This article originally appeared on Live Mint.

The Narendra Modi government, which in May completed three years in office, designed the ‘Make in India’ campaign as a call for action that aims to position India as a global manufacturing hub. Its most visible metric—the quantum of foreign direct investment (FDI) inflows—is up. However, for the initiative to fire the engine of growth and jobs, some basic structural shifts now need to be made as we move forward.

To Achieve Competitive Scale, Market
Definition is Key

Let us first examine the issue of scale. To create a compelling business case, competitive scale is vital, and that requires getting the market definition right. Consider the case of medical devices. The government is keen to have more local manufacturing, especially for higher-end products such as stents, pacemakers and CT (computed tomography) and MRI (magnetic resonance imaging) scanners. However, since up to 80% of these devices are currently being imported, local manufacturing could detract from the larger goal of providing affordable healthcare in the domestic market. Compared with global numbers, domestic demand for medical devices is tiny, at $5–6 billion. The market for stents and pacemakers in India, for example, is estimated at just $500 million out of $9 billion globally. Besides lack of demand, India’s underdeveloped electronics ecosystem is a handicap. Factor in the regulatory price controls for some of these devices and the L1 tendering process (under which the lowest bidder wins the contract), which eschews quality and lifetime value in purchasing decisions, and manufacturers have diminishing incentives to set up shop to address domestic demand.

There are lessons to be learnt here from Ireland and China. In the medical device category, the success story of Ireland, which supplies 80% of the world’s cardiovascular stents, can be attributed to an ecosystem built through attractive taxation, talent pool development and university collaboration.

The picture isn’t much different in solar module manufacturing either, where there is a huge opportunity gap for India.

The automobile sector, however, is an example of a success story. Passenger carmakers such as Hyundai Motor Co. and Honda Motor Co. have created world-class facilities in India. These companies are focused on a large and growing domestic market, even as they export to other markets globally. Thinking about both regional and global markets is critical to getting to scale beyond India—and, in many cases, to being competitive. It’s not surprising that more investments are now pouring into the automobile sector.

Read the full article at Live Mint.

Karan Singh is the managing director of Bain & Company India and a leader in Bain’s Healthcare practice.