Towards a trillion dollar manufacturing sector in India by 2025

Historically, India appeared on the industrial map only when the British came to rule here. The British East India Company arrived in 1757, well before the First Industrial Revolution. The adventure ended in 1857, when the sepoy mutiny made the British retire the services of the Company and assume direct crown control. From 1858, the British Raj started, lasting till 1947. For a perspective, figure 1 shows the various industrial revolutions that the world has seen so far.?

The first textile mill in India was established in 1854, a full sixty five years after the textile industry took birth in the USA, and almost ninety years after the first textile mill in England went into production. For the next fifty odd years, the British laid railways, roads, etc., to ensure that raw materials were transported to ports like Mumbai and Kolkata for onward movement to Britain, where the value add was done, and the finished goods were shipped back for sale in India. Thus, no worthwhile industrial activity was existent in India till the beginning of the 20 th century, barring the few strenuous and well-intentioned efforts, against heavy odds, by Jamshedji Tata, Birlas, TVS Iyengar and a few others. While Britain, America and the rest of Europe were happily industrialising at a rapid pace, India was kept completely out of the picture. Macaulay’s education did precious little to generate creativity in the young India of yore, it only helped produce armies of clerks who became civil servants. Thus, the western world took at least a 150-year lead in industrialisation over India. Prior to that period, India contributed close to 50% of the world’s GDP, it is currently a pathetic 3%. (see figure 2)

Since independence, India has transformed itself into a modern economy, building up its manufacturing and services sectors, in addition to agriculture. The 75 years period after independence can be dissected into two eras – pre and post liberalization. Pre 1991 and post 1991. That makes PV Narasimha Rao a central character, between the two Indias, one governed by licenses, and the other, licensed to govern. The contrast cannot be sharper, when one sees the overall development, in all spheres, of life in India. The first era, which has already been titled as the ‘licence and permit raj’, or, the LP Raj, for short, by many, was nevertheless also known for the enormous advancements made in certain sectors of the Indian polity. Nehru’s vision of a resurgent India, with large factories manufacturing the basic goods needed for any fledgling power – steel, power, water (dams), electrical appliances, capital equipment – was rolled out through the five year plans. This went on for some 35 years, after which Narasimha Rao ushered in the era of a liberalised India. Progress since then has been rapid, and growth rates have registered steep acceleration. (Figure 3)

Looking beyond the year 2019, the target is very clear, ONE Trillion USD, for the manufacturing sector. Let us take a sectoral look at what this means. To begin with, let us see the projections for the India GDP, for the next five years (figure 4).

Evidently, if the manufacturing grows at a CAGR of 9.7%, it can hit the target in 2023. Within the manufacturing sector, the sub sectoral figures are shown in figure 6 below:

In order to achieve the overall CAGR of about 9.5 % in the manufacturing, each of the component has to grow at that average rate. However, it is likely that each sub sector may grow at different rates, but, still, the overall average has to be at 9.5%.

The future trends which likely will dominate business growth will be under the watchful eyes of the whole world. Gone are the days when industries could grow for the sake of growth, to maximise shareholder value. The Triple Bottom Line dominated, sustainable business models will become the norm soon. On the one hand, some would argue that this could lead to increase in costs of manufactured goods. For example, when the auto industry norm moved up from BS I to Bharat IV, oil companies had to procure more low sulphur crude, which took their input costs up. Similarly, coal industries had to lower the ash content of coal by more washing of raw coal, which reduces the yield and increases the cost. On the other hand, advancements in Industry 4.0 will bring down wastes, improve efficiencies across the board and make sustainable manufacturing possible. Initiatives like Green Supply Chain, lowering the carbon footprint, environmentally friendly manufacturing, LEEDS certified buildings, ISO 14001 certified business operations, etc., will help the industry to cater to the future needs of a growing population. Thus, overall, there are plusses and minuses, however, human ingenuity and good sense of leaders will make it possible for nations to negotiate the current climate change doomsayers and come out on the winning side, not by defeating them, but by convincing them that sustainable business will be the only way business will be done.

In India, the most promising sectors are: defence, iron and steel, power, passenger aircraft manufacture, automobiles and related ancillaries, construction, railway supplies, high technology goods like cell phones, sensors, IOT devices, telecom infrastructure, electrical and electronic appliances, food and beverages. Of these, I suspect that the automobiles industry will lead the pack. No doubt, the last year has not been good, but, this should soon pass. The new models, electric cars, devices and gadgets will make for the automobile industry, an exciting time ahead. The government must promote R&D in the auto sector, by tax breaks for private sector R&D, low import levies on imports to promote R&D, promote collaborations between the academia and the industry in India.

Of all the Industry 4.0 ideas, the one that India will find very useful is the 3D printer. This should be promoted seriously, as, 3D printing will put the power of manufacturing in the hands of the common man. A farmer can till the fields when required, and, in other times, produce something in the 3D for sale. Similarly, rural co-operatives could use 3D printers for local manufacture and sale. This would largely pre-empt the long felt need for a proper market mechanism for farmers products. It has been often said that farmers get very little for their produce as the middlemen take away the bulk due to a poor market distribution system. With a 3D printer, the village fair (called ‘santhe’) will become once again the commercial centre for village life, and prosperity will likely flow into the Indian backyards. Gandhiji’s dream of ‘India living in its villages’ will come true. The government should support this as a cottage industry, create huge start-up power, and make this digital innovation the harbinger of good tidings.?Democratisation of industry, so to say.

The defence industry is a solid niche, and should be invested in. More incentives should be given to companies wanting to participate. Defence industries are heavily dependent on electronics, iron and steel, and other inputs. Thus, many ancillaries and component industries can thrive. Electronics and electrical appliances is another sector which needs to expand a lot more, to serve the growing needs of an ever expanding middle class. Similarly, the construction industry will have to grow substantially to lay the roads and other infra facilities that will be needed. Toilets construction should be taken up as is houses construction. The government has already announced its intentions to provide housing to all by 2024. The recent bill to reduce corporate tax will do a lot of good to the industry in general. The funds so available to companies can be reinvested in industry, to make in India and build in India. Program management and monitoring by the government will be a valuable activity, which will ensure that promised investments will lead to actual action on the ground. ‘Walking the Talk’ by industry must be facilitated, by improving ‘ease of doing business’ practices. Even today, there are some 30 plus approvals needed for starting an industry. These should be simplified, and, like what was done in the case of the telecom industry in 2000, new rules should be brought in, to speed up setting up new businesses. The government should act more like a facilitator, and not get into doing business by itself.

The present government is doing a lot to accelerate the rate of economic growth, ?the results of these efforts will be seen in the next few months. The future holds a lot of promise, but with huge changes in the fundamental ways in which we will live and earn a livelihood. A sensitive government will choose to do those things which will create a sustainable tomorrow.?

R. Jayaraman