MAKING INDIA A GLOBAL MANUFACTURING HUB
Ajit Jha & Siddharth Singh
The world is fast changing, with a rebalancing of manufacturing across the developed and developing economies. China, with its rising wages and swelling cost of production, is losing its cost advantage. India is starting from a position that is advantageous in this competitive global environment. Although in present time India has some problems like, lack of an enabling infrastructure, poor perception in terms of ease of doing business, and lack of demonstrated capability to compete at the global scale. But at the same time India’s long term prospects in manufacturing sector hold over intact with its fundamental strong points of human resource, a strong base and culture of small and big entrepreneurs, and a robust and increasing domestic demand. Therefore, in many ways, the period and stage is all set for India to transform its manufacturing and thus seek global leadership in the manufacturing of goods to fulfill its own demand as well as to cater to the global demand also. Apart from being a nation of a population of 1.2 billion people, and the world’s largest youth population, cheap abundant labour gives India a natural relative benefit in low-value added and labour intensive manufacturing goods. India’s own domestic consumer market is the most quickly upward expanding consumer market in terms of demand in Asia. The new aspiring Indian middle class is expected to touch 267 million over the next 5 years as per National Council of Applied Economic Research (NCAER), offering incredible prospects to realize economies of scale for fast moving manufacturing consumer goods. With consumerism and disposable incomes on the rise and in-turn rise in the demand in the market for goods, the manufacturing sector has experienced good growth in the past few years and thus many global players are also entering into the Indian market.
Over the last 20 years, Indian manufacturing sector has by and large grown at the same pace as our overall economy. India’s stake in global manufacturing has grown upward from a meagre 0.9 per cent in 90’s to 2.0 per cent in present time while its GDP share has gone up from 1.2 per cent to 2.5 per cent India’s share of global merchandise exports has also risen up from 0.5per cent in 90’s to 1.7 per cent at present. However, despite this encouraging growth, the relative share of manufacturing in the Indian economy has almost remained unchanged. The manufacturing sector in India accounted for 15 per cent of GDP in 1993, a rate that remains about the same even today. As India embarks on a massive manufacturing mission which is high on quality and environmentally sustainable, there is a strong need for a paradigm shift in the way the country handles the industry. The global manufacturing scenario has been growing at a fast pace. Total manufacturing cost is central for deciding the manufacturing location for any company. While continuous change in wages, energy costs, productivity and currency rates are fluctuating and in turn shifting the global footings on the front of cost competitiveness, still some factors other than cost are also becoming increasingly more and more important for the companies to choose the locality for sourcing and manufacturing. Factors like infrastructure and those related to business atmosphere, together with operative ease, transparency, and access to credit, carry substantial weight along with cost competitiveness. While India notches well on the front of cost competitiveness because of availability of cheap and abundant labour, it is in some of those other factors that India loses out. When equated on the basis of some of those non-cost parameters, India positions poorly even with respect to the developing economies. Addressing these non-cost factors in spirit and also creating perception around this progress in the international arena are going to be vital for India to succeed in future.
If India has to propel the growth of its manufacturing sector then it would certainly need to maintain its cost effective lead in this milieu of aggressive competition. The competition now is not only with the developing countries but also with developed countries. To achieve investor’s buoyancy in investment and to attract high FDI in future, India needs to find solution for its poor infrastructure from end to end investment in highways, ports and power plants. Radical labour reforms along with simpler tax structure and providing access to formal credit through easy institutional mechanisms are also long awaited. In this regard the Central Government has taken a lot of initiatives and results of which are visible in the Industrial production data and also in some of the world wide ranking where India’s position has improved like in the ease of doing business ranking, India has jumped up. Through various executive actions as well as with some clear cut policies and quick decision making process at the PMO level, Government has changed the perception of policy paralysis which was felt earlier. To achieve a manufacturing led transformation, India has undertaken a well-planned and structured approach under the Prime Ministership of Mr. Narendra Modi. Reinforcing the vision to develop India into a global manufacturing giant, the government has unveiled the national program of ‘Make in India’ with an objective to facilitate and boost investments in various sectors, to encourage innovation in new cutting edge technologies and also to build world class manufacturing infrastructure. The design and technology in India is almost at equivalence with that of the developed countries. Manufacturers focus on product indigenization as it helps them in developing and manufacturing India-centric, cost-competitive offerings with prudent designs custom-made to suit the domestic needs.
The path to achieve the global leadership in manufacturing necessitates a structured methodology in approach across three levels (a) expanding the manufacturing base by increasing the speed and scale (b) gaining competitiveness at Global level so as to capture the global market and (c) claiming global leadership through branding.
Even as government is trying hard to fix the basic factors around infrastructure along with the ease of doing business in the country and transparency in related government policies, there is a need to actively plan for and pursue long term goals of fostering technology and innovation so as to claim the global leadership.
To expand the Manufacturing base in India, the most important thing is to get the execution of all infrastructure projects well within time because Infrastructure is the mainstay spinal column of any economy, and is the single most important factor. Infrastructure not only make sure an effective supply chain and key inputs feeding into the manufacturing process, it also creates a unified link across production hubs and end markets both domestic and global.
To gain the Competitiveness in the global market, India needs to build an export eco-system so as to push the domestic manufacturing sector as well as to better cater to the domestic demand also. Those countries which are successful in manufacturing in today’s time, have also correspondingly boosted their share in global trade in past through pushing their export. If India wants to develop itself a favourite manufacturing hub in the world, then central government along with state governments would need to create an ecosystem for exports powered by policy reforms, investments and infrastructure. There is an urgent need to expand infrastructure in coastal regions to boost the export in India so as to encourage country’s share in global trade Ports infrastructure in India requires higher capacity and streamlined processes like linkages of Ports through roads for inland transportation for the seamless movement of goods. The creation and expansion of the industrial corridors and developing new smart cities would certainly offer impetus to the growth of a globally competitive manufacturing sector. Brand India would also need to be built and strengthened in such a way across the globe so as to enlarge the recognition of the ‘Brand India’ and to generate liking for ‘Made in India’ products.
Central government has taken numerous steps through policy formulation as well as through making laws in this direction to boost the manufacturing sector growth. The decision of the government to increase the FDI limit from 24 to 49 per cent in the defence and ease of rules for FDI in construction sector where it has allowed 100 per cent FDI are welcome steps in this regard. The manufacturing sector growth especially in defence sector is anticipated to flourish due to opening up of this sector to foreign investments. Manufacturing of guns, ships and tanks has now trapped the consideration of the private sector which is preparing investments worth billions. Relaxing FDI norms in defence as well as mega push of indigenisation in defence sector with the help of policies like ‘Make in India’ are already yielding fruitful results. Recent agreement between Indian private companies with Global giants in defence to manufacture military aircrafts in India for the first time is a best example. Government initiatives to push the manufacturing in defence are further going to boost technology transfer and also it will lead to speeding up product development with cutting edge technology in this sector. Similarly, Electronics sector is also a perfect example of import-substitution driven opportunity. India imports most of its electronic necessities. The main reason for this has been underinvestments in research and development sector and a large skill-gap overcoming of which are vital for success in this sector. Of late this sector has also got much attention. To fulfill the aspiration of Indian youth, Government is digitalising the whole concept of delivery mechanism in governance as well as using the enabling technology to transfer the life of ordinary citizen. All this requires the electronics equipment manufacturing and that too at very low cost.
The push to revitalize an ailing manufacturing sector with ‘Make in India’ initiative, has led to single-window clearances and it has also minimised the procedural process and has reduced the process of red-tapism because the Prime Minister himself sees it as a vital impetus for generating new employment opportunities for the youth. This will provide a further fillip to India’s growth. ‘Make in India’ initiative was launched globally in September 2014 as a part of India’s current focus on manufacturing sector. The objective of the Initiative is to promote India as the most favourite manufacturing destination at the global level. The Make in India initiative aims to make India a vital part of the global supply chain in manufacturing. It is also intended to ‘make Indian’ companies outshine and excel in a globalized workspace. India has enthusiastically opened up its economy in many sectors which include Railways, Insurance, Defence, Pension Funds, Construction and Medical Devices. India today is one of the most open economies of the world.
In order to achieve the set goal in the ‘Make in India’ policy, Central Government has taken up a series of measures to drastically get better the Ease of Doing Business in India. Its objective is to make the regulatory environment easy and simple for businesses to flourish. The ‘Make in India’ initiative has in fact efficiently used the technology to congregate and join together all the departments. At present 14 services have been integrated with e-Biz portal which is now functioning as a single window to obtain the clearances from many agencies of government.
Make in India has by now created a very strong impact in the form of improvement in environment for doing business and also on India’s economic growth because the scheme has attracted some big ticket investment in various sectors. India is now first amongst the world’s most attractive investment hub for manufacturing. It is first amongst world’s fastest growing economies. India is also first amongst 110 investment destinations polled globally. India is the 7th most trusted and valued national brand in the world. India’s rank jumped 12 positions upward in Ease of Doing Business list by World Bank in 2015. India has also moved up 16 places in the Global Competitiveness Index 2015-16.
If we look at some of the important agreement in recent times then Ministry of Railways recently signed formal agreements with global giants Alstom BSE and GE Transport to set up locomotive manufacturing factories in Bihar. In Electronics sector companies like Foxconn, Oppo, ZTE, Phicomm, One Plus and ASUS etc. are also investing in India to lower their cost of manufacturing and thus tap the potential of Indian market because demand in India’s market is also very huge. In automobiles sector also, big companies like Mercedes Benz and BMW have also announced to localize their production in India. Airbus will also increase its exports from India by up to USD $ 2 billion.
Making India a global manufacturing hub shall boost the economy, give a new lease of life to the manufacturing sector and will also create more jobs.
(Ajit Jha is a ICSSR research fellow at Jawaharlal Nehru University New Delhi. email - firstname.lastname@example.org; Siddharth Singh is a research scholar in Jawaharlal Nehru University. email: email@example.com)