Manufacturing Must Move Faster

Prime Minister Manmohan Singh exhorts India Inc to brace up for a sustained 14% growth in manufacturing sector. The marginal improvement in the share of manufacturing in national income from 15.8% in 1991 to 17% in 2003 is of concern. PM wants it to be in the range of 25% to 35%. This requires manufacturing to keep growing at 12% – 14% in the next decade. PM emphasized, “Manufacturing has to be the sponge, which absorbs people who need to move out of agriculture in pursuit of higher incomes. I do not accept the proposition that India can skip the manufacturing stage of development and go from being an agrarian society directly to becoming a services and knowledge-based society. This is a mistaken view. A substantial manufacturing base is essential to absorb the workforce and ensure sustainable growth of the economy.”

As suggested by many consultants, India can be a major player in many sectors, such as in agro-processing, in textiles and garments, in automobiles and components, in pharmaceuticals, in chemicals and petrochemicals and in leather and footwear. PM urged industry ‘to have faith and take the plunge.’

The global auto giants are reeling under increasing cost pressure to outsource components. And what a huge potential! Global auto components consumption is expected to grow from $1.2 trillion in 2004 to $1.6 trillion by 2015. India is also catching attention for some of its unique advantages. India is also becoming a destination for outsourcing automobile R&D.

Why are we not getting a major growth in manufacturing sector? Indian firms are innovative too. Nearly 70 per cent of the companies, which were recently surveyed by Boston Consulting Group and Confederation of Indian Industry, stated that they were hiking innovation spend in 2006. Among the major rapidly developing economies, Indian firms were the most active innovators with over 1,000 patents filed out of a total 5,401 patents. There seems to resurgence in manufacturing sector. Many Indian companies are going global.

As Kanika Dutta in Business Standard points out, “Despite all its deficiencies, India has not only become the world’s back office, it is increasingly being eyed for its manufacturing capabilities as well. If Indian management has anything to be proud of, it is the ability to succeed and achieve global standards in what are still undoubtedly and unabashedly Third World conditions.”

Almost every one agrees that a high growth in manufacturing is necessary to generate greater employment opportunities. As every agency had done recently, CII points out to “constraints in five areas such as infrastructure, labour laws, cost and access to credit, technology and skill development need to be addressed.”

CII suggested setting up of Technology Upgrade Funds Schemes for all manufacturing sectors and making provision of a weighted deduction of 150 per cent for all in-house research and development expenditure and R&D commissioned by private firms to academic institutions and public sector laboratories. CII’s other demands are:
  Restoration of 100 per cent rate of depreciation for energy saving devices, pollution control equipment, alternative energy producing devices, computers and devices for water conservation.
  Total dismantling of the inspector raj
  Permission for contract labour to be allowed in non-core sectors
  Making the IDS Act applicable to only units with more than 1000 workers
  Complete de-licensing and decontrol of all segments of the education sector, establishment of multiple private sector accreditation agencies and fiscal incentives for corporate investments in skill formation and education

Unfortunately, CII does not come out what they plan to do themselves, particularly for their shop floor employees, their training, their compensations, and improvements of their quality of life. In many SMEs the compensation to the workforce is dismal, when the labour cost in India might be very low. CII must not overlook its social responsibility for improving the working conditions of workforce in unorganized sectors. Manufacturers must not neglect these aspects. Its member companies must not keep on talking about labour reforms without having an effective grievance handling system in place.

And then many times I start wondering if we are serious to do something in manufacturing that can amaze the world as Chinese do. Why can’t India be the top auto components suppliers in world? Why can’t with the best ores and the history as amazing as Iron Pillar, India become the largest producers of steel or aluminium, or for that matter the largest exporters of precision castings and forgings? What holds India from becoming the largest exporter of engineering goods? And of all the things why can’t India match China in exports of textiles, when India has the history of its excellence in textile trade since Harrappa era?

India planners must select some areas of strength and try to reach the top position in manufacturing and producing them.

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