Many experts are optimistic that India will rank among the top five manufacturing nations by 2020. To achieve that, Anand Bhade feels that India will need to wind up and knock manufacturing out of the park in the next three years. Read why he says so…
It is never easy to predict the future, but manufacturing has the potential to emerge as one of India’s high-growth sectors in the next few years. The sector grew at a CAGR of 7.32% between FY12 and FY17, and despite a brief period of disruption following the introduction of the Goods and Services Tax (GST) in July, is rapidly recovering. The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, has crossed the 50-mark for three successive months from August to October. This is an encouraging sign, because a reading above 50 indicates economic expansion. Manufacturers, who were optimistic about GST, expect the benefits to materialise over the course of a year. The sector, however, needs to build on its potential to realise Make in India’s goals.
Launched by Prime Minister Narendra Modi in 2014 with the intention of developing India into a manufacturing hub, the Make in India program aims to increase the manufacturing sector’s contribution to national GDP from the current 16% to 25%, and create 100 million new jobs by 2022. India’s journey towards becoming a hi-tech manufacturing hub is underway, with global giants already setting up, or planning to set up, manufacturing plants in India.
The Union Government, on its part, has announced certain policies and initiatives in recent years to try and create a healthy environment for investing in manufacturing. Notable among these is the launch of a ‘Phased Manufacturing Programme’, which aims to give a push to the domestic manufacturing of mobile handsets through a time-bound framework and create up to 5.6 million jobs.
Earlier in 2017, the Union Cabinet had approved the ‘Modified Special Incentive Package Scheme’ to incentivise investments and move toward ‘net zero imports’ in the electronics sector by 2020. This was followed by the Ministry of Heavy Industries and Public Enterprises’ approval for setting up four Centres of Excellence for textile machinery, machine tools, welding technology, and smart pumps, which will strengthen the technology prowess of the capital goods industry.
More recently, Nirmala Sitharaman, who was then the Minister for Commerce and Industry, stated that the Government would revisit its industrial and manufacturing policies to prepare India for the ‘Fourth Industrial Revolution’. These developments could boost the manufacturing sector and, in turn, the national GDP.
A joint study by Assocham and Ernst & Young stipulated that India’s GDP could grow at a rate of 9-10% per annum if the manufacturing sector grew at an annual rate of 14-15% over the next three decades. The study noted that there were two ways in which the manufacturing sector in each State (or Union Territory) could grow: by setting up new industries, or by creating ancillary facilities, infrastructure, and linkages to the existing ones. Accordingly, each Indian state must make the most of the competitive edge it holds in terms of local demand, location, logistics, raw material, and skilled manpower.
Two industries deserve special mention in the larger scheme of things: defense/aerospace and electronics. One of the objectives of the Make in India initiative is to increase indigenous defense manufacturing and become self-reliant. India must, therefore, invest more in research and development in this space.
The Indian electronics industry, meanwhile, is already one of the largest and fastest-growing industries in the world. It includes electronic products as well as the components to manufacture these products. Electronic manufacturing companies are looking at setting up their units in India, especially in the mobile phone segment, to cater to the domestic market. A report by IAMAI (Internet and Mobile Association of India) and Enixta Innovations estimated that almost 96% of mobile phones sold
in India will be locally manufactured by 2020.
While India must continue to enhance growth in this sector, China’s waning manufacturing competitiveness also provides a new opportunity to capitalise on. Rising factory wages in China over the past decade have negated the advantage that it once held, as the world’s preferred manufacturing destination. Many low-cost production jobs, especially in apparel, toys, and cheap electronics, are moving to South Asian countries. These developments may work to India’s benefit, but, the need of the hour is to acknowledge the fact that there is a considerable distance to go before India realises its manufacturing potential.
Consider the facts. There are several regulatory roadblocks that the manufacturing sector must contend with. Land and labour laws in the country need to be updated. The infrastructure for transport, communication, and energy continues to remain inadequate. The sector is dominated by small and medium enterprises (SMEs), which may affect India’s manufacturing potential.
Moreover, India faces stiff competition from other South Asian countries, which are eyeing the same opportunities. The Economic Survey 2016-17 suggests that India could take advantage of China’s deteriorating competitiveness, particularly in the apparel and footwear segments, but it must act fast to gain a lead over Bangladesh, Vietnam, and Indonesia. A report by the Tata Strategic Management Group on the readiness of Indian manufacturing suggested that three technologies will be particularly important, going forward: additive manufacturing, advanced robotics, and the Industrial Internet of Things.
The Industrial Internet of Things (IIoT) enables the creation of a fully connected enterprise by extracting digital data from machines, and allowing machines to communicate with each other and take decentralised decisions. With IIoT, companies can monitor their machines, track their supply chain fleet, monitor the entire production process, track employee productivity, collect after-sales feedback, and gain real-time insights into every aspect of their business.
Additive manufacturing is another form of technology which may revolutionise mainstream production. The adoption of additive manufacturing is being driven by the growing need for product customisation and co-creation, rapid prototyping and parts replacement, and the limitations of traditional manufacturing techniques in creating complex shapes. Helped by advancements in technology and falling prices of 3D printing, additive manufacturing is set to become one of the leading manufacturing technologies of the future.
Robots have long been used to do hazardous or repetitive work, but are now serving a wider range of purposes. Robots with sensors can detect their surroundings, take decentralised decisions, and work in unstructured, flexible settings - which is gaining importance owing to the need for product variety. Also, robots, when used alongside humans, can create a greatly more productive hybrid workforce.
Technology is an accelerator for growth. It is important for companies, industry bodies, consulting firms, educational institutions, and the Government to come together to create and establish an environment in which technology-driven manufacturing can flourish. Low-cost manufacturing will continue to be an important, as it creates jobs for India’s vast population in numbers that technology-driven top-end manufacturing cannot match. However, India should also try and aim for high-value manufacturing and innovation to have a bigger impact on GDP. It is a balance that all the involved stakeholders must work hard to achieve. There are many who are optimistic that India will rank amongst the top five manufacturing nations by 2020. To achieve that, India will need to wind up and knock manufacturing out of the park in the next three years. It is not easy, and it may take a bit longer to get there, but it promises to be one exciting journey.
Anand Bhade is President of Asia-Pacific Sales & Global Head for Corporate Marketing of Tata Technologies Limited. He currently leads all sales and business development activities for global services and technology solutions in the APAC region. With almost 25 years of experience in the field of engineering and IT services, he has a deep understanding of managing executive relationships with key customers in India, Europe and North America.