How can the ‘Make in India’ program help in reducing India’s trade balance?

Jul 25 20:25 2020 Sach Print This Article

India incurs a massive trade deficit year after year. The trade deficit is the net result of the country's exports minus the country's imports. How can the Make in India program help in reducing India's overall trade deficit? What are the elements India should focus on? Let's find out in this detailed article.

Let us first describe the Make in India program before discussing the issues of India’s trade balance. The Make in India program was launched in 2014 with the objective of making India a global manufacturing hub. The idea was to give a boost to India’s manufacturing sector.

The trade balance is the net result of a country’s exports minus the country's imports. If the country’s exports are more than the country’s imports,Guest Posting then, the trade balance is known as the trade surplus. If the country’s exports are less than the country’s imports, then, the trade balance is known as the trade deficit.

In the case of India, the exports are less than the imports. Therefore, India continues to have a large trade deficit. Here are the numbers to understand this better. In 2018, as per the world bank data, India’s overall exports were 536.62 billion US$. Whereas in 2018, India’s overall imports were 642.7 billion US$. Therefore, in 2018, India had a trade deficit of 536.62 - 642.7 = approximately 106 billion US$. That’s huge. The data from the 1980s show that India has always incurred a trade deficit. The country has not seen a trade surplus. India’s trade deficit was highest in 2012 at 136 billion US$.

What are the reasons for India’s high trade deficit? There are 3 major elements to India’s high trade deficit.

  1. Energy security - India imports a huge amount of oil. As per the data, India is the world's 3rd largest consumer of oil. 
  2. Defense Purchase - Because of geopolitical risks, India continues to procure defense equipment from other countries resulting in a high defense import bill.
  3. The trade deficit with China - China has become a global manufacturing powerhouse. And despite the launch of Make in India policy in 2014, India still has a massive trade deficit of 60+ billion US$ with China.

Therefore, how can the Make in India program help in reducing the trade deficit and maybe make India a trade surplus nation?

Out of the 3 elements highlighted above, India can only focus on 2 elements namely reducing the trade deficit with China and reducing the defense import bill. For energy security, India has no option but to rely on other countries.

So, how can Make in India policy help in reducing India’s trade deficit with China and reducing the country’s defense import bill?

India imports a variety of manufactured goods from China resulting in a trade deficit of 60+ billion US$ with China alone. India can manufacture these goods in India itself. However, manufacturing is a long and hard path. Make in India was launched in 2014, however, India’s trade deficit with China has not come down. What’s missing in the Make in India policy? Let’s understand this. Manufacturing is a technical subject and only manufacturing entrepreneurs understand the nuances of a highly technical subject such as manufacturing. Therefore, the Make in India policy-making committee shall involve real entrepreneurs in the formal policy-making roles. Once entrepreneurs are involved in the formal policy-making roles, then, there is a good possibility to draft a comprehensive manufacturing policy for the country.

The next step should be to develop the necessary manufacturing infrastructure in the country. At present, the manufacturing infrastructure in the country is almost non-existent. Roads, ports, electricity are all parts of the physical infrastructure. Manufacturing infrastructure is different from this physical infrastructure. Therefore, after framing a comprehensive manufacturing policy, the next logical step is to develop the necessary manufacturing infrastructure on a war footing. With these 2 elements in place, Indian entrepreneurs will slowly but surely start manufacturing goods in India itself. And over a period of 8-10 years, the country would be able to wipe out its trade deficit with China.

As far as reducing the defense import bill is concerned, again, it is related to high-tech manufacturing. Once India starts manufacturing the simple common household goods in India Itself, then, based on the learnings and by collaborating with global defense suppliers, the country can start manufacturing defense equipment in India itself. However, it can only happen 8-10 years down the line.

But the preparation must start now. If the Make in India policy could not achieve the desired results so far, then, it is the time to reset. It is the time to involve manufacturing entrepreneurs in formal Make in India policy-making committee. It is the right time to start developing the necessary manufacturing infrastructure in the country. And once the country takes these steps, then, results will follow and India will be able to reduce the trade deficit with China and will also be able to reduce the defense import bill.

Therefore, Make in India has the potential to reduce India’s trade balance in the coming 8-10 years. But the action must start now.

 

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Sach
Sach

Sach is focused on India's economy and in particular India's manufacturing sector. How can manufacturing entrepreneurship be encouraged in the country?

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