India File: 'Make in India' gets a reality check
Sept 17 - By Ira Dugal, Editor Financial News, with global Reuters staff
Welcome to the first edition of the India File newsletter!
I'm Ira Dugal and I head financial news for Reuters in India. Join me each Tuesday as I lead you through the biggest stories out of India, and Asia.
This week we'll look at recent successes in manufacturing – and give it a reality check. India has long aspired to raise the share of manufacturing in its economy to 25%, especially in higher-value sectors such as electronics and automobiles, but in the latest financial year it was only 14% in nominal terms.
We will also examine the exuberance in India's primary equity market, which some say runneth over: A high-profile public offering has doubled in value on its debut. Scroll down for more on this topic in our 'Market matters' section.
THIS WEEK IN ASIA
** The U.S. has locked in steep tariff hikes on Chinese imports, including electric vehicles. China vows to defend its interests.
** China has approved an increase in its retirement age to ease economic pressures from a shrinking workforce.
** Weaker-than-expected consumption in Japan may test the BoJ's plans but a hawkish policymaker calls for rates to rise to 1%.
AMBITION VS REALITY IN MANUFACTURING
Workers at a Samsung Electronics plant have been on strike for more than a week, disrupting operations at a facility that contributes roughly one-third of Samsung's $12 billion in annual India revenue.
The workers, backed by a six-and-a-half-million member trade union group, are demanding recognition of their union, along with higher wages and fewer working hours.
The strike is just one reminder of the unfinished business India must attend to - from land and labour law reform to road and port building to improved integration with other economies, especially China - before its manufacturing ambitions can become reality.
The $100 billion electronics sector has been India's greatest success story so far in increasing production both for local consumption and for export.
Apple Inc. shipped $5 billion in iPhones from India in the first five months of the current financial year, compared with $3.2 billion during the same period last year last year, according to local media reports.
The auto sector, where Ford last week said it would restart manufacturing in India, has been another standout.
But India's success in manufacturing remains patchy.
The government has deployed a number of schemes and slogans over the years to boost manufacturing, including Modi's 10-year-old "Make In India" programme and a more recent "Production Linked Incentive" scheme, but manufacturing has remained stuck around 14-17% of GDP.
Raising the share of manufacturing is critical to creating the jobs India needs for its 1.4 billion-strong population.
Ahead of national elections earlier this year, the ruling Bharatiya Janata Party outlined plans to transform India into a global manufacturing hub by redrafting decades-old labour and land laws, while reducing import duties on key inputs to make local production cheaper for exports.
But since the election that wrapped up in June - and left Modi needing the help of regional allies to stay in power - there have been few outward signs of progress towards those goals, including labour reforms to foster more stable employment conditions.
Key issues under discussion include minimum wage levels and increased flexibility for larger companies, with up to 300 workers, to hire and fire.
Another emerging risk to India's manufacturing goals is its fractious relationship with neighbour China.
Tensions at the border between Asia's largest and third-largest economies left India cautious about investments and collaboration involving Chinese companies.
But to become a credible alternative to China for global firms, India first needs to warm up to its long-time rival, to tap into its supply chains as well as its investment funds, as you can read in this analysis piece by Shivangi Acharya and Sarita Chaganti Singh.
Do you think India is doing enough to achieve its manufacturing goals? Write to me at ira.dugal@thomsonreuters.com.
QUOTE OF THE WEEK
"The allegations made are false, incorrect, malicious and motivated."
Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch in a personal statement denied allegations of conflict of interest by India's opposition Congress Party and by U.S.-based short-seller Hindenburg Research.
MARKET MATTERS
India's benchmark equity indexes have set record highs more than 50 times so far this year, brushing off rising risks that range from political wrangling and regulatory scrutiny to over-stretched share valuations.
The exuberance has spilled over into the primary markets.
Shares of Bajaj Housing Finance, which debuted on stock exchanges on Monday, jumped 136% above the price at which shares were issued.
The initial public offering was the hottest this year, drawing more than 3 trillion rupees ($39 billion) in bids, compared with the 65.6 billion rupees it was seeking to raise.
India sees rush of primary market activity https://reut.rs/3N7ETdj
By Ira Dugal; Editing by Edmund Klamann
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