Three stories make a trend

'Make in India as it stands has been a failure', says the author

Three stories in Friday’s edition of this newspaper should, taken together, serve as a roadmap for the government when it sits down to plan Make in India’s next stage. The first, rightly on the front page, is Ford’s decision to stop manufacturing cars in India. Its plant in Sanand — famously the location where the Nano moved in that distant past in which making cars in India was merely a question of where, rather than if — will shut down by the end of this year, and its Chennai plant will follow soon thereafter. For Ford India, the central problem was that demand in India for new cars just hasn’t been strong enough to justify producing them here. This should not be a surprise to the keen reader of Business Standard, who has often been warned that car demand has been falling since 2018-19. In fact, the number of cars sold a year is broadly the same as it was in 2014. CMIE data indicates that “car sales between 2011-12 and 2018-19 grew at the rate of 1.3 per cent per year”, which the economist Vivek Kaul points out in a blog written after Toyota announced it would not scale up production in India, “basically means that they were largely flat”.

In the second story, the correspondent Twesh Mishra examines the prospects for green hydrogen as a replacement for fossil fuels, following Mukesh Ambani’s declaration that India needs to produce a kilo of green hydrogen for a dollar in a decade. Without considerable investment, it appears, it is unlikely that green hydrogen will be competitive in many sectors — such as steel-making, for example — with fossil fuels for at least a decade. Yet an intermediate target — of $2 a kilo for green hydrogen — might still speed the transition in various energy-intensive industries, including steel, long-haul freight, and fertilisers. With a $1-billion hydrogen-focused fund, the chances of this transition might improve even further.
 

And, in the third story, Shreya Jai reports on plans from Convergence Energy Services Limited, or CESL — a new subsidiary of Energy Efficiency Services Limited, which is in turn owned by various Union power ministry PSUs. CESL is designed to use blended finance — a mix of concessional, public, and private sources — to create scale for electrification and renewable energy. It intends to invest in battery storage at the scale required to support the broader grid. (The plan will no doubt have to take into account that discoms in India can barely pay for anything.) There are also plans for a “challenge” between cities for funds to electrify their bus fleet, if they can show how they will build an appropriate charging depot; Kolkata, which till recently had a bus fleet that looked the same as it did when Jyoti Basu used to burn them in protest, is unsurprisingly the first city to show interest in the possibility.

The first story shows failure; the second and third, possibilities. The fundamental premise of Make in India was that India will be able to scale up its manufacturing base — and thereby provide employment to millions of young people — through the standard menu of incentives such as tax breaks and land grants. And, furthermore, that interest from investors was assured because they would be able to access the vast Indian market. Except what happens when the Indian market isn’t as vast as all that? You get exits, that’s what. Ford India lost billions in its foray into manufacturing in India, but the government that granted it concessions will have lost money, too. (When the decision was taken to move to Sanand in 2011, the company refused to reveal the incentive package it had received from the Gujarat government, saying merely that it was “transparent”, which was obviously not true, given people were asking.)

Make in India as it stands has been a failure. Nor will it succeed if it continues as a high-tariff, domestic-demand-focused, competitive package-style programme. The government needs to re-examine its role in India’s industrial transition. Naturally, the standard reforms to increase flexibility and decrease risk in the economy are all still necessary — land, labour, judicial, and so on. But the second and third story also reveal that, in the mature financial economy that India has now become, there are other mechanisms for managing risk that have opened up to the government and it must make full use of them. Creation of focused funds that can use public participation to reduce risk while using private capital to direct and scale up investment is one such mechanism.

The Indian state will also have to use its ability as buyer and financer wisely. It controls a vast swathe of the transportation sector, for example: From the railways, to the fleet of government cars, to bus fleets, and to the highways that long-haul road transport must use. In each of these, if it takes the initiative with electrification, charging ecosystems, or hydrogen fuel cells, it will be able to induce broader demand that will lead to an explosion of innovation and investment domestically. That is the Make in India opportunity, if India is capable of seizing it.