi believes that a large and sustainable middle class market in India should be the magnet to woo the investors. In one statement, he said “An investor’s decision to invest is not so much influenced by incentive schemes as by the existing growth environment and investment security. Industrialist don’t come due to some fancy incentive scheme…or that tax free. We will assure investors that their investments won’t sink and also guarantee a stable policy regime”.

But, fiscal incentives and fiscal reforms are imperatives to bring more investment . Tax incentive has always been the main tool for China to attract the foreign investors. In the first stage of reform, China granted special tax incentive over the domestic investors. China continued thrust on incentives in its second stage of reform. In the second stage, China accelerated tax breaks to encourage enterprises to upgrade their equipment and increase research and development to improve the manufacturing industry.

The anomaly of retrospective tax system has stirred up a deep suspicion among the major foreign investors who are relying more on merger and acquisition. Merger and Acquisition has emerged an active route for foreign investment in the world. Green-field investment has a big backlash after the Lehman shock. As a result, transparent tax environment has almost become pre-requisite for any big ticket investment. In fact, after the Vodafone episode, India earned an image of tax- terrorism in the world.

In summing up, the priority of Make In India should be to prop up the wish-list of investors rather than blowing up the potential of sectors. Given the spur in cross-border manufacturing activities, investment potential of a sector lies its comparative advantages over other countries. (IPA Service)