India needs to create its own smart-manufacturing ecosystem

  • Interviews
  • May 02,18
Though adoption of Industry 4.0 offers significant strategic advantage to the manufacturing sector, it does not offer a one-size-fits-all solution.
India needs to create its own smart-manufacturing ecosystem

Though adoption of Industry 4.0 offers significant strategic advantage to the manufacturing sector, it does not offer a one-size-fits-all solution. Hence, Sudhir Shenoy, CEO of Dow India, feels that the country should create its own smart-manufacturing ecosystem which will need to be custom configured to each enterprise and industry based on their challenges and priorities. In this interaction, Shenoy highlights the roadblocks before Indian manufacturing sector and provides probable solutions to mitigate these challenges.
 
How do you analyse the current status of manufacturing sector in India?
Over the last two years, there has been significant thrust by Government of India (GoI) for making India a global manufacturing hub. Change has been long overdue for a country that largely skipped the industrialisation phase of development, going directly from an agricultural economy to one based on services. 
 
The ‘Make in India’ campaign was launched with 26 key sectors in 2014. Under this project, GoI set an ambitious plan of increasing the share of manufacturing in GDP from 16% to 25% by 2022. This year Department of Industrial Policy and Promotion (DIPP) narrowed the focus to 8 industries. This shift to promote India’s export councils beyond traditional focus areas of textiles, engineering and plantations will shape the country’s new manufacturing and export strategy. 
 
There has been a lot of discussion around successful implementation and on-ground translation of the Make in India campaign. Recent data released by Central Statistics Office (CSO), showcases that the manufacturing sector grew at 7%, Purchasing Managers Index (PMI) rose to 52.6 and corresponding GDP from manufacturing in India has reached about Rs 5010 billion in November 2017. While these numbers are positive measure, there is need for continued growth every quarter to translate this into significant advantage over next 2-3 years. 
 
What are roadblocks before Indian manufacturing sector?
The Indian manufacturing sector needs to focus on 4 key pillars - physical, social, institutional and economic infrastructure - to optimise its resources and satiate the local, as well as export demand. 
 
Physical infrastructure: Several next-generation reforms required for manufacturing prowess such as those relating to land, transportation and electricity distribution will happen in the states. A state-led reform model will find greater consensus on subjects such as labour and land acquisition. Most state governments are developing industrial-pockets to collectively address land and energy requirements for expansion of public and private industry footprint. Realisation of mega-transportation projects such as Bharatmala, renovation of ports, development of multimodal corridors and uninterrupted power supply are critical to creating competitive advantage for private companies that are investing in India.
 
Social infrastructure: India’s revealed comparative advantage (RCA) which measures a sector’s share in the country’s exports versus share in world trade, has declined for labour-intensive sectors in the past decade. If this continues, India may not be able to reap the benefits of the demographic dividend owing to high illiteracy rates and reduced spending on education. The window of opportunity for labour-intensive economic activity is narrowing and there is an urgent need for creating a holistic blueprint for skilling, industry training and adoption of best-practices from across the world.
 
Institutional infrastructure: It includes ease of doing business, Intellectual Property Rights (IPR) and attracting foreign direct investment (FDI).
Over the last two years, GOI has undertaken over 200 reforms to ease registration and establishing of small and large businesses alike. As a result of this, the ‘Ease of doing business report’ has recognised our ability to protect ‘minority investors’, but challenges such as ‘construction permits’ continue to affect the overall pace of implementation. 
 
Protection of IPR has been the biggest bottleneck in fostering innovation and country specific research so far. The new IPR Policy released in 2016 aims to push data-privacy, trademarks and patents as a marketable financial asset, and promote innovation. This year DIPP, which is now the nodal regulatory agency, said that the government has already hired around 100 new examiners for trademarks. Examination time for trademarks has been reduced from 13 months to 8 months in 2017, with the new target of one month to come into implementation by March 2018. 
 
Measures have also been taken to attract foreign investment, which includes making the FDI policy for 15 sectors simpler along with extended cooperation with many countries (eg, Japan, the US, etc).
 
Economic infrastructure: Roll-out and streamlining of the Goods and Services Tax (GST) has been the biggest economic-infrastructure reform in recent times. To begin with, GST has enabled registration of over 86 lakh existing businesses, and the inclusion of over 10 lakh new taxpayers, into the formal economy. Axing of multiple taxes creates value that can be passed more seamlessly across the chain, while enabling quicker transaction timelines. We are witnessing a trend of reduction in operational costs, due to reduction in long and winding queues at border check-points and other entry points within and between the states.
 
To make India a truly global manufacturing hub, significant and prompt action on all of the above points would be needed. 
 
Which are the key drivers to attract global manufacturers to India? 
A vast and growing population with increasing share of wallet on discretionary items, developing infrastructure and conducive policies are three key factors that make India an attractive market for manufacturers across the globe. These coupled with availability of skilled labour, connectivity to emerging economies and liberalised FDIs create the right ecosystem, for any global manufacturer.  
 
Today, manufacturers are making in India, for India – to meet the growing demand of the consumers. To promote manufacturing in local markets, the government is offering capital subsidies of up to 25%. 
 
What is the relevance of SMEs in making India a global manufacturing hub?
India’s small & medium enterprises (SME) sector has been one of the primary drivers of the country’s economy. They account for 45% of India’s total manufacturing output and employ around 40% of its workforce. The SMEs in India touted to be a $25.8 billion market for emerging technologies by 2020. 
 
The SME sector is at the centre of innovation. The presence of innovative technological platforms is creating opportunities for the smallest of the players and offering a level field to compete in the global manufacturing ecosystem.  
 
Which are the sectors that can drive the India’s manufacturing growth story?
India’s manufacturing policy 
should find sweet-spots that drive country’s growth, quality of life for its citizens and avenues for sustained job-employment. Three critical 
areas to aid manufacturing evolution of the country should be – chemicals, capital goods & engineering, and pharmaceuticals. 
 
To give you a perspective from my industry, chemicals form the building blocks of entire manufacturing value chain. India has a distinct feedstock disadvantage when compared to countries like China. However, this disadvantage can be mitigated, if the country were to create sustainable trade-agreements with OPEC economies. The opening of Chabahar Port (in Iran), could boost trade to a total of $ 170 billion from India to Eurasia ($ 60.6 billion in export and $ 107.4 billion in import) and significantly cut-down the transition time for chemical and petrochemical goods. 
 
India’s rural consumption story had hit the pause button for the last three years due to two consecutive droughts in 2014 and 2015, coupled with weak growth in minimum support prices (MSPs) for crops, leading to sluggish growth for rural-dependent sectors such as FMCG (fast-moving consumer goods). As things look up from last year, decreasing dependence on consumer and engineering goods, will enable making India our large and growing population. 
 
India is expected to rank among the top three pharmaceutical markets in terms of incremental growth by 2020. Country’s generic drugs account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally. India’s cost of production is significantly lower than that of the US and almost half of that of Europe. Economic prosperity is likely to improve affordability for generic drugs in the market. 
 
How important is adoption of Industry 4.0 for India to emerge as a major manufacturing powerhouse by 2020?
Adoption of Industry 4.0 offers significant strategic advantage to the manufacturing industry, such as - new product innovation, faster time-to-market, cost optimisation through procurement/supply chain analytics, revenue maximisation through better demand forecasting, and better understanding of customer needs. For small industries, adoption of technology aids cost optimisation, consistency in product quality and better control on product design. For the larger industries, reduction of lead time, flexibility in production, agility to market, optimisation of resources, are some of the obvious benefits. 
 
However, Industry 4.0 does not offer a one-size-fits-all solution. India will have to create its own smart-manufacturing ecosystem which will need to be custom configured to each enterprise and industry based on their challenges and priorities.  It provides an opportunity to create a level playing field for large, medium and small companies through regulation, policy, sustainability, creating value that makes India a competitive market for the world. 
 
What is your outlook for Indian manufacturing industry by 2020?
The manufacturing industry in India has shown resilience and is confident about its growth prospects amidst challenges such as unavailability of adequate raw material, pressure for increased wages and muted demand. Companies are looking to increase their competitiveness by focusing on innovation - by launching new product and service offerings, boosting R&D spend and investing in newer technologies. 
 
The government wants to boost the sector‘s GDP contribution to 25% from the existing 16% - while creating 10 crore new jobs by 2020. To translate this from vision to reality, the current efforts of the government in terms of policy changes to improve ease of doing business must be sustainable. A robust and fool-proof economic, social, physical and institutional infrastructure will be critical in determining whether India becomes world’s fifth largest manufacturer by 2020. 
 
About Sudhir Shenoy
Sudhir Shenoy, CEO of Dow Chemical International Pvt Ltd (Dow India), started his journey with Dow in 1997 as an account manager for the polyurethanes and epoxy businesses in Mumbai. In 2007, he assumed the role of European Product Manager (Polyurethanes) in Switzerland. In mid 2012, Shenoy was named GM for the Home, Personal & Industrial Care business in Asia Pacific, and provided regional oversight for Dow Wolff Cellulosics and Dow Microbial Control businesses within the Functional Materials division. In 2013, he moved to Shanghai, China as the commercial director for Dow Polyurethane, responsible for regional profit and loss, business strategy and organisational effectiveness.

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