More on India’s plans to be Atmnirbhar

Atmnirbharta for a nation is not depending on other nations for our needs. For that a well-planned manufacturing growth is vitally important. It is also important because manufacturing creates real wealth by value addition, by converting raw materials into finished goods of a far greater value. It is also vital since manufacturing creates large employment, enhances skills and creates opportunity for the talented for innovation.

In manufacturing when a rod of steel is processed in a factory and turned into say an auto part, it adds tremendously to its value. This is real wealth creation. We must understand that even though trading is important, trading of manufactured goods merely creates rupee profits and not the wealth. Trading is just a transfer of money from one pocket to other, not adding to the value!

India has always been a manufacturing country, historically as well as today. British carefully killed our high grade manufacturing. For 73 years since independence, our manufacturing has grown but government protection during thirty years of the license-permit raj, and consequential lack of competition from local and foreign goods, Indian product quality progressively degraded. Competition is vital for high quality.  

Currently Import of goods and services in the country, as the percentage of GDP, is about 24% and the exports are about 20%. Our objective for self-reliance should be to reduce imports of finished goods and allow import of raw materials and components at reduced tariffs. This will increase exports by making our products more competitive. Entrepreneurs will process local and imported raw materials into finished products on a growing scale. This value addition will create true wealth by adding value within the country. Interestingly this wealth will get distributed amongst the wealth creators; workers, engineers, designers, managers, entrepreneurs, innovators and others. The government will take away a good share of it through variety of taxes. Most importantly manufacturing will create large number of much needed new jobs for both skilled and unskilled people. 

Large manufacturing plants always subcontract the manufacture of the parts and components to local industries. One of the best examples in ancillary manufacturing is the automobile industry in India such as in Chennai, Pune and elsewhere. This industry created large number of small, medium and large industries for manufacturing and supplying the parts and subassemblies to them. In Gurgaon and Manesar areas Maruti Motors supports huge number of industries making parts for them. Auto industry around Chennai is the largest whereas Audi, Skoda and others are in Aurangabad. Mahindra is in Nasik. Samsung is expanding its smart phone manufacturing plant in Noida and produce displays. It may become the world’s biggest smart phone factory. Even China’s VIVO is investing 3500 crore in India for its expansion.

China has a remarkable vertically integrated manufacturing industry, starting from engineering materials like metals, alloys, plastics, components made out of these and finished goods of every kind. Clusters of towns and cities make its manufacturing logistically efficient and therefore low cost. Why can’t we develop product specific townships to enhance the industrial efficiency? Why not have townships of carpenters or plastic moulders since it will reduce cost with better logistic support.  

India should remember that SME sector is the backbone of China’s industrial supremacy. It contributes to 68% of China’s industrial production, employs almost 70% of its employees and shares 65% of its industrial earnings. In India to the SSI sector accounts 45% of our industrial output and 70% of the industrial employment. This sector is mismanaged. Surprisingly recently the government combined SMEs involved in production and in services. It failed to realise that policy dispensation for the two is completely different. Manufacturing processes materials into products and generates new wealth. Service industries earn by providing services. Both are important but merging the two is a disastrous idea of the concerned bureaucrats. Industries minister and his political colleagues must carefully study China’s SME growth policies as well as its labour laws of 1974. They will give you clues for supporting manufacturing SMEs in the country.

Due to defective industrial policies for 70 long years, we lack the manufacturing culture necessary for modern manufacturing as is seen in Germany, China, Japan, N. Korea etc. We have talented artisans and industrial workers but they are not utilised gainfully. I have experienced exceptional skills amongst not so well educated workers. They learn their engineering on the shop floor under the guidance of their seniors. They make excellent shop floor managers. Ask any industrialist who is watchful of his shop floor and he will have many examples. 

Most educated Indians don’t like to soil their hands and toil on the shop floor. Poor fellows miss the pleasures of creative successes. The best brains in India are unwilling to join the blue collared manufacturing teams. They like the desk jobs offered by the Software Services Industry. Unfortunately our software industry is largely in services. They do not have software products like Intel or Microsoft. They make good money but have failed to invest in R & D and develop product. Software product is a cash cow. Look at how much money companies earn by licensing Windows, SAP, and Oracle etc. India has almost none.

Poor quality infrastructure pushes up the logistics cost. It is 14% of our GDP; one of the highest globally. Our vocational training systems have no focus on work culture and quality as is in Germany. This results in lack of skilled labour. Technical training in polytechnics and engineering colleges is poor with no development of hands on skills. Just as medical colleges are linked to hospitals, engineering institutions in India must be linked to large engineering service industries.

Industry financing by the banks is expensive compared to China where it is 6.5% versus more than double in India. Loans are also not monitored by our banks for its utilization which results frauds and creates NPAs. Many businessmen divert the granted loan for personal use. High interest rates results in decreasing manufacturing competitiveness which in turn affects future investments. Our labour costs today are a third of those in China but our work culture influenced by political labour unions results in poor productivity and affects the quality of work.

Manufacturing is central to a country’s economic development. But competition is a must since it provokes labour efficiency and leads to smart and productive innovations. Manufacturing for a populous country like India is also important since it ensures demographic dividend to the country. However our attitude to work and our political mind set makes us unsuitable for labour intensive manufacturing as in China or Vietnam. China has great skill for high volume commodity production. Work speed and accuracy is amazing.   

Most governments in India claims to have a single window clearance while addressing investor concerns. Things are improving but still we are highly negative in our responses. We still have complex compliance procedures.

One of the major hurdles is the labour laws, highly provocative labour unions and consequential lack of floor discipline. Labour unions are, in some cases, hijacked by the unscrupulous elements and have ruined huge number of industrial units who had to down the shutters resulting in job losses for the workers. Many of them are militant and do not care about the future of the worker. Mumbai was almost the textile capital of the world employing about 5 lakh workers. In 1980, one labour leader, Dutta Samant, organised a strike and stretched it to the limit and single handily destroyed Mumbai’s textile industry. As a result, we lost this industry for ever. More serious consequence was the loss of jobs for about half a million mill workers. They came on road. If the government does not harness these politicised unions India most likely can never be a large manufacturing nation to take on China.

Present government has sky high ambitions but the bureaucratic implementation will offer challenges to reach the goal. It wants to achieve 25% GDP share and 100 million jobs within the next two years. It is easy to aim high but to achieve it we would need some smart moves. GE, Siemens, HTC, Toshiba, Boeing and others have plans for India. I hope we are quick and smart in removing road blocks in the way of their entry in India for manufacturing. These plants will give birth to huge number of SMEs for subcontracting. We have low cost labour and huge domestic market that lures many multinationals to come to India but we have big competition from Vietnam, Malaysia and other East Asian countries. Government knows that, since 1991, the industry's contribution to the GDP has been declining. This is because it is constrained by onerous regulations and policies relating to labour, land and environmental clearances. Policies on taxation and customs are archaic to the extent that it is cheaper to import things.

We need to remember that before the license-permit raj, Indian businessmen and technical entrepreneurs have always been very keen in creating a global manufacturing base in India. Take the examples of G.D. Birla, Walchand Hirachand, K. C. Mahindra, Jamshedji and JRD Tata, S.L. Kirloskar and many more industrialists who have been instrumental in many areas of industrial growth which have helped India a great deal.

In engineering too, when a rod of steel is processed in a factory and turned into say an auto part, it adds tremendous value. This is real wealth creation. We must understand that even though trading is important, trading of manufactured goods merely creates rupee profits and not the wealth. It is just a transfer of money from one pocket to other!

India has always been a manufacturing country, historically as well as today. British carefully killed our high grade manufacturing. For 73 years since independence our manufacturing has grown but government protection during the license-permit raj and consequential lack of competition from local and foreign goods, our product quality has degraded. Competition is vital for high quality.

Currently Import of goods and services in the country, as the percentage of GDP, is about 24% and the exports are about 20%. Our objective for self-reliance should be to reduce imports of finished goods and allow import of raw materials and components at reduced tariffs. This will increase exports by making our products more competitive. Entrepreneurs will process local and imported raw materials into finished products on a growing scale. This value addition will create true wealth by adding value within the country. Interestingly this wealth will get distributed amongst the wealth creators; workers, engineers, designers, managers, entrepreneurs, innovators and others. The government will take away a good share of it through variety of taxes. Most importantly manufacturing will create large number of much needed new jobs for both skilled and unskilled people. 

Large manufacturing plants always subcontract the manufacture of the parts and components to local industries. One of the best examples in ancillary manufacturing is the automobile industry in India such as in Chennai, Pune and elsewhere. This industry created large number of small, medium and large industries for manufacturing and supplying the parts and subassemblies to them. In Gurgaon and Manesar areas Maruti Motors supports huge number of industries making parts for them. Auto industry around Chennai is the largest whereas Audi, Skoda and others are in Aurangabad. Mahindra is in Nasik. Samsung is expanding its smart phone manufacturing plant in Noida and produce displays. It may become the world’s biggest smart phone factory. Even China’s VIVO is investing 3500 crore in India for its expansion.

China has a remarkable vertically integrated manufacturing industry, starting from engineering materials like metals, alloys, plastics, components made out of these and finished goods of every kind. Clusters of towns and cities make its manufacturing logistically efficient and therefore low cost. Why can’t we develop product specific townships to enhance the industrial efficiency? Why not have townships of carpenters or plastic moulders since it will reduce cost with better logistic support.  

India should remember that SME sector is the backbone of China’s industrial supremacy. It contributes to 68% of China’s industrial production, employs almost 70% of its employees and shares 65% of its industrial earnings. In India to the SSI sector accounts 45% of our industrial output and 70% of the industrial employment. This sector is mismanaged. Surprisingly recently the government combined SMEs involved in production and in services. It failed to realise that policy dispensation for the two is completely different. Manufacturing processes materials into products and generates new wealth. Service industries earn by providing services. Both are important but merging the two is a disastrous idea of the concerned bureaucrats. Industries minister and his political colleagues must carefully study China’s SME growth policies as well as its labour laws of 1974. They will give you clues for supporting manufacturing SMEs in the country.

Due to defective industrial policies for 70 long years, we lack the manufacturing culture necessary for modern manufacturing as is seen in Germany, China, Japan, N. Korea etc. We have talented artisans and industrial workers but they are not utilised gainfully. I have experienced exceptional skills amongst not so well educated workers. They learn their engineering on the shop floor under the guidance of their seniors. They make excellent shop floor managers. Ask any industrialist who is watchful of his shop floor and he will have examples. 

Most educated Indians don’t like to soil their hands and toil on the shop floor. Poor fellows miss the pleasures of creative successes. The best brains in India are unwilling to join the blue collared manufacturing teams. They like the desk jobs offered by the Software Services Industry. Unfortunately our software industry is largely in services. They do not have software products like Intel or Microsoft. They make good money but have failed to invest in R & D.

Poor quality infrastructure pushes up the logistics cost. It is 14% of our GDP; one of the highest globally. Our vocational training systems have no focus on work culture and quality as is in Germany. This results in lack of skilled labour. Technical training in polytechnics and engineering colleges is poor with no development of hands on skills. Just as medical colleges are linked to hospitals, engineering institutions in India must be linked to large engineering service industries.

Industry financing by the banks is expensive compared to China where it is 6.5% versus more than double in India. Loans are also not monitored by our banks for its utilization which results frauds and creates NPAs. Many businessmen divert the granted loan for personal use. High interest rates results in decreasing manufacturing competitiveness which in turn affects future investments. Our labour costs today are a third of those in China but our work culture influenced by political labour unions results in poor productivity and affects the quality of work.

Manufacturing is central to a country’s economic development. But competition is a must since it provokes labour efficiency and leads to smart and productive innovations. Manufacturing for a populous country like India is also important since it ensures demographic dividend to the country. However our attitude to work and our political mind set makes us unsuitable for labour intensive manufacturing as in China or Vietnam. China has great skill for high volume commodity production. Work speed and accuracy is amazing. Protecting domestic industry by banning Chinese imports will be a mistake. Let there be competition and therefore reducing import duties on industrial inputs not made in India will make us competitive in end product production.     

Most governments in India claims to have a single window clearance while addressing investor concerns. Things are improving but still we are highly negative in our responses. We still have complex compliance procedures.

One of the major hurdles is the labour laws, highly provocative labour unions and consequential lack of floor discipline. Labour unions are, in some cases, hijacked by the unscrupulous elements and have ruined huge number of industrial units who had to down the shutters resulting in job losses for the workers. Many of them are militant and do not care about the future of the worker. Mumbai was almost the textile capital of the world employing about 5 lakh workers. In 1980, one labour leader, Dutta Samant, organised a strike and stretched it to the limit. As a result, we lost this industry for ever. More seriously half a million mill workers came on road. If the government does not harness these unions India most likely cannot by a large manufacturing nation to take on China.

Present government has sky high ambitions but the bureaucratic implementation will offer challenges to reach the goal. It wants to achieve 25% GDP share and 100 million jobs within the next two years. It is easy to aim high but to achieve it we would need some smart moves. GE, Siemens, HTC, Toshiba, Boeing and others have plans for India. I hope we are quick and smart in removing road blocks in the way of their entry in India for manufacturing. These plants will give birth to huge number of SMEs for subcontracting. We have low cost labour and huge domestic market that lures many multinationals to come to India but we have big competition from Vietnam, Malaysia and other East Asian countries. Government knows that, since 1991, the industry's contribution to the GDP has been declining. This is because it is constrained by onerous regulations and policies relating to labour, land and environmental clearances. Policies on taxation and customs are archaic to the extent that it is cheaper to import things.

We need to remember that before the license-permit raj, Indian businessmen and technical entrepreneurs have always been very keen in creating a global manufacturing base in India. Take the examples of G.D. Birla, Walchand Hirachand, K. C. Mahindra, Jamshedji and JRD Tata, S.L. Kirloskar and many more industrialists who have been instrumental in many areas of industrial growth which have helped India a great deal.

Before I close, let me start with a new thought of classifying Agricultural production as manufacturing activity since it can make Indian farmers rich. In every sense, agriculture is indeed manufacturing.  

I feel one of the most appropriate industry to make India prosperous is Agriculture. According to me agriculture is the best example of manufacturing industry since the almighty has endowed India with the right climate and huge fertile land. Raw materials for a farmer are soil, seeds and water. Farmers and farm workers patiently work hard using these elements to produce grains, vegetables, fruits of hugely greater value. We have to use more appropriate technology to improve its yield and to avoid losses. Today these losses are colossal. India could be one of the largest producers of agricultural products in the world especially if the educated take to it. Some of the educated Indians of rural background who have taken to agriculture have exemplified what technological and commercial inputs to agricultural business can do to improve the value addition and flourish. Processing of the agricultural products and delivering them in market friendly packaging can become a big business, both for domestic and export market. It is largely ignored today probably because talented business experts are white collared and shy to soil their hands. Don’t forget that agricultural production can be a focus of atmnirbharata, earning us dollars for trade balance. Agro products can boost our exports. Many desert nations is a big market. We need agricultural companies managed by professionals with farmers as its shareholders. Just look at what my friend late Varghese Kurian did for the farmer’s cooperative in Gujarat and taught a lesson to Nestle. We need many more Kuriens to make agriculture a big business. Many other cooperatives of farmers have been hijacked by unscrupulous politicians and left the farmer members in a lurch.     

Finally I would say that using bureaucrats to write industrial policies of the country, monitor and control industries through licenses and permits, decide import export policies has caused the industrial India to suffer tremendously in the past. This has to change. It is better for the government to consult the industrial community for our industrial policies. After all what is profitable for industry is profitable for India too.     

Mumbai

June 23, 2020