Manufacturing India : Despair or Hope

Even with all the gloom of Indian slowdown affecting, India has some attractiveness and India story is tact for some. As reported, “The rupee’s drop is making India a more attractive destination amid rising wages in China and labour strife in Bangladesh. To benefit from the currency advantage, India will have to ease rules and reduce bureaucratic delays.”

Honda, the Japanese carmaker has started a feasibility study for building a third plant and is considering Gujarat (Sanand) as a base, even before its second new plant in Tapukara, Rajasthan, begins production by early-2014.

Media reports confirm it. “Emerging markets will be the headquarters to thousands more of the world’s largest companies — as many as half — in the next decade or two, a study published by the McKinsey Global Institute said Thursday.” “The world’s competitive landscape will be transformed over the next 10 to 15 years by the rise of a formidable new breed of large emerging-market companies.”

India must shake off its lethargy, think big and go all to take advantage of the situation.

The good news is that some manufacturing companies such as Bharat Forge, JK Tires are diversifying and expanding their manufacturing activities.

According to the 2013 Global Manufacturing Competitiveness Index (GMCI) report, prepared by the Deloitte Touché Tohmatsu Limited (DTTL) Global Manufacturing Industry Group and the Council on Competitiveness, India dropped two spots in rankings, falling from second to fourth since 2010. However, the report also expresses its hope that India can become again the world’s second most competitive manufacturing nation in the next five years behind China. One of the good news is that India’s manufacturing exports grew at a CAGR of 17.1 percent between 2006 and 2011.

However, India with huge rural population in farming with very poor productivity is far behind in manufacturing in real term. It will be worthwhile to look into few comparative data of the GMCI report about some developed and emerging nations:

Comparing Manufacturing GDP CAGR for 2005-10, India has a rate of 8.5 percent, whereas the figures for China is 11.9, while the manufacturing GDP percentage of total GDP in 2010 for India was 14.2 percent against that for China being 32.4, for Germany 20.7, South Korea 30.5, even Japan 19.4. As the new National Manufacturing Policy of India expects to boost the share of manufacturing from 16 percent of GDP in 2009 to 25 percent by 2022, the nation has still many more miles to go to reach the goal.

When we compare manufacturing exports percentage of total export in 2011, India figure was at 50.3, whereas that for China was 93.2, Germany 82.7, US 64.3, South Korea 85.3 and Japan still 88.

There are many things to improve:

Logistics cost in India that is pretty high at 13-14 percent of GDP compared to 7-8 percent in developed countries.

In R&D, though the number of MNCs operating its technologies centres are significant, but domestic companies are far behind in getting in innovating new products that can earn global brand status. The figure of researchers per 100 of population is dismal.

India still has the advantage of labour cost that is at 0.9 US dollar in comparison with that in China that is at 2.8 in 20011 and Brazil at 12. However, perhaps the productivity of the labour in India is very much low. India must focus on the quality of education in big way. Instead of declaring the majority of population of billion plus as poor and doling money, the government in power must focus on quality education and training in skills in demand.

And fortunately, India has its built-in strength. Is it not exciting to learn that’India tops the global chart of remittances with a whopping $71 billion in remittances in 2013, just short of three times the FDI it received in 2012,’ according to a revised World Bank forecast? It leaves behind many nation including China that gets$60 billion as remittances.

Manufacturing must become the main focus for the new governments that will rule the states and centre after the next elections.

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