Friday, September 26, 2014

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Lion's Step Forward - Make in India : Part 1

Make in India - Tableau in Republic Day Parade
It was just this week that the Prime Minister of India launched a focused drive to attract investment in the manufacturing sector and named it – Make in India. Such is the insight which asks to transform the “Made” to “Make” as the former represents past while the new leadership is looking at the future. Though this may be symbolic and effort may have been on since long for such investment, having an explicit program to drive this effort definitely shows the sincerity of leadership in this aspect. This is equally a message to the investor community and the domestic government machinery that the leader at the helm is personally committed to the cause. While investor community should feel assured that this commitment would go a long way in ensuring that their investment would be aptly safeguarded against many geopolitical risks, the bureaucracy would take a message that any internal hurdles to investors would be dealt strictly by the government. This definitely is a signal for the world that India now is ready to leap towards the future with renewed vigor and emphasis in diverse areas which may not be our traditional stronghold. And when the PM of a nation of over billion population says the following, the world would definitely take note of the message written on the wall.

This is a lion’s step. Come Make in India!

In 1990, India and China had almost the same GDP per capita. Since then China has experienced higher growth rates due to its growing manufacturing sector and as a result, today China’s GDP per capita is more than 95% of India’s GDP per capita. Hence, manufacturing sector plays an important role in economic growth and India needs to strengthen it in order to achieve higher growth rates. Now when manufacturing is the topic of the time and is all in the air, it was obvious for me to get into the depth of the manufacturing scene in India. Manufacturing can be defined as the physical or chemical transformation of materials into products on a large scale using machinery or capital equipment. The products may be finished consumption good, semi-finished goods or capital goods. In India, manufacturing industry is divided into some well-recognized categories such as chemical, food and beverages, electronics, engineering, energy, industrial design, metallurgy, textiles and transportation among others.

India has a rich history in the field of manufacturing. Manufacturing activities in India were present even at the time of the Harappan civilization, 5000-6000 years back. Weights and measures and copper smelting tools were some of the products found from that time. Historically, India was a leader in textile exports. There was a break from this diverse history at the time of the Industrial revolution. It was this period when India witnessed its downfall in this sector as India was not a participant in this revolution and we lagged behind.

At the time of independence, India was primarily an agrarian economy. The second five-year plan and the implementation of the Nehru-Mahalanobis strategy brought with it an emphasis on capital-intensive industrialization headed by the public sector. A drive towards setting up of heavy industries was accompanied by export pessimism and an inward-looking strategy. Though there were efforts, however, these factors did not lead to a ‘big push’ in the direction of economic growth and can best be considered as a fledgling attempt towards building a base for industry. But the good thing was it was definitely a starting point. The manufacturing industry growth picked up. Liberalization and increased competitiveness led to a consciousness of quality and efficiency. The mindset changed from one predominantly bureaucratic to one focused on cost effectiveness and customer satisfaction. Certain sectors such as the automobile sector saw drastic changes. Some of the top manufacturing companies in India include Larsen and Toubro, Hindustan Lever Network, Bombay Dyeing, Aditya Birla Group, Haldia Petrochemicals, Ranbaxy, Apollo Tyres, Asian Paints and Jindal Steel among others. However, growth was restricted to a few select sectors and most manufacturing activities were at the bottom of the heap.

The performance of the Indian manufacturing industry has picked up in recent times. However, much needs to be done. Manufacturing contributes approximately 16% to the country’s GDP, less than half that of China. Studies indicate that productivity of the Indian manufacturing sector is one-fifth of that in USA and half of those in South Korea and Taiwan. There is a lack of widespread multinational presence of India’s manufacturing activities to date. Several problems constrain growth. The foremost are infrastructural bottlenecks such as lack of high-quality ports and roads, inadequate skilled manpower, credit availability, restrictive labor laws, nascent research and development environment, lack of coherent quality standards among others. These issues need to be resolved and long-term strategies adopted to ensure sustainable growth in manufacturing, creation of wealth and opening up of more employment opportunities.

The rapid growth of the Indian economy is likely to make India the fifth largest consumer market in the world by 2025 from twelfth in 2005, according to a study by McKinsey Global Institute. Aggregate Indian consumer spending is likewise estimated to more than quadruple to approximately US$ 1.5 trillion by 2025, on the back of a ten-fold increase in middle-class population and a three-fold jump in household income. India’s manufacturing sector’s growth depends on the investment policies and the economic reforms. However for the long term competitiveness of Indian manufacturing sector, improvement in production efficiency is required which in turn depends on the ability to develop, import and adapt new technologies apart from other factors. India through its continuous efforts has made significant developments in technology over the years and now has strong trained manpower and an innovative knowledge base.

To make sure India makes a mark in the global markets and emerges as the next manufacturing giant, these supporting infrastructural requirements should be taken to next level and policy measures should be initiated. The Make in India campaign is definitely a great start and is strong attempt at defining India’s intent to promote this sector which for long was neglected. There are few critical bottlenecks and hurdles to taking this to next step and would need a robust supporting environment for the companies ready to invest in India. Establishing this environment would definitely go a long way in operationalization the slogan of “Make in India” in its true sense.

What are some these areas that need to be taken at priority? There are a series of posts coming up soon to discuss some the key focus areas for supporting manufacturing sector in India. Go ahead and visit Make in India - A Series to access all the articles in this series.

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