On 20thJune, 2020 PM Modi had a 165 minutes virtual meeting to seek realistic ideas from his council of ministers to transform the country into a global manufacturing hub. Demonetization and now COVID-19 pandemic have hit the economic growth of the country. Trade deficit with various countries is an alarming signal to India to take measures on the economic reforms and boosting its MSME sector. On 15th May, 2020 PM Modi announced ‘Atma Nirbhar Bharat’ to make India self-reliant. However, is it possible today in this era of Globalization? There is growing nationalist sentiment of Boycotting Chinese goods due to clashes between Indian Army and Chinese Army at Ladakh. But, is it really possible to boycott Chinese goods which accounts for almost 28% of Global manufacturing and which has surpassed the USA in every sector from electronics, textiles and pharmaceutical API etc. Presently, India can use this opportunity of COVID-19 and sentiments of people for reviving the MSME sector and providing alternatives to the consumer. If we fail to provide an alternative choice to the consumer all this announcement of ‘Atma Nirbhar Bharat’ will go in vain and talks like boycotting Chinese goods will have a reverse effect on us because we are more dependent on China rather than dependent on us. It is the hard truth.
PRESENT STATE OF MANUFACTURER AS IT STANDS TODAY?
Manufacturing value adds 14.82% according to World Bank data. In 1991 at the time of PM P V Narasimha Rao’s Government India became an open economy, which was a bold step at that time. The share of manufacturing to the GDP is 16% now, which was also 16% in 1991. Therefore, in the last 30 years significant growth is lagging in this sector. In the last couple of years, our small manufacturers have transformed into traders because of tough labor laws, expensive credit line, expensive power and cost of land. They find it much cheaper to import good quality material from China, Vietnam and Taiwan, as they cannot match the quality standard of these products. Indian manufacturers lost its space to Chinese and Vietnamese in products, which are cheaper, good looking, fast rolling and good quality. This happened because we lacked market feedback, modification, using better technology and our mindset of breakdown maintenance.
Looking on to the brighter side in Assembling in the mobile sector, India has had a big jump in the last couple of years. Large Chinese mobile companies, which have a market share of more than 37%, have their assembling units in India. Samsung, a South Korean Giant has a market share of 28% in India and has its largest factory in World in Noida, UP. India has become the second largest manufacturer of mobile phones recently.
The Deming Prize is the longest running and one of the highest awards on TQM (Total Quality Management) given by Japan. Indian organizations have received the maximum Deming Award in the World. Which shows India can do better in Quality and can compete globally. We have done well in Steel, Aluminum, Cement and Space. However, we lack in the MSME sector. India has large deposits of Coal but then also we are 2nd largest importer of Coal in the world. If this is the situation how can we become “Atmanirbhar Bharat?”
STEPS INDIAN NEED TO TAKE TO BECOME MANUFACTURING HUB?
Mega Cluster Formation near the ports, Industrial cluster consisting of small and medium enterprises where enterprises can easily purchase material from and sell products to local traders plays a critical role in stimulating the entry of new enterprises in the early stage of cluster development. The cluster develops entrepreneurial ability in producing high quality products and marketing them to urban traders.
Logistics and Trade facility, aggressively work on the policy matter related to the supply chain management. Manufacturing is closely related to the exports to become successful in manufacturing hence a check on exchange rate policy is necessary which is overvalued right now.
Market access and FTA, European markets will provide us a huge opportunity of luring their companies due to this covid situation so signing a free trade agreement will get India market access. Already, Vietnam has signed a free trade agreement with the EU. We have a free trade agreement with ASEAN. Looking for the markets in the African regions.
Labor laws, one of the reasons for companies not preferring India or else going to China or Vietnam is because of Labor Laws. India has about 200 labor laws, 52 of which are central acts. Of which Industrial Disputes Act (IDA) requires firms with 100 or more workers to seek government permission to lay off any worker. This permission is rarely granted. Thus, firms hesitate to hire too many workers. Sometimes, firms are victims of blackmailing from the union leaders. Government needs to ease certain restrictions for these laws.
Compliances, an average Indian company has to comply with almost 2000 to 3000 instances of compliances. Here we need to look at Vietnam and Thailand where it is about 500. We have jumped in Ease of doing Business to 63rd position according to the 2020 report but we need to follow the principle of trust but verify with companies.
Investment in R&D, in order to ensure our products are competitive in the global markets we need to invest in R&D. The customer wants cheaper goods with best quality and this will come from research and innovation which is possible with R&D support. Vocal for local is a nice slogan but at the end, it’s all come down to Business and Economics. Presently, our investment in the R&D is just 0.7% of our GDP while countries like Vietnam and Israel are investing almost 2% of their economy. We need to double or triple this investment to 6 lakh crore, because quality can only be achieved by R&D.
Partnership with Industries and Academics, presently the education system in India is flawed because of more theoretical based studies than practical oriented or vocational training. That is the reason why we do not have any R&D departments here. In China, vocational training is given from the school level and on sight, which helps them to learn with better understanding. Collaboration with industries for more project-oriented studies will help industries to gain ideas and students for their employment.
Migration control and the HUKOU system, most people from the rural background come to the cities for lifestyle and in search of jobs, which makes cities overpopulated and there is a concentration of labor in the single region. During this pandemic, we have come across large displacement of the people, which led to humanitarian crisis. In order to avoid this we can implement the ‘HUKOU’ system of China in which local people are given free incentives to start their own business locally, which will lead to generation of small industry in that region and will reduce displacement.
3 Way Partnership abroad, for any diplomatic missions abroad our industry must include our industry and commerce minister taking the lead and other members in the group like FICCI and industry chambers for reaching out to the investors in reaching out to those countries which will put R&D centers in India. Listening to the suggestions of Economists on reforms in MSME.
Formation of the Ecosystem, in which it includes from the raw material, supplies, Design, R&D department, Logistics etc. One example, which we can take from the Two-wheeler Industry in partnership with Japanese Technology. Indian companies have achieved significant growth in the manufacturing of the affordable Two- wheeler for the large-scale population. Hero Motor Cop, Bajaj, TVS have dominated Indian Market.
Success Story of Bajaj
Bajaj Auto concentrated on the formation of an ecosystem by forming small-scale industry chains locally, by giving them loans and helping them start their own industries and become one of suppliers for Bajaj. Now, Bajaj is the 3rd largest manufacturer in the world. It has its own R&D center in Pune which helps them do modification and survive Governments unorganized policy regarding BS4 and BS6 engine related.
Success Story of ADANI Green Energy
Adani Green Energy has won the world’s largest solar order to build 8GW photovoltaic power plant along with domestic solar panel manufacturing unit at an investment of Rs 45,000 Crore. This will help Adani Green closer to its target of becoming the World’s largest renewable power company. India solar companies are highly dependent on China in terms of importing components as over 80% of solar cells and Modules are imported from the country because of its competitive pricing compared to domestic manufacturers. This project will decrease the dependence of China and a one-step ahead for self-reliant India. This is the real essence of ‘Atma Nirbhar Bharat’.
Yes, India can become a manufacturing hub provided, its implementation is proper rather than just announcing. Boycotting Chinese goods when this border tension is going on will provide fuel to fire, rather than the government must think of providing alternatives to the people. Import of the Chinese goods must slowly and gradually decrease. If there is deficiency in the market then some or the other will fulfill it just like Tiktok was replaced with Reels in Instagram and Zoom by the Jio meet app. Now, conflict with China is not limited to the borders. We need to be economically strong and soon we have to double digit growth. For this we need more reforms in the MSME and providing a fertile atmosphere to achieve foreign investment. Government needs to take the advice of the economist for this purpose. We need to be on mission mode but need to take into consideration the advice of the state government to ensure proper functioning. Our government needs to be proactive because Vietnam and Taiwan are already approaching the companies living in China. Our produce in agriculture, textile, leather, footwear, garments needs a boost.
Presently as most of the European countries, USA, Australia and Japan against China, India should avail this opportunity to attract business from this. Lastly, as Tim Cook had said that Apple is in China not for low cost but for quality and talent, so we need to gain that confidence for India by implementing the following as mentioned above.