After Make In India, Collapse of Made in India?

Dec 24, 2016

In this issue:
» A petition to get equal rights
» Do India's exporters have a plan B?
» Markets during the week

00:00 Chart of the day

Tanushree Banerjee, Co-Head of Research

Have you been to Tatanagar or Batanagar?

If you have, you would know that these towns are known by their factories for a reason. The workers at Tata Steel and Bata factories account for the majority of the population. And the prosperity of these towns is based on the growth and profits of the respective businesses.

These two are the most iconic factory towns of India. But there are dozens of others that house India's largest textile, auto and gems and jewelry manufacturing hubs. These towns are proof of India's post liberalization manufacturing prowess.

India's manufacturing sector had an inflection point post 1991 reforms. The megatrend unleashed tailwinds that were to drive businesses for decades. The factories offered jobs to the local community and attracted skilled workforce across the country. The tailwinds therefore did not just help the businesses scale new heights. But they also multiplied the earnings and consumption power of their employees. The economic benefits compounded over time.

The IT services sector was still at a nascent stage. So the best talent in India aspired to go to the factories.

The golden age of India's manufacturing, however, did not last too long. The sector lost its glory within a decade. And Information Technology became the go-to business for entrepreneurs. Jobs moved from factories to large IT offices. And increasingly the blue collared workers found fewer employment opportunities.

Over the years, the employment scenario in India has come to be a catastrophe. The few manufacturing businesses that are thriving seek automation. IT business themselves will hire in far lesser numbers. Therefore, the only way to create more jobs, is to incentivize Indian and foreign companies to manufacture more in India.

PM Modi's Make in India seemed like the perfect plan. It was also timed to perfection as companies sought to move away from China's labour atrocities and poor quality. Make In India could have been the next leg of 1991 reform tailwinds.

Unfortunately the perfect plan remained on paper!

But all was not lost. India's export hubs still housed a whole host of mid and small sized manufacturing units. Towns like Tirupur, Kanpur and Surat employed millions in the textile, leather and gem factories. They accounted for the lion's share of India's exports.

If not Make In India, at least Made in India was still thriving.

The demonetization on November 8th came as a big blow. The small business were not as prepared for the change as their larger counterparts. The entirely cash dependent factories found it impossible to go cashless within days. Some factories shut down. Others laid off temporary workers. Migrant labourers moved back to villages on loss of livelihood. The factory towns saw a sharp drop in consumption.

India's export growth has nosedived in the month following demonetization. For now we look at it as a temporary crisis. A quick resolution to the currency crisis may evade the collapse of Made In India.

But that's not all!

Resurrecting India's factories, big and small, is now more critical than ever. Helping them create and retain jobs has become an economic and social necessity. There is lots to be done to help Make in India and Made in India be the tailwinds for next few decades.

Budget 2017 may be the last chance to do so.

Meanwhile, we are keeping our ears to the ground. At The India Letter team, following the cues of megatrend tailwinds is core to our management meetings. We consciously make it a point to visit factories and meet management of companies in niche business, at obscure locations. We obviously do not expect all of them to make it to our recommendations! But the few that do are a potential goldmine of sorts.

Impact of Demonetisation on India's Exports

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Notebandi hits us hard. But NOT this privileged group. My colleague Vivek Kaul is on a mission to get us EQUAL RIGHTS.

Vivek will soon send a petition to the President of India to request him to set things right.

Thousands have already signed the petition.

He needs 25,000 signatures before 6th of January to kick this off.

Sign the petition, and become an agent of change.


Just when the export sector is dealing with the blows of demonetization, changing trade policies are another challenge they have to watch out for. The latest at risk are gems and jewellery exports to European Union. Here's the thing. The sector has been excluded in the list of Generalized System of Preferences (GSP) - a practice which offers tax incentives from origin to destination countries.

As reported in an article in Business Standard, for the last three years, the country has enjoyed custom duty benefit and value added tax up to 4% and 25% respectively. All the benefits will be ending this month. As such, As per the stakeholders, the applicable duties will make the exports in this sector unviable. Naturally, exporters in this segment are worried.

The development underscores the perils that come from being a part of interconnected world. The regulatory changes or geopolitical factors can make a flourishing business crash. It is increasingly becoming important for companies in India to understand the dynamics of the markets whose potential they wish to tap. Further, should an opportunity not shape up as expected, there has to be a 'plan B' to cut losses and exit and capitalize on other prospects, elsewhere.

Investors too, should not take growth stories for granted and incorporate enough margin of safety in the estimates and valuations.


The global markets ended on a mixed note in the week gone by. While markets in the developed economies ended in green, the indices in the emerging economies fell on concerns of foreign investors pulling out money from these markets post US Fed rate hike.

The US economy advanced at a faster pace in the last quarter than expected. Gross domestic product (GDP) rose at a 3.5% annualized rate in the three months ended in September. The rate was revised up from last month's 3.2% estimate, and is the strongest quarterly pace of growth in 2 years.

While the above data came as a welcome breather for the US markets, what one shall note is the US economy has grown at about a 2% pace since the recession ended in 2009. This is the slowest average rate of any expansion since at least 1949. The US markets were up 0.5% for the week gone by.

The Bank of Japan (BOJ) kept its policy rates unchanged at the conclusion of its two-day policy meeting. The central bank maintained the negative 0.1% interest rate imposed on banks for some excess reserves. It also kept the 10-year Japanese government bond (JGB) yield target at around zero, and kept annual rises in JGB holdings at 80 trillion yen. The Japanese stock markets were up 0.1% for the week gone by.

Back home, the BSE-Sensex ended the week in red and was down 1.7%. The week started on a somber note, with some support from domestic institutions. However, the uncertainty regarding the demonetisation and the implementation of GST led to further weakness in the market. This has created a lot of uncertainty and volatility in the market. And we believe this will continue in the short run.

Performance During the Week Ended 23rd December, 2016

04:50 Weekend investment mantra

"The investor of today does not profit from yesterday's growth" - Warren Buffett

We wish all our readers a Merry Christmas!

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst).

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Equitymaster requests your view! Post a comment on "After Make In India, Collapse of Made in India?". Click here!

6 Responses to "After Make In India, Collapse of Made in India?"

Nararasimha Prakash

Dec 26, 2016

I have seen many write-up by this lady and I find them to be highly critical of government policies. Should I take this as a political discourse or an analysis meant to help equity master investors like me?


Satyendra Sinha

Dec 25, 2016

Very pessimistic thinking by the author.


Hemant Shah

Dec 24, 2016

The Demonetisation exercise: How much Black Money is now recovered? The press says a few thousand crores, which includes assets. Thus whats the cash component of Black Money unearthed? The cost of 15.44 crores notes being scraped & Printing of the new notes - who is to bear the brunt of this? The cost of lives lost in queues? The cost of marriages being cancelled? The cost of economic slowdown? Who is going to repay all this cost to the Government kitty? What's been the role of the Governer of RBI - he has not uttered a single word since Nov 8? What does this imply? Now the Govt. desires to make the economy cashless. where is the infrastructure, cyber security, literacy to use the gadgets? We're dependant on VISA, MASTERCARD etc. thus profits will only make them rich at the cost of the poor Indian. Where is the role of MAKE IN INDIA / DIGITAL INDIA? The govt. has offer lottery of 340 CR for suing cashless facility. couldn't this be used to develop the infrastructure & literacy rather than Crony Schemes? All this needs to be also highlighted.

Like (1)

satish dabholkar

Dec 24, 2016

We ordinary people wish that blackmoney should be found out and corrective action to be taken.We wish that our economy should not be run by parallel economy of Black money.The Blackmoney is also used to finance terrorist activities.We do not wish that stock prices should rise by upward movement financed by blackmoney.
Your article shows that "Made in India" goods should be purchased by black money hoarders, which we do not accept as if all the money come under banking channels we can take corrective steps in the economy.We do not wish mafia type of Naxalits activities,Kashmir separatists activities should go on with the help of black money.
Pl also comment on these aspects while writing the articles.

Like (1)


Dec 24, 2016

The petition to President regarding blatantly discriminatory section 13A of IT Act was a brilliant idea.Any right thinking citizen would support Mr Vivek Kaul's petition.I want to thank him personally for taking up the cudgels.

Like (1)


Dec 24, 2016

Dear equitymaster
Please stck to your mandate of providing unbiased info on the monetary aspects.. Your campaign against demonetization seems more political than anything else..

Like (1)
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