Business
'Make in India' can lead to 'Decade of Manufacturing'
By
By Amit KapoorThe government's manufacturing focus is evident. On the recent
three-country foreign visit of Prime Minister Narendra Modi, the Make in
India campaign received a fillip. India was also the partner country at
Hannover Messe, described as the world's leading trade fair for
industrial technology.
However, skeptics immediately pointed
out India's decision to buy 36 Rafale fighters in from France raises
concerns over Make in India. It led to questioning the validity of the
initiative. Finance Minister Arun Jaitley, who briefly was the defence
minister, responded by saying that Make in India can fabricate Rafale
jets after 20 years but that doesn't mean one keeps the forces
ill-equipped for the next 20 years.
Last week also saw Ford
announcing its $2.5 billion investment in Mexico, part of which is
explained by the cost competitiveness of the country in terms of the
hourly labour wage differential as compared to countries like the US
itself and Canada. The most recent (2012) figures for Mexico (according
to the US Bureau of Labor Statistics) were $6 compared to $36 and $37
for US and Canada respectively. The figure for India was $ 1.46 in 2010,
the latest year for which data is available. This is lower than China
($1.74 in 2009) and this is where there is a window of opportunity for
Make in India.
The following six points are critical for enabling and ensuring the manufacturing ecosystem grows in India:
First,
instilling a sense of pride and ownership among people who work in the
manufacturing sector. At times, people in production and manufacturing
jobs find it extremely demoralizing considering the incentives they are
offered within their specific industry. Contrast a manufacturing worker
in India with one outside of India or with a service worker. Even people
doing very basic production outside of India are motivated and their
morale is high. It is true for Indian services industry as well. In
India, there is a high attrition rate in manufacturing and people want
to move to greener pastures as job satisfaction is often missing. It is
true for even formal factory sector and not just the informal clusters
where there are a large number of contractual workers. If a proper sense
of pride is instilled, it often leads to quality and standards being
followed that can make industries export competitive.
Secondly,
closely related to the issue of incentives and remuneration is the issue
of skills. India has a lot of competition but a large fraction of the
workforce is semiskilled/ unskilled. It is urgently required to rectify
the mismatch between the jobs that are on offer and the education one
receives. It will enable recent graduates to start post-college
immediately and the need for probation and training will be greatly
reduced.
Thirdly, at some places, there are inverted duty
structures. The government has already addressed these for the renewable
sector in the budget. Roughly speaking inverted duty structures mean
that the cost of procuring finished goods is cheaper than the cost of
procuring raw materials. It gives a perverse incentive to procure from
outside rather than Make in India. Needless to say that if the concept
is to be made a success, the import duty structure needs to be carefully
studied and accordingly recalibrated.
Fourthly, there is a need
to look at regulation by the government. It means looking into labour
laws and indirect tax regime, as well as the general ease of doing
business. The government seems to be headed in the right direction
through simplification and better legislation. The labour laws need to
be simplified and brought under a single unified ambit. This will
benefit all the stakeholders - industry, labour (most of whom are in the
informal sector thanks to the archaic labour laws) and even law
enforcers. The goods and services tax (GST) could give a much-needed
boost to the economy and at the same time increase the speed of business
activity. Te measures for ease of doing business include a reduction in
the time to open and run a business as well as procuring licenses for
starting production and compliance with regulations.
Fifthly,
branding and marketing of products from India is not directly related to
manufacturing but greatly enhances the export value if done in a proper
process-driven manner. The Hannover Messe is a recent case in point.
Also, there is need to relook the cluster approach within the country
for gaining competitiveness as clusters are the backbone of an
industrial economy and are fundamental drivers of competitiveness.
Lastly,
improvement in terms of basic infrastructure over the medium- and
long-term will again be instrumental in increasing the speed of doing
business. Bettering the connectivity with ports, improvements in our
archaic railway network, expansion of highways, as well as better power
supply, will all aid in turning Make in India into a grand success.
A word of caution: UPA-1 too had tried to revamp manufacturing
landscape when the National Manufacturing Competitiveness Council (NMCC)
put out a national strategy for manufacturing in March 2006. Knowing
what to do and doing it are two different things. The necessary changes
can lead to a truly a 'Decade of Manufacturing' for India.
(The
article is co-authored with Sankalp Sharma, Senior Researcher at the
Institute for Competitiveness, India. Amit Kapoor is Chair, Institute
for Competitiveness & Editor of Thinkers. The views expressed are
personal. Amit can be reached at [email protected] and
tweets @kautiliya)