Time to build the future
Warren Buffett, would be worth $11.9 million, i.e. 99.9% less than his actual net worth of $104.4 billion (as of Aug 2021), had he quit investing at the age of 60, like most of us would do in our work life. Out of his worth of $104.4 billion, approximately $ 101 billion came after he became a mid-60s senior citizen. And that too when he started investing at the age of 10.
The point is that it takes a long road to reach the point of greatness, and there can be many midpoints, which one has to avoid stopping at.?
When it comes to a nation's wealth, all countries that have transformed their economies from low to high income have done it through a process of industrialisation. In 1750, Europe, North America and Japan constituted only 27% of manufacturing production in the world. But by 1900, those regions made up 90% of world manufacturing production.
And industrialisation, or fundamentally the manufacturing sector is, where India has been struggling for growth. From reaching a figure of value added as %age of GDP of 17.86 in 1995, we have now slid back down to less than 13 in 2020. Talking of recent years, the manufacturing sector employed over 5 crore Indians in 2016-17 and has declined by 46 per cent to reach 2.73 crore in 2020-21. Yes, the Covid effect, and many other too.
The services sector accounts for roughly 54% of the GDP. But Covid hit it harder. The services sector comprises high-contact jobs in sectors such as aviation, hospitality, entertainment and tourism — all of these sectors were the first to collapse when the government announced a nationwide lockdown in 2020 to contain the pandemic.
Months of a stringent lockdown resulted in crores of job losses and some businesses were forced to shut operations. The rapid decline of the sector, has rendered millions jobless.
In the absence of a strong manufacturing sector, a sizeable number of affected citizens are still struggling to find jobs, even as India’s economy rebounds after tackling two deadly waves of the pandemic.?
One of the biggest initiatives for boosting the manufacturing sector in India was launched 7 years ago by the name of “Make in India”. By the end of 2021, India had risen 79 places on Ease of doing business index (now at 63), from 71st to 43rd place in World Economic Forum's Global Competitiveness Index, and 19 notches in the Logistics Performance Index, thanks to recent governmental initiatives, which include converges, synergies and enables other important Government of India schemes, such as Bharatmala, Sagarmala, Dedicated Freight Corridors, Industrial corridors, UDAN-RCS, Bharat Broadband Network, Digital India.?
But the growth rate of manufacturing averaged 6.9% per annum between 2014–15 and 2019-20, is nothing close to being called a success. Our stated objective was to grow at a rate of 12-14% per annum till 2022, later revised to 2025.?
But have we reduced our efforts? By reaching a midpoint, have we left our journey? Does not seem so. There are positive blips on the radar.
Cushman & Wakefield plc is a global commercial real estate services firm. The company's headquarters is located in Chicago, Illinois. Cushman & Wakefield is among the world's largest commercial real estate services firms, with revenues of US$7.8 billion in 2020.?
So why talk about a real estate services firm here. Because they release a report, regarded as a benchmark,? after assessing costs, risks and conditions impacting manufacturing, titled as “global manufacturing risk index”. Their report for the year 2021 has been published. After thorough evaluation of all the parameters, India has emerged as the second most sought after manufacturing destination in the world.
The Cushman and Wakefield 2021 Global Manufacturing Risk Index stated that India could benefit from relocations from China to other parts of Asia, as it already has an established base in pharmaceuticals, chemicals and engineering -- sectors that continue to be the focus of the US-China trade tensions. It, however, stated that reforms in land and labour laws are critical to ensure India’s success as a global manufacturing hub.
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India has taken many initiatives and recently launched ones like production linked incentive schemes, schemes for promotion of manufacturing of electronic components and semiconductors, modified electronics manufacturing clusters are some notable examples. The PLI scheme is now active in 13 sectors.?
It is heartening to note that the government honestly admits to why such schemes are required. It admits that the electronics hardware manufacturing sector faces the lack of a level playing field vis-à-vis competing nations. As per industry estimate, electronics manufacturing sector suffers from a disability of around 8.5% to 11% on account of lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development.
The PLI Scheme shall extend an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year (2019-20).
According to data published by the United Nations Statistics Division, China accounted for 28.7 percent of global manufacturing output in 2019. That puts the country more than 10 percentage points ahead of the United States, which used to have the world’s largest manufacturing sector until China overtook it in 2010. India's share is disproportionately lower at 3.1%.
Indian government-backed panel has firmed up a roadmap to double manufacturing exports over the next five years, reduce imports by two-thirds in select sectors and drive up annual domestic consumption growth to about 9% from roughly 7% in a normal year under the Atmanirbhar Bharat initiative.
The Steering Committee for Advancing Local Value-Add and Exports (SCALE), a joint government and industry panel under former Mahindra & Mahindra managing director Pawan Goenka, has said that focus on these three critical factors would catalyse incremental domestic value addition of $350-380 billion over the next five years.
Let’s hope that all these efforts start showing results and we move industriously to be a manufacturing power. Let’s do our bit in ensuring that our country gives the world a reliable partner in global supply chains and provides no matter if there is any pandemic, a climate change impact or even a geo political compulsion. We have become the second most desired place to manufacture, we must provide the environment to make it actually happen, and reduce the anxiety of the world by being the provider in need, always.??
Sources:
Chapter 4, The pschology of money by Morgan Housel
AVP Sales
3 年Pretty insightful. However, the ground reality is quite different when it comes to infrastructure and facilities available for the manufacturing sector especially for MSME. A classic example is Faridabad,my place of work and one of the oldest manufacturing hub, but, look at the infrastructure and facilities provided. Yes, u are right when u say v Need to take the opportunities with both hands, but, then at the same time, in my opinion, the local administration, the state administration needs to be more conducive and supportive for providing the infrastructure, facilities to MSME to grow. Hv no doubt that India can and has the potential to be a major global manufacturing hub given the entrepreneurial spirit of Indians and at the same time the MSME need to be given support and shown trust by the Government as well. More to discuss in our runs
Strategist, Mentor, Rainmaker, Technology Evangelist Ex-Oracle | SAP | IBM | Symantec
3 年Good Insight and Data points Vivek . However as Warren Buffett says if you are only relying on your salary , you won't create wealth . Ditto for growth as well. We need to have multiple levers contributing to growth - Digital transformation is one ; employer-employee transformation is needed , at a faster pace- MII ( Make in India) initiative will boost employment and hopefully be a catalyst for a strong rebound .
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3 年A well researched and excellent written article Vivek Anand Makes very persuasive case for india to become manufacturing hub …. Tough road ahead as economies of scale won’t be easy to achieve given the scale at which China manufactures , but we will have to strive ??
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3 年Excellent read Vivek and some really good perspective. We need to do a lot before we can call ourselves a successful $5tn economy.