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India: Has The Manufacturing Destination Arrived?
Hub the world continues to remain enchanted with but may do a lot better with more conscious efforts and pragmatic thinking
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Last month owing to the GST roll out received plenty of news related to manufacturing in India. 'Make in India' seem to be soaring given so many MNCs both domestic and International have announced plans of considering or continuing India as their manufacturing base.
Philips, the Dutch appliances, healthcare and electrical products maker plans to increase localisation of its products in India from 50 per cent to around 75 per cent in the next three years and may even consider FDI in retail later when suitable. Huawei, the world's third largest Smartphone seller expects India to be its second largest mobile device market after China, also has acquired licences for manufacturing in India and look at a long term growth. Even the most strategic and macro level industries are seen striving sincerely reviving its image. As part of the bilateral ties, Russia conveyed its readiness to tap India as a global aeronautics manufacturing resource and is keen to partner local firms in developing technological and production capabilities in the aviation sector.
At home, Gionee, the company that currently assembles handsets in association with Foxconn and Dixon in India recently announced their plans to set its own manufacturing capacity in India and are soon to finalise the land for their factory. Jivi Mobiles, yet another homegrown phone manufacturer plans to invest upto Rs. 200 crore in setting up a new unit in Lonavala with over 5 lakh units per month production capacity as per the demands they have observed, especially the spike during the festive season.
The list is long of old and new entrants with names like IKEA, HTC, Samsung, Siemens, First Solar Inc, Trina Solar, BMW, Mercedez Benz, Boeing, Force Motors, Honda, Panasonic, Pepsi, etc exploring enormous investments into the country. There is no rocket science that India is a great market full of opportunities and huge potential despite complexities of regions and political challenges. As emphasised by country's Prime Minister, Democracy, Demography and Demand are the thrust factors for businesses that India has to offer in abundance. Major reforms have crossed the threshold and now on their way to becoming a reality. India is likely to become the third largest economy of the world by 2030 given a favourable demographics dividend of highly skilled labour, tech savvy population, low cost R&D, robust legal and IPR regime. India is set to witness increasing manufacturing's share in GDP from current 17.4 per cent to 25 per cent by then. Initiatives like 'Skill India' complementing 'Make in India' as a whole and there is a lot of push on the former like never before to ensure the latter meets success in time. There has been consistent influx of funds with projects like Niti Aayog or setting up of 5 more IITs to encourage quality in technical education.
India, other than the ideal demographics, is also infrastructure ready with many state and centre initiatives ensuring the basic tenets are present. National Investment and Manufacturing Zones, Special Economic Zones, Country specific Zones, Industrial Parks, Sector specific clusters, Industrial corridors, projects like Golden Quadrilateral all are a proof that India has not taken FDIs and local investments for granted. Incentives and allowances for manufacturing have kept the run alive across many sectors including Electronics, Defence, Engineering, Automotive, Textiles, Chemicals, Food, Leather processing, Semiconductor, solar etc.
India has come a long way from initial industrialisation to licence raj, to liberalisation and now the competitive advantage and magnanimous scale to stand formidable counterparts globally, clearly an intense market that is difficult for any MNC to ignore or not cater to. As per recent industry analysis, rising demand in India, together with the multinationals' desire to diversify their production to include low-cost plants in countries other than China, could together help India's manufacturing sector to grow six fold by 2025, to $1 trillion, while creating up to 90 million domestic jobs.
However, the fact that India must now be considered unquestionably the manufacturing destination for all alike is still a distant reality. India will have to imbed itself in innovation driven segments while maintaining the conventional high volume target growth.
India must work on developing and improving Capital and Labour Productivity to allow a streamlined impactful marketing and overall positioning. Countries like Japan, Germany, US have demonstrated that gradual and consistent investments in manufacturing techniques and machines to amass large productive capabilities have addressed the ever-changing dynamics and complexities of new demands. Tesla, a startup till few years ago can create electric or driverless cars in US, a country with deep technical knowledge, expertise in robotic design and advanced engineering in automotives and electronics. Similarly LG, Samsung and Hyundai are fierce Korean giants not merely due to product development but also their global teams have been extremely strategic in sales and marketing and ensuring market penetration and pervasiveness.
While India certainly needs innovators and inventors to think scientifically about product development, sophistication or the next big leap, it remains a function of high skill set. The Economic Complexity Index (ECI) that ranks a country as per the diversified and complex manufacturing bouquet they have in offering for the international markets, India is far behind at 54 out of a list of some 144 countries. Deep commitment in resources including world class leadership and talent is what can help India to sell better.
While product development is the core of manufacturing and we need to develop operational excellence there to achieve the targets, economy simply cannot ignore service industry that accounts for 20 per cent of world trade. Indian manufacturing may shape up further with right kind of consulting support from advisors on board in areas of sales, marketing, consumer analysis, talent acquisition, legal matters etc. It is a matter of facilitating a comprehensive development of a country's manufacturing framework.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.
Archana Khosla Burman
Founder Partner, Vertices PartnersMore From The Author >>