India must transform its manufacturing sector to become a superpower
Everybody agrees on the imperative for India to become a manufacturing superpower. A nation with hundreds of millions of young people cannot rely on the services sector alone for job creation, neither can it afford to have over 60 per cent of its vast population depend on an inefficient agriculture sector any longer.
To become competitive in the global marketplace and to create job opportunities for the world’s youngest workforce, India must transform its manufacturing sector.
But how do we do this? What’s the window of opportunity? What kind of manufacturing should India be known for? Should we follow the China model and chase low value add, labour intensive manufacturing and then step up slowly? Or, should we aspire for the higher echelons of modern manufacturing?
Developed countries like the the US, the UK, Germany, Japan, South Korea, Israel, Finland, etc., are largely innovation driven economies characterised by high per capita income levels, high standards of living, and various industries with advanced technology and capability to manufacture new and unique products.
For India to be counted among these developed countries, we need to have a competent advanced manufacturing sector.
It is in this light that the “Make in India” campaign must be seen. It is one of the keys to unlocking manufacturing growth, though by no means the only one, and it is a dream project of the Modi government.
It is aimed at facilitating investment, fostering innovation, enhancing skill development and building best-in-class manufacturing infrastructure. It’s India’s most credible call yet to foreign manufacturers who have so far preferred to go to China to come to India.
What is advanced manufacturing? A Brookings Foundation-McKinsey & Co. study defines advanced manufacturing industries as those that display above average R&D spending as a share of total sales and employ a highly skilled workforce in which the average worker is an expert in at least one discrete STEM (science, technology, engineering, mathematics) field. The advantages for the economy of chasing such capability is readily seen.
India has currently very low domestic or indigenous manufacturing capability largely across the bio-medical devices industry, heavy machinery (mechanical and electrical) industry and the semiconductor and advanced electronics industries.
It is startling that we have competence only in industries like automotive and auto components, consumer goods, basic computer hardware, pharmaceuticals all of which are being largely driven by the private industry and not the public sector.
It’s a steep uphill climb that we are in for. And we need a programme like “Make in India” to be able to make it.
Developing advanced manufacturing industries will not be easy. Strong challenges from other nations, our inconsistent engineering and workforce training systems, the absence of a quality talent ecosystem will continue to haunt us.
Moreover, while efforts to develop the advanced manufacturing sector will largely depend on private initiative, it will also take great political will.
For years, political paralysis at the Centre and in most states have stalled needed national action on R&D investment, skill-building programmes, tax reforms, infrastructure and the general environment of doing business, while China and the Southeast Asian economies marched ahead and have become the “factories of the world.”
The year 2015 provides the first real opportunity with a party in power that enjoys majority on its own, and a Prime Minister who is determined to drive ahead with reforms to move on all these fronts and more. And it is urgent.
In the New Year, the industry can begin by looking beyond “low cost” and focusing on technology-driven innovation; increasing value-addition; building or acquiring new capabilities; and engaging academia to develop technical skill development clusters and institutes.
The academia should partner with industry to develop advanced technical and research institutes, encourage R&D in alternate elements, materials sciences and key emerging technologies, and emphasise on creating intellectual property.
The government, for its part, must focus on effectively implementing the national manufacturing policy; encouraging the public and private sectors to together build advanced technical capabilities; prioritising indigenisation in key sectors such as railways, defence and power; and accelerating the creation of industrial corridors and manufacturing zones. The year 2015 may well be our last chance.
Dr Baba N. Kalyani is chairman & managing director, Bharat Forge Ltd
