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8"Make in India" as world experience
for Russia of foreign investment attraction
Chernova Veronika Y.
Economy Faculty, Chair of Marketing, Russian University of Peoples' Friendship
Чернова Вероника Юрьевна аспирант, Российский университет дружбы народов veronika urievna@mail.ru
This article is about development of recommendations considered India's experience in attracting foreign investment, the example of India's new industrialization program. The basic elements of this program, as well as the potential use of such a decision (or its components) in Russia in the course of import substitution policies. Also article consider conceptual approaches to the formation of a state policy to attract foreign direct investment in Russia by the main directions in the context of globalization and policy of import substitution, the tendencies of development of foreign direct investment in the world economy and their implications for Russia, analyzed features of the new international environment, foreign direct investment in globalizing world economy and the changing geopolitical picture. Key words: import substitution, food market, economic security, local production and agriculture, direct investments.
1. Introduction
Russia has a high potential for development, which opens up significant prospects for its participation in the global market for foreign direct investment. In this regard, the task is updated policy to attract foreign direct investment, adequate long-term strategy of the state -namely, the transition of the Russian economy with raw materials on the innovation track, as well as a big focus on import substitution rate. Despite the fact that since 2000 years there is a steady inflow of foreign direct investment in Russia, nor achieved the scale of foreign direct investment, or their sectoral and territorial distribution is not providing conditions for a fundamental restructuring of the domestic economy, renewal of fixed assets and technological base.
One of the reasons for this situation is the fact that so far the measures implemented by the Government, which can be attributed to the investment policy were aimed mainly at increasing the volume of investments in general, and not anchored in the claimed industrial policy priorities. The system of state benefits for foreign investors is not viewed in the strategic orientation. For the modern Russian investment regulation is characterized by the absence of an integrated conceptual approach, contradictory, support, mainly in the administrative methods of regulation, incompleteness, half-laws. Disadvantages and investment policy miscalculations acutely aware of the foreign investors who are accustomed to working in a more solid and clear legal environment, often in response to the imperfection of the Russian legislation reluctance to go into the Russian economy.
Foreign direct investment can play a positive role in Russia's transition to an innovative economy only in the event of a deep study of conceptual approaches to their regulation, setting clear priorities pursued in the sphere of politics. Created for its implementation mechanisms should organically fit into the industrial, regional and scientific and technical strategy of the country.
Theoretical problems of global, geo-economics and the impacts of direct investments on restructuring the national economy is widely developed in the works of Russian and Western economists. The most fully the problem of global geo-economic approach is characterized in scientific works of S. Dolgov, E. Kochetova, A Neklessa The problem of most studies foreign direct investment is related to the profitability of evidence to use foreign capital to Russia as well as the need to remove barriers to foreign direct investment. In the world there are several programs, it is important to study the experience of China and India (the program «Make in India», «Made in China»), whose strategy could be used in Russia
2. Current situation in Russia's policy of import substitution review
Currently, according to government estimates, the share of imports in different sectors of the economy is extremely high. For example, Russian imports of civil aircraft construction, more than 80% of the
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Figure 1. World Bank Doing Business ranking. Source: [2]
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components in the heavy engineering industry - 70%, oil and gas equipment - 60%, in the energy equipment - about 50% in the agricultural machine depending on the product category - from 50% to 90% parts, etc.
As part of the announced guidance course of the country of import substitution first acts have already been adopted. In April 2014 a new edition of the state program of the Russian Federation "The development of industry and increasing its competitiveness" was approved One of the main tasks of the state program, which runs until 2020, announced decline in the share of import products, including those used by domestic producers in our country. Allocation of funds to support import substitution takes place in the form of subsidies and co-financing of studies, as well as grants and preferences in public procurement [1]. So, in the autumn of 2014 the government adopted a program of support of investment projects implemented in Russia on the basis of project financing. This program was developed to increase the volumes of crediting the real sector of the economy of organizations on a long-term and favorable terms.
The program funded only selected as a result of the contest projects implemented until 2018 in certain sectors of the economy: agriculture; manufacturing industry; chemical production; mechanical engineering; housing; transport; communications and telecommunications; energy.
In accordance with the program terms and conditions for public financial support are received by the investment projects worth 1 billion to 20 billion rubles. At least 20% of the project cost of the borrower will have to pay itself. The Borrower shall furnish the authorized bank loan target in rubles at 9.0% per year. And the money spent by banks on loans to be reimbursed to them by the Bank of Russia At present, to participate in the program selected 10 Russian credit organizations and international financial institutions - and their list can be found on the official website of the Ministry of Economic Development of Russia The interest rate on the loan is calculated as follows: 6.5% -determined by the Bank of Russia refinancing rate loans for investment projects (information Bank of Russia of April 25, 2014) + 2.5%. The first component may be subsequently installed in a
different size, which means that business financing conditions may change [2].
It can be noted that in Russia, a global campaign is launched to meet the domestic demand by domestic manufacturers. At the same time, experts say the need to give the process more systematic. An important condition of the program is the requirement of placing the production site of the project implemented in the territory of Russia Equally important condition for import substitution is to reduce the share of imported finished products and to attract foreign investment for the development of domestic production. the country's attractiveness for foreign direct investment depends on a number of determining factors, which should take into account the policy of attracting foreign investment in each country. This noted that each type of foreign investment has its data priority scale factors and requires the use of different strategies to attract investment.
However, research shows that macroeconomic stability, ownership of land, clear the privatization procedures, transparency, predictability, consistency, and liberal laws (regulations and rules), a skilled workforce, a well-
Figure 2. TOP-20 foreign companies in Russia by Revenue in 2014. Source: [2]
developed infrastructure are among the factors that have the greatest influence in decision-making of foreign direct investment.
It should be noted, however, that, despite the importance of a skilled workforce, recent researches show that high wages negatively affect the inflow of foreign direct investment. Surely, there are some positive trends in this direction, officially announced in some open data sources. Let's see deeply on it. Four years ago the World Bank placed Russia on the 120th position in the Doing Business ranking. Today Russia is number 51, but in certain categories has made it to the top-10. This means that starting a business, getting credit, paying taxes, and essentially doing business in Russia gets easier every year (Figure 1, 2).
Russia has the world's highest share of employees with tertiary education3. It was ranked 14th in
Bloomberg's 2015 index of the world's 50 most innovative countries, ahead of Switzerland, Austria, China, and the Netherlands. The government channels vast investments into science. Companies deploy an ever increasing amount of latest high-tech equipment units, and by the number of employees in science-driven industries Russia makes it to the world's top.
There are 17.7 mln sq.m of shopping centers in Russia -more than in any other European country. Russia's e-commerce market is also the biggest in Europe. It is currently dominated by Chinese companies. But it is obvious that there are need some structure decisions and governmental support. In the world there are some successful practices and programs that can serve as an example and partly Russia applied for a positive inflow of foreign investments. For
example, consider a program «Make in India» in 2014, which involves the attraction of investments in the manufacturing sector, the country's infrastructure. Let's take attention to it, then will analyze which elements of this program can be used in Russia
3. Program «Make in India»: characteristics and prospects of realization
The «Make in India» program was launched by Prime Minister Modi in September 2014 as part of a wider set of nation-building initiatives. Devised to transform India into a global design and manufacturing hub, «Make in India» was a timely response to a critical situation: by 2013, the much-hyped emerging markets bubble had burst, and India's growth rate had fallen to its lowest level in a decade. The promise of the BRICS nations had faded, and
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India was tagged as one of the so-called 'Fragile Five'. Global investors debated whether the world's largest democracy was a risk or an opportunity. India's 1.2 billion citizens questioned whether India was too big to succeed or too big to fail. India was on the brink of severe economic failure [3].
«Make in India» was launched against the backdrop of this crisis, and quickly became a rallying cry for India's innumerable stakeholders and partners. It was a powerful, galvanizing call to action to India's citizens and business leaders, and an invitation to potential partners and investors around the world. But, «Make in India» is much more than an inspiring slogan. It represents a comprehensive and
unprecedented overhaul of outdated processes and policies. Most importantly, it represents a complete change of the Government's mindset - a shift from issuing authority to business partner, in keeping with Prime Minister Modi's tenet of 'Minimum Government, Maximum
Governance'.
To start a movement, you need a strategy that inspires, empowers and enables in equal measure. «Make in India» needed a different kind of campaign: instead of the typical statistics-laden newspaper advertisements, this exercise required messaging that was informative, well-packaged and most importantly, credible. It had to inspire confidence in India's capabilities amongst potential partners abroad, the Indian business community and citizens at large; provide a framework for a vast amount of technical information on 25 industry sectors; and reach out to a vast local and global audience via social media and constantly keep them updated about opportunities, reforms, etc.
The Department of Industrial Policy & Promotion (DIPP) worked with a group of highly specialized agencies to build brand new infrastructure, including a dedicated help desk and a mobilefirst website that packed a wide
array of information into a simple, sleek menu. Designed primarily for mobile screens, the website's architecture ensured that exhaustive levels of detail are neatly tucked away so as not to overwhelm the user. 25 sector brochures were also developed: Contents included key facts and figures, policies and initiatives and sector-specific contact details, all of which was made available in print and on the website.
The «Make in India» program has been built on layers of collaborative effort. DIPP initiated this process by inviting participation from Union Ministers, Secretaries to the Government of India, state governments, industry leaders, and various knowledge partners. Next, a National Workshop on sector specific industries in December 2014 brought Secretaries to the Government of India and industry leaders together to debate and formulate an action plan for the next three years, aimed at raising the contribution of the manufacturing sector to 25% of the GDP by 2020. This plan was presented to the Prime Minister, Union Ministers, industry associations and industry leaders by the Secretaries to the Union Government and the Chief Secretary, Maharashtra on behalf of state governments [3].
These exercises resulted in a road map for the single largest manufacturing initiative undertaken by a nation in recent history. They also demonstrated the transformational power of public-private partnership, and have become a hallmark of the «Make in India» program. This collaborative model has also been successfully extended to include India's global partners, as evidenced by the recent in-depth interactions between India and the United States of America
In a short space of time, the obsolete and obstructive frameworks of the past have been dismantled and replaced with a transparent and user-friendly system that is helping drive investment, foster innovation,
develop skills, protect IP and build best-in-class manufacturing infrastructure. The most striking indicator of progress is the unprecedented opening up of key sectors - including Railways, Defence, Insurance and Medical Devices - to dramatically higher levels of Foreign Direct Investment.
A workshop titled "«Make in India» - Sectorial perspective & initiatives" was conducted on 29th December, 2014 under which an action plan for 1 year and 3 years has been prepared to boost investments in 25 sectors. The ministry has engaged with the World Bank group to identify areas of improvement in line with World Bank's 'doing business' methodology. A 2-day workshop and several follow up meetings were held to formulate framework which could boost India's ranking which is currently 142 in terms of Ease of doing business.
An 8 membered investor facilitation cell (IFC) dedicated for the «Make in India» campaign was formed in September 2014 with an objective to assist investors in seeking regulatory approvals, hand-holding services through the pre-investment phase, execution and after-care support. The Indian embassies and consulates have also been communicated to disseminate information on the potential for investment in the identified sectors. DIPP has set up a special management team to facilitate and fast track investment proposals from Japan, the team known as 'Japan Plus's.
Various sectors have been opened up for investments like Defense, Railways, Space, etc. Also, the regulatory policies have been relaxed to facilitate investments and ease of doing business [4]. Six industrial corridors are being developed across various regions of the country. Industrial Cities will also come up along these corridors.
Today, India's credibility is stronger than ever. There is visible momentum, energy and optimism. «Make in India» is opening investment doors. Multiple enterprises are adopting its mantra The world's largest
democracy is well on its way to becoming the world's most powerful economy. India is the country rich in natural resources. Labor is aplenty and skilled labor is easily available given the high rates of unemployment among the educated class of the country. With Asia developing as the outsourcing hub of the world, India is soon becoming the preferred manufacturing destination of most investors across the globe. Mae in India is the Indian government's effort to harness this demand and boost the Indian economy. India ranks low on the «ease of doing business index». Labor laws in the country are still not conducive to the «Make in India» campaign. This is one of the universally noted disadvantages of manufacturing and investing in India
The NDA government's «Make in India» campaign has till early October attracted INR 2000 crore worth investment proposals. The campaign has, despite this, found its fair share of critics. The topmost of these criticisms is leveled against the incumbent government. It has been felt that the government does not walk its talk - labor reforms and policy reforms which are fundamental for the success of the «Make in India» campaign have not yet been implemented. A number of layoffs in companies such as Nokia India cast long shadows over the campaign. A number of technology based companies have not been enthused by the campaign launch and have professed to continue getting their components manufactured by China [3].
4. Possible directions for Russian economy
The condition for progress on the current globalization stage is the adaptation of the Russian economy to the new international technical and economic competition. Russia must overcome excessive dependence on exports of raw materials and energy (oil and gas) and go to the innovation way of development. This can be facilitated system to attract foreign technology, capital
and know-how. This is one of the approaches, which is implemented in the previously discussed the program «Make in India». As example is the proposal by India under this program in cooperation with Russia in the field of aircraft construction.
With a very high development potential, Russia is important not to spray the available intellectual, physical, organizational and financial resources are limited, even taking into account the favorable situation on the world energy market, and to focus on a few key areas. From the perspective of sustainable economic growth and strengthening competitiveness, the main direction of state support for federal direct investments should be the sphere of high technologies. Under the sphere of high technologies should be borne in mind not the industry, but the nature of the investment, a universal indicator of high technology which can serve as a cost of research and development costs in the total cost of investment.
The cost-effective, revenue-generating industry, for example, in the oil, gas, aluminum, flavoring and the like, mainly raw materials industries, the foreign capital and so will come, and there lack of inflow of investments may be more to do with shortcomings of the overall investment climate in the country, rather than with the lack of benefits and other forms of state support, and this applies to both foreign and domestic investment. For the effective functioning of the national innovation system Russia needs an adequate system of innovation institutions, including the organization, the legal framework and incentive structure of research and development processes.
As part of the national innovation system public research institutions must perform three important functions: to take the research in the basic sciences, some of which can be patented; providing companies the corporate sector and federal direct investments -investors
providing technical services (such as consulting, testing) in the areas of infrastructure, metrology, standards, quality control; provide services to the scientific staff training.
The most important role in the modernization of the economy and stimulate knowledge-based industries should play the internationalization of innovation in Russia. It should be conducted in three main directions of perspective: through the international commercialization corporations of innovative technologies developed on the basis of the actual Russian developments; the development of international scientific and technical collaboration of public and private organizations in the country, including acting on its territory affiliates of TNCs; and in some cases - through the development of innovations in the country on the basis of the actual branches of multinational corporations [1].
As a condition of admission to the most dynamic sectors of the Russian economy of global multinationals in the course of negotiations it is advisable to put the requirements of direct investments, investors in Russia to set up R & D centers with industry-specified minimum size of threshold investment. In some cases, it is necessary to put the requirements of a joint venture with Russian participation,
development of Russian staff vocational training programs. The fact of participation of Russian partners in the joint venture will contribute to the preparation of managerial and technological know-how, and to a much greater extent than, for example, the acquisition of technology through the purchase of licenses.
Russia should take into account that the policy of TNCs in relation to the creation of differentiated global production system. Along with the deep integration strategy they can use the traditional strategy of surface integration (applies to certain markets). However, with the liberalization of international policy
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in the area of ??investment, foreign trade and information technologies under the influence of the growing competition for MNCs is economically advantageous to place any production or any part thereof abroad, on the basis of such factors as efficiency of production, control of it and loyalty to TNCs in host countries.
Russia should develop its own policy of attracting foreign investment, given the motivation of TNC-investors and the basic provisions of direct investments theories. Direct investments policy should be conducted not on impulse, but deliberately attract direct investments in targeted industries and sectors of the economy. In the attracting direct investments concept formation it should be borne in mind that in a rapidly changing environment, this concept applies to the dynamic model of world economy development. It should identify the positive effects of direct investments in terms of changes in the economies of exporting capital, changes in competitors' products in Russia, as well as new economic realities in its economy. Ongoing structural changes in the global market direct investments necessitate continuous adjustment of direct investments policy in the implementation of the set of long-term strategic goals.
Identification and prioritization of scientific and technological development and decision-making on the financing of major public programs must be firmly embedded in the political, legislative and budgetary mechanisms Russia The need for state support of science-intensive direct investments in the scope determined by, among other things, the active role of the state in this area in the main countries -Russian competitors in the global market [5, 6].
5. Conclusions
Direct foreign investments are an important source of capital, and is actively used tool in international economic relations. Many countries are trying to encourage
the inflow of direct investments by developing mechanisms to attract foreign capital by public authorities. Russia also pays special attention to attracting foreign investment as an effective source of development of the Russian economy. The correct approach to attracting investment can become the basis for the development of import substitution policies.
The main reasons for investing in Russia: Russian economy is developing dynamically; Natural resources; Russian Consumer market is one of the largest; Highly skilled human capital; Unique geographical location; Attractive tax system; Government support of foreign investors; Stable social and political systems; Technological development of the country. Despite the presence of favorable factors, the Russian Federation estimated the global economic community as a country with an unattractive investment climate. This is due to the need to move from resource-activity to innovation as the development of high-tech industries will increase the country's wealth.
Particular attention should be paid to the business environment in the region. It is obvious that the national average of a few regions are actively focused on attracting foreign investment [7-9].
To improve the investment climate in the country, experts have identified measures for sustainable economic growth in Russia: 1) Decrease operational barriers; 2) Merge efforts towards innovation development; 3) Increase the attractiveness of regions; 4) Improve the business education. Implementation of these tasks will allow to attract to new foreign investment flows, which will be a stimulus to support economic policy aimed at import substitution.
Overcoming social-economic crisis in Russia involves the development of a particular instrument for the revival of the industry, using direct investments and considering the potential of the country and its expansion in the global context, as well as the
policy of import substitution. the strategy's success will depend on the choice of priority sectors and the effective tools for their development. Specific measures should be approved at the highest level. This will affect the regional, national and international organizations and will give positive impetus to the intensification of financial resources to modernize key sectors, and then absorb the technology to create new industries.
Improving the social-economic climate is a prerequisite for the development of specific policy instruments in the framework of the investment direct investments policies. The most important task is to determine the optimal combination of macroeconomic and direct investments -mechanisms for achieving the desired results with minimal resources and timing. The time factor is crucial because it determines the success.
To improve the rating of Russia in relation to other major regional markets, it is desirable to identify a package of measures, affecting both the macro and on the enterprise directly
(microenvironment). Micro tools should be tied to strategic investment and direct investments policies. These include:
- Incentive mechanisms for companies interested in the construction and modernization of plants in the priority sectors;
- Development and optimization of special economic zones;
- Creation of an information system for investors (industry dynamics, potential partners, prospective regional projects, legislation and financing);
- Communication campaigns to improve the image of Russia and its regions;
- Advisory services focused on top management of leading companies;
- Financial engineering and the involvement of foreign banks and the Bank;
- Creation of a permanent coordination structure for the
support of investment projects in the regions.
The most important aspect of the successful implementation of the investment and direct investments policy is to create a detailed master plan with clearly set objectives, measures and deadlines. It should carry out multicultural team of professionals having a political mandate and international business experience, and includes representatives of those countries which, together with the Russian authorities have a real strategic interest in keeping Russia on ways to strengthen the economy.
Today Russia faces a choice of growth strategy. An effective direct investments policy will help to attract long-term and environmentally friendly investment projects from those corporations that will be able to contribute to the rapid technological development [1012].
References
1. Chaparova G.V. The role and place of foreign investment in the Russian economy // Actual problems of humanitarian. and natural sciences. - 2015. - № 4-1.
2. Investment portal of regions of Russia. URL: http:// www.investinregions.ru
3. Program «Make in India». URL: http://www.makeinindiacom
4. DairyNews. URL: http:// goo.gl/N3ZsXk
5. Kapkina AV. The business climate in Russia today: the potential and possible perspectives // Problem analysis and public management design. -2013. - Vol. 6, no. 6 (32).
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7. Korda N.I. Foreign investment: a tutorial. -M.: KnoRus, 2015.
8. Kostyunina G.M. Foreign Investments (the theory and practice of foreign countries): Textbook. -M.: INFRA-M, 2014.
9. Orlova E., Zaryankin M. Foreign investment in Russia: Textbook. - M.: Omega-L, 2009.
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- 2013. - № 12 (196).
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12. Leonov Y.Y. Regional interests and factors of investment activity of foreign companies in Russia: Monograph. - M.: LENAND, 2015.
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