How govt can create sustainable manufacturing growth in India

Workers assemble mobile phones at a Dixon Technologies factory in Noida, Uttar Pradesh, India. Dixon boasts a market value of more than $2.5 billion and the capacity to produce about 50 million smartphones in a year.
Image: Anindito Mukherjee/Bloomberg via Getty Images​
 
Agriculture, education and manufacturing sectors in an economy create wealth for human prosperity in the form of farm produce for consumption, intellectual output for innovative creation and physical product for comfort, respectively. The three are interwoven and each need a nudge today when the call for a boost to the economy of India has become paramount.

The manufacturing sector in India continues to have a low share of around 15 percent in the GDP. There is no better time than now to accelerate the five key growth drivers already defined in the National manufacturing policy of India: having a 25 percent share of manufacturing sector in India’s GDP, creating 100 million jobs, providing depth to manufacturing, enhancing global competitiveness and ensuring environmental sustainability.
 

The government of India has triggered a large number of initiatives: Make-in-India, Atmanirbhar Bharat, Skilling India, Zero defect-zero effect, Digital India, National Mission for Sustainable Agriculture and many more for creating a momentum in economic growth. It has now become imperative for Indian manufacturing to become competitive in terms of cost, quality, delivery, safety and innovativeness to improve internal consumption and enhance export. To make that happen all organs of the economy, the political system, government, policy makers, technocrats, academia, judiciary and industry leaders have to work in an integrated and objective way.

The acronym ‘TRIGGER’ was coined for long-term sustainable growth of the manufacturing sector. It stands for Technology adoption; Reform in labour policy; Infrastructural reform; Good Governance; Education relevant for societal growth; Resource (natural) management. 

Technology adoption
The heterogeneity in manufacturing–labour intensive (sports), resource intensive (metal), regional processing (food & beverages), global innovation for local market (transportation equipment) and global technologies/innovation (medical or precision equipment) require varied levels of technology to meet the need. Covid-19 has forced the implementation of low-cost automation solutions, while some are exploring COBOTS in their workstations. Application of Artificial Intelligence, digitisation and application of industrial IOT [Internet of Things] are providing intelligent solutions, improved efficiency especially when scalability is a challenge. The logistics companies are embracing technology and digitization for packaging, data management, decision-making, warehousing activities and tracking. Investment in R&D will enrich the front-end and backend linkages in the value chain, improve value-addition, lead to patents, creation of new products and processes.

Focus on technology will facilitate the Atmanirbhar Bharat [self-reliant India] drive. It will transition the ‘Make in India’ to ‘Conceive in India’ through the process of research, design, develop, produce and market. In a developing country like India, having a large market, nurturing ‘reverse innovation’ or ‘trickle-up innovation’ is going accelerate business growth. Industry leaders are already moving fast in this direction. Infusing technology, creating a culture of innovation and encouraging technical collaborations, alliances and partnerships in India’s Information technology (digitising), communication, pharmaceuticals, space, energy technologies and heavy industry can make a big different to business growth.

Reform in labour policy
The burgeoning informal labour, which is already very high in the Indian manufacturing sector, is a big constraint to the manufacturing growth in India. It is a very myopic view to see lower labour cost and to use it to manage the market demand volatility. The impact on the quality and productivity due to unfavourable labour-informality level is high over a period. It prevents scalability and the benefits of technology suffers when economies of scale are not utilised. The culture of ownership suffers and leads to unhealthy industrial relations impacts. Foreign investments suffers. Therefore, a much-needed reform on labour policy is awaited.

Another critical dimension to labour market is the skill level of the workers employed/seeking employment in the manufacturing sector. Vocational training through ITI and diploma route needs a total revamp to ensure employability of the workers. This should be in the radar of the labour reform policy for tomorrow.

Infrastructural growth
One of the most basic but critical factors that provides the competitive edge to manufacturing growth, is core infrastructure. It has become critical for India to improve transportation, ports, energy and information communication technology in terms of its availability, quality, efficiency, penetration-level and cost-effectiveness to attract domestic and foreign investors. The less effective and efficient infrastructure creates a significant disadvantage to manufacturers by pushing up the logistics and production costs thereby making them less competitive, especially in the export market. India’s average logistics cost is about 14 percent of GDP, which is one of the highest globally. Rail and road transportation dominate the transport system in India carrying almost 90 percent of the freight traffic in the country. The current share of the freight traffic between the total road-network and rail-network is 65:35 respectively with road-transportation clearly dominating, which may not be the desired mix for sustainable growth.

Quality highways primarily engaged in freight movement facilitate the economy in reducing the lead-time of conversion process, improves inventory-turn, brings reliability in delivery and reduces the vehicle fuel-consumption, thereby facilitating higher manufacturing growth. Poor road surface quality due to its inadequate maintenance because of reasons like paucity of funds and other administrative bottlenecks lead to sub-optimal carrier speeds, traffic-congestion, high fuel-consumption, vehicle breakdowns and high pollution.  These need immediate attention.

Good Governance
Manufacturing growth leads to prosperity, which in turn will enhance people’s health, education, well-being, skill levels and employability. It positively triggers the macro-economic indices of the nation. Good governance encompasses infrastructural quality, labour reforms, manufacturing policies around incentives and support (GST and other tax reforms) to industries, political stability and decision-making capability, social fabric, employment levels, relevant education and ease (cost)-of-doing business. Industry leaders often mention of the growing need to focus on ROTI - Return on Time Invested in new projects. There exists a bi-directional causal relationship between quality of governance and economic growth. The government has brought in some bold reforms in this direction and more is expected.

Educational reform
To build an excellent manufacturing base, a superior education system for generating talent (entrepreneurs, technocrats, researchers and industry-leaders) is a necessity. India’s contribution to patents filed globally is less than 1 percent, which is miniscule. Special competency development for high value-capture in the front-end (branding, marketing and after-sales mass-customisation), back-end (Research and Development, new-product and process innovation) and shop floor (lean, breakthrough improvement and entrepreneurial approach) in the product value-chain comes from quality education. Focus should not just be on skill development but quality education as skill is transient and education is permanent. In a developing economy like India, people will need to continuously learn, unlearn and then re-learn new skills to meet the changing requirements. ‘Innovation’ and ‘employability’ are the clear deliverables of quality education.  The Triplex helix model (Integration of academia, industry and government) can accelerate both the factors, significantly. 

Resource management
The hunger of consumption of the expanding world will continue demanding increasing supply of resources through its conventional linear model of take-make-use-dispose. This is leading to resource management being squeezed between increasing demand and depleting natural resources. The linear model, therefore, is being challenged by the circular model of take-make-use-collect-reprocess-reuse in the drive for sustainability. The drivers to the circular model are the 6Rs:  Reduce, Reuse, Recycle, Repair, Remanufacture and Refurbish. One of the operational excellence initiatives to sustainability is adopting lean systems ie delivering more with less. SMEs, the backbone of Indian manufacturing, need major support by the government.

In summary, to revive and sustain a healthy manufacturing growth in Indian economy accountability of delivery from each initiatives launched under the elements of TRIGGER is a necessity. Ultimately, the competitive edge matters.
 
The author is Professor, Operations, Great Lakes Institute of Management, Gurgaon