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BW Businessworld

‘Make In India’ Not Optional If You Want To Succeed

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In February 2014, the then Finance Minister P. Chidambaram referred to manufacturing as the Achilles heel of the Indian economy. The reason for this is that India’s manufacturing sector has been fairly stagnant for over three decades. Policy paralysis, crumbling infrastructure, uncertain power & water supply and rising inflation have contributed in large measure to the slow growth that the sector has seen in the recent past.

The first steps towards liberalisation in the nineties envisaged the making of a global manufacturing superpower on the lines of what many Asian countries have become today but unfortunately for India it did not really pan out. Global real estate firm Cushman & Wakefield in its Manufacturing Index 2014 has ranked India at number 24 while Malaysia has been ranked number 1. The other countries featuring in the top 5 are Taiwan, Korea, Thailand and China. For India to become a significant player globally, concrete steps need to be taken to provide a fillip to its manufacturing sector.

Prime Minister Modi’s invitation to global as well as domestic companies to make in India is much more than just rhetoric. It is a clear call to action for the entire ecosystem to come together and find solutions to promote local manufacturing across industries. The inherent benefits across the ecosystem are several and therefore an opportunity that cannot be missed. A slew of measures were announced in the Union Budget aimed at creating a viable economic and policy environment to attract foreign investment. The coming in of multinational companies will add to the trend of several Indian companies who have started shifting production facilities to India. There seems to be new found hope that the time has come for manufacturing in India. 

Three factors assert their influence on the sector - One, India boasts of lower labour costscompared to China and other manufacturing economies and therefore labour-intensive industries will stand to benefit. Two, the Rupee has declined by almost 30 per cent against the US Dollar in the last three years and this has made exports expensive. Finally, the availability of skilled labour, especially in electronics manufacturing is expected to be a significant advantage for those manufacturing in India. These three factors should continue to influence investment in manufacturing for at least the next two decades.

The biggest opportunity perhaps is in component manufacturing as companies continue to import and this will curtail the benefits from lower labour costs or the weak Rupee. The government will need to encourage component suppliers to set up shop in India. A presence in India for component manufacturers would enable different regions to become distribution hubs for several industries. Original Equipment Manufacturers (OEMs) build robust supply chain systems and peg them as a competitive advantage and therefore OEMs can now begin sourcing from a single region rather than importing some of the components which will ensure quicker production and much lower costs. Regional sourcing hubs will also present the added benefit of creating employment opportunities for the local population. There already seems to be some traction; according to the India Electronics and Semiconductor Association, the electronic system design and manufacturing industry will see investments of INR 10,000 crore over the next two years.

The stage seems to be set for a reversal of fortunes for manufacturing in India. Domestic as well as multinational companies are willing to set up operations, increase their investments in the country or use it as a sourcing hub given the cost advantages. Will this be a reality soon? Yes; but the onus is now on the government to create a favourable environment.  Building world-class infrastructure, rationalisation of taxes and tariffs and the creation of R&D hubs will help promote local manufacturing.

It is imperative that India’s crumbling infrastructure be fixed by building highways, power plants and ports. Poor infrastructure decreases industrial productivity and which is a significant disadvantage.  In today’s scenario, infrastructure also includes the setting up of a robust digital communications network. Communications infrastructure in India should get a boost through the National Optic Fiber Network and the Smart City plan by modernising villages and smaller cities and these in turn will supply not just space for manufacturing but also skilled talent.

Policies that explore a simpler tax structure, the implementation of a uniform goods and services tax and financial incentives will help ease many of the challenges that businesses face while manufacturing in India. For example, the Government’s Modified Special Incentive Package Scheme (M-SIPS) is expected to attract global majors as well as small and medium sized companies from countries like Japan, South Korea, Singapore and Taiwan in the EDSM space.  These global companies are expected to partner with Indian companies to cater to one of the fastest growing electronics markets in the world.  The government is also expected to introduce a new labour law that will govern the Micro, Small and Medium Enterprise (MSME) sector, the backbone of the manufacturing sector. This is expected to provide better employability in terms of working environments as well as opportunities to develop skill sets.

The Indian manufacturing sector should ape the IT services sector by establishing training facilities, centres of excellences and R&D facilities. These facilities in turn will help in knowledge creation and innovation which should aid in creating of new processes and technologies as well as help bring down the cost of production. The creation of Special Economic Zones and sector focussed manufacturing parks will help build an ecosystem that will project India as a major sourcing hub as well as provide the domestic customer with world class products.

India is a high growth market and presents companies with immense opportunities to take advantage of. The Government is making right noises to encourage local manufacturing as well as attract foreign investments. For companies looking at serving the second most populous nation in the world, Make in India is not an option but a requisite.

KK Shetty, Director, Network Solutions, India & SAARC, TE Connectivity