Manufacturing India: getting murdered

While every one from the incumbent economist prime minister to the prime minister designates has been talking loudly to focus on the manufacturing, the Indian manufacturing has been getting killed systematically through hyped globalisation, free trade agreements and also by unscrupulous traders. Importing has become almost free. Why would entrepreneurs or even established manufacturers like to take the pain of setting up and managing manufacturing enterprises.

The Chinese, Malaysian, and even Bangladeshi produces are entering Indian households almost as it has happened in US and other European countries. Yesterday, I visited a shop in sector 9 of Noida with my knowledgeable friend Arora to select lighting fixtures and fittings for my apartment that is getting ready. To my surprise, the old proprietor of very well-stocked shop himself said, ‘these are all Chinese.”

Few weeks ago, one of my friends took me to Biyani’s retail outlets that sells everything that a new house would require. I had my shock of the life. Both the outlets of the group in Noida- ‘Home Town’ and ‘Home Centre’ sell all types of the furnitures and fittings including beds, sofas, and dining tables sourced from Malaysia and other countries. Why are these groups not promoting design and manufacturing of these items for which all the input including the talents and skills are available indigenously? Is it because of customers preference for anything foreign or because the import has become so easy and hassle-free, even with critical CAD of the country? It is not only the crude oils and palm oils but even high end napkins, sanitary towels and diapers are getting imported.

As it appears many have a similar views and are pained too. I came across an interesting article in ‘The Indian Express’ by Jaitirth Rao. It is in line with my views that I have kept on writing:

“Uday Kotak said a few months back, in the course of an interview, that he was amazed that in his new office in Mumbai, not one of the furniture or fixture items were made in India. My friend Rahul Bhasin conducted a similar exercise in his office in Delhi and discovered pretty much the same thing. The carpet is from China, the furniture is from Malaysia, the light fixtures are from China, the glass partition is from all places, Jebel Ali in the Middle East and so on. Kotak went on to add that even Ganesha statues are no longer made in India. They are imported from China.”

Shockingly according to an Assocham study, “In the past five years, about 40 per cent of Indian toy companies have shut shop, while another 20 per cent are on the verge of shutting, as Chinese products flood the Indian market.”

A recent report in ‘Business Today’ tells how the Chinese imports are hitting Indian MSME sector and how the manufacturers are even shutting down the shops and getting into trading. “According to government figures, Chinese imports leapt from $32.45 billion (Rs 146,005 crore) in 2008/09 to $52.25 billion (Rs 3,13,500 crore) in 2012/13. And the Chinese import includes all categories from low-value, low-cost products like toys and crackers to high-value items like electronics and machinery, and the import portfolio has also expanded across product categories like gift sets, glasses, bathroom fittings, builder hardware, furniture and ceramics.”

“The share of manufacturing in total GDP has largely remained stable at around 15% for more than two decades now. The Wise Men of India know whys of the deterioration. But no one is ready to take action against it. Obsolete regulations—which go to the extent of requiring state sanction to shut down unprofitable operations—and restrictive labour regulations that affect the entry, functioning and exit of firms, regressive labour laws that favour the entrenched interests of rent-seeking labour unions, have effectively stalled the economy from utilizing the country’s cheap labour potential to build a competitive manufacturing sector.”

Early 1980s saw the establishment of Maruti Udyog with Suzuki, Japan. Perhaps, its biggest contribution was the huge growth of local auto components manufacturing. However, over the last few years many OEMs in automobile manufacturing have been showing preference for imported components. For example, Hero Moto, the world’s largest two-wheeler manufacturer imports components from China to cut costs. India’s share of global automobile parts exports remained below 1 per cent over the last decade because component makers have not been able to catch up with other low-cost Asian destinations. No agency has endeavoured to find out the reasons for that and solutions. Exports in 2015 are expected to be less than a quarter of the $33 billion target set by the Auto Component Manufacturers’ Association in 2003-04.

About 60-65 per cent of the Chinese imports are critical parts like engine pistons, transmission drives, and steering and body components.Along with China, other Asian countries such as South Korea, Thailand and Taiwan have increased their share in Indian automobile part imports while the shares of Japan and the US have declined. “Glass, tyres, rubber, aluminium bearings and electronic chips are imported by a car manufacturer in India from China because they are available cheaper there. This is affecting local parts manufacturers.” Despite years of operation in India, some foreign companies do not have 85-90 per cent locally manufactured components in their vehicles.

The exports by Auto component remained at $9.69 billion in 2013, while the import touched $12.70 billion last year. The country remained a net importer of components.

Every sector has performed in similar manner. While US as well as Europe, whom we Indians are hell bent in copying for everything, are talking of manufacturing renaissance, India is still in slumber so far the growth of the manufacturing sector is concerned. Will it be effectively different if a new government comes in May, 2014?

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