The ‘Make in India’ launch on September 25, 2014, was a perfect gift on my 80th birthday, especially since I have spent 54 years in manufacturing high-tech products. In retrospect, I realise what a struggle it has been all along! Manufacturing world-class products has always been enjoyable, engaging and challenging, but dealing with our complex tax regime, flawed policies, labour laws and nagging corruption, has driven away enthusiasm and taken a serious toll on operational efficiency. 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

The post 1991 period has especially been harrowing for India’s manufacturing sector, when lakhs of manufacturing units pulled down their shutters, rendering millions jobless. Fortunately, a lot of tenacious manufacturing units survived despite political apathy and industry-unfriendly laws. Adding to these complications was rampant bureaucratic extortion. Industries were losing profits and the government, its revenue. Nonetheless, I still see a great potential in this sector, which, unlike the service sector, creates real wealth using manpower. Therefore, the launch of ‘Make in India’ has brought in fresh hope to millions of technical entrepreneurs.

In 1992, when I was heading the panel for privatisation of electronic media in Delhi, I recollect complaining about the chronic neglect of the Indian manufacturing industry to then Prime Minister, Mr PV Narasimha Rao. I told him that he should remember that 40 years back, the US was the world’s largest creditor nation, but was steadily becoming one of the biggest debtor societies because it had shifted manufacturing to the Far East. Real wealth was then being created in South Korea, Taiwan, Hong Kong and later in China. Now all have became prosperous. It made no impact on him then, but today, it is a reality for both the US and India. 

It took a change of government at the Centre for India to realise that manufacturing could indeed be its foundation for economic growth, creating livelihood opportunities for its working class. ‘Make in India’ is the result of this recognition and the subsequent revival of the manufacturing industry, which till then, was completely sidelined. 

In true spirit, Prime Minister Modi began with the big fish — by attracting foreign and Indian multinational companies to manufacture their products in India. His focussed effort was an essential prerequisite to draw the attention of multinationals to the huge opportunities in India aided by the support of encouraging policies. 

Within a year, several foreign companies announced plans for manufacturing plants in India. Mobile phone manufacturers, due to the huge domestic market, were the most popular with Spice, Xiaomi, Motorola, Flextronics, Lenovo, Winstron, Blackberry, HTC, Vivo and Micromax having declared their plans. Foxconn is investing $5 billion dollar to set up R&D and a semiconductor lab. Boeing would be building fighter planes and helicopters. GE Alstom to make locomotives worth Rs40,000 crore and Japan is creating a US$12 billion fund for ‘Make in India’ projects. Russia promised to make fighter aircrafts and Kamov Ka-226 multi-role helicopters. Indeed, a very promising start in terms of attracting foreign multinationals.

However, I am concerned about the scant focus on the Indian manufacturing industry, especially the SME sector. Amidst the grand announcements of big brother entries, the existing Indian manufacturers and entrepreneurs are feeling left out. The ease of doing business is nowhere in sight. However, there is a fresh wave of optimism that soon there would be significant changes. The GST Bill is indeed the most important reform to remarkably add to manufacturing efficiency.

The Indian manufacturing industry is large even today and can be quickly turned into a fast-growing sector attracting huge investments and generating millions of jobs. Two-thirds of the 45 million SME are in manufacturing, producing traditional to high-tech goods. Eight million others are ancillaries, providing outsourced processing services. Today, this sector employs over 100 million people and the numbers are rapidly growing, creating employment opportunities for skilled as well as unskilled people. About 46.5% of the country’s manufacturing output is from the SME sector, which contributes to about 9% of GDP and comprises more than 40% of exports.

Nowadays, economists recognise product design and manufacturing as concrete ways to creating wealth. In the US, economists have realised that increasing consumption has increased consumer debt. It did not create wealth. This amounts to exhaustion of wealth, without any replenishment. 

Focus on manufacturing till the early Eighties made the US a very wealthy country. India, like the US, has now realised that service industry and government jobs do not contribute to an increase in national wealth, but rather just circulate the existing money.

On the other hand, the growing use of technology in the services sector will continue to eliminate employment. One can predict the effect of on-line marketing on retail employment over the next few years. On the contrary, labour remains a vital component of wealth creation in manufacturing. Its value would only increase with education and training.

Knowledge and innovation are also key components for wealth generation. In this ‘Knowledge Age’, knowledge is replacing material and is discernible in the ever-shrinking dimensions of products. Educated Indians are already beneficiaries of knowledge-based IT work inflow since 1998. Regrettably, it is limited to providing pricey labour hours. Enterprise and innovation, which are essential for designing software products like Windows and SAP, are missing. Developing software products have extremely high value addition by sale of copies. We have two advantages over China — the world is looking for an alternative to China and we have a workforce with an English-medium background and low wages. Let us use all the three.

Worldwide, 75% of all R&D is done by small and medium manufacturing industries. Manufacturing, however, needs not only technically trained manpower, but even workers with minimal education. Let us ride on this outsourcing wave of multinational conglomerates.

Manufacturing, without doubt, is the only way to create new wealth by transforming inexpensive raw material into useful products. The government should encourage SMEs with growth incentives and thoughtful policies to generate wealth using design skills, innovation and unique technology. The nations that ignored manufacturing for over two decades have suffered serious economic setbacks. England, France, Italy and others were once strong and prosperous, until they abandoned wealth-creation and became consumer societies of imported goods. Though consumption is rising in India, ‘Make in India’ could well set the balance right. 

The author, an entrepreneur and former Chairman, Electronics Commission, Government of India, was Advisor Electronics to Rajiv Gandhi