Two new manufacturing waves challenge India

The manufacturing industry has played a major role in the growth of advanced countries. India, however, has taken an uncharted path of moving directly from an agrarian society to a service-oriented economy. In the Industrial Development Report 2013, prepared by UNIDO, director-general Li Yong highlights the benefits bestowed on developing countries that are manufacturing-sector led, in contrast to peers which are service-sector led.

He writes, “For developing countries aiming to maintain growth while sustaining job creation, manufacturing offers an opportunity not only to rebalance the economy towards higher value-added sectors, but also to provide a relatively wide employment base with higher labour productivity. The transition from agriculture to services, especially for low-income countries, offers the opportunity to achieve only the first objective, not the second.” Li Yong’s comments have special relevance to India.

It reinforces the importance of the manufacturing industry and the ‘Make-in-India’ initiatives.

Jon Rynn, a visiting scholar at the CUNY Institute for Urban Systems and author of the book ‘Manufacturing Green Prosperity: The Power to Rebuild the American Middle Class’, says “it has been the strategic achievement of rich nations to create a high-quality manufacturing sector in order to develop national wealth and power”.

In their report, ‘The Importance of Manufacturing in Economic Development: Past, Present and Future Perspectives’, Wim Naudé and Adam Szirmaialso highlight that from the rise of England in the 19th century, to the rise of the US, Germany, Japan and the erstwhile USSR in the 20th, to the newly industrialising countries like South Korea, Taiwan, and now China, manufacturing has been the key to a historically rapid phase of economic development.

Challenges to make in India

India has put in place a policy to scale up the manufacturing industry’s share in the country’s GDP from the present 15 per cent to 25 per cent over the next decade. There are, however, challenges that confront India. Ramping up manufacturing at a time when many other economies such as China have surplus production capacities in several industrial segments is a formidable task.

Countries that have already established massive production have the technical leadership and deep interest in keeping their factories running and workers employed. Their excess production capacities will find their way into India, a country which is supply side constrained.

For example, this year China — which almost accounts for 50 per cent of global steel production capacity — exported close to nine million tonnes of finished steel to India. Domestic steel producers in India had to idle their production as China does everything to keep its plants running.

Yet another challenge is the mindset of the Indian industry. If the country is to emerge a manufacturing hub, then apart from overcoming its shortcomings, domestic companies have to become more competitive and learn to protect their domestic market like they do in China, Korea, Germany, and the industrialised countries.

The share of manufacturing in the GDP of these and few other countries are increasing. World Bank data shows that manufacturing’s share in GDP for South Korea and Germany rose from 29 per cent to 31 per cent, and 20 per cent to 22 per cent respectively, during the 2009 to 2013 period.  On the other hand,  manufacturing’s contribution to India’s GDP has been hovering around 15 to 17 per cent from 1985.

Sustainability, Industrie 4.0

Countries where industrialisation took roots have emerged as advanced economies, while others which aligned their growth strategies with global trends are emerging economically stronger. Such breakthrough opportunities come infrequently.

Presently there are two emerging trends giving India an opening to ride the wave.  One is the wave of industrial innovation that is related to the sustainability trend, and the other is the emerging industrial era called Industrie 4.0. If the country can develop appropriate strategies and work to leverage the emerging trends, then the future is bright for India.        

According to the Kondratiev theory, global economy experiences long economic waves often called as Kondratiev Waves or long waves. Each cycle, ranging from approximately forty to sixty years and driven by a technological invention, goes through four distinct periods — prosperity, recession, depression, and improvement. The following is the model, which Joseph Schumpeter developed based on the Kondratiev theory and further enhanced by The National Edge Project.

According to The National Edge Project (TNEP), an Australia-based independent think-tank, we are in the deflationary growth phase of the fifth wave and entering the sixth. Seeking an answer to the question, ‘what exactly will be the next wave?’ TNEP in its paper ‘TNEP International Keynote Speaker Tours’ highlights that the next wave of innovation will be in sustainable development, which includes improvement of resource productivity, renewable energy, integrated system design, and such others.  

The German Government’s Federal Ministry of Education and Research and Federal Ministry of Economics and Technology collaborated in preparing the report ‘Recommendations for Implementing the Strategic Initiative Industrie 4.0’, a reference to the coming phase of industrialisation. While mechanisation, electricity, and IT characterised the first three industrial revolutions, the introduction of the Internet of Things (IoT) and services into the manufacturing environment ushers in the fourth. Germany, with a robust manufacturing industry, has high stakes in remaining a strong hub. Thus, its interest in looking at the crystal ball to get a clear glimpse of the new emerging industrial scenario is understandable. When Germany starts investing its time and efforts to get future-ready, it is time for other countries also to understand the implications and plan for their countries.

Industrie 4.0 and the key drivers

The key drivers ushering in the industrial transformation are the convergence of information and automation technologies. Production facilities of the future would feature machines fitted with embedded processors, storage units, sensors, and transmitters that can generate data and exchange them with each other to autonomously achieve tightly coupled production operations.

The machines, equipment, materials, products, and all entities along the value chain become cyber-physical systems (CPS) or Internet of Things (IoT) devices. This would revolutionise the world of factories. People from the industrial world often describe IoT in the context of manufacturing applications as Industrial Internet of Things (IIoT).

Internet and CPS would become the backbone to network resources, information, objects and people to create the Internet of Things and Services. The decentralised intelligence built into the CPS would enable production systems to self-configure and interact with operators more contextually and improve manufacturing, engineering, material usage, supply chain, and life cycle management processes. CPS-embedded manufacturing would play a major role in solving current challenges like resource- and energy-efficiency. Such smart systems would free workers to focus on creative, value-added activities, instead of performing routine tasks.

Significant investments are taking place in getting ready for the Industrie 4.0 era. For example, the US National Science Foundation (NSF) has identified CPS as a key area of research and has taken the initiative to organise several workshops on the theme.
International Electrotechnical Commission’s Strategy Group 8’s (SG 8) Industrie 4.0 Smart Manufacturing Initiative is another important player.

The proposed scope of SG8 includes, among others, defining Industrie 4.0, enhancing the co-operation between various standards committees and institutions, and such others. Another significant step is the launch of a new standards development project (IEEE P2413) by the Institute of Electrical and Electronics Engineers (IEEE).

These emerging trends provide India an opportunity to join the group of highly industrialised countries and thereby create jobs for the country’s teeming millions.  For India, which has significant strengths in the software space and aspiring to emerge a manufacturing hub, the emerging trends augur extremely well if only it can capitalise on them.

According to the McKinsey report, ‘The Internet of Things: Sizing up the Opportunity,’ the impact of IoT on the global economy might be as high as $6.2 trillion by 2025. If we do not pursue this opportunity, the electronic import bill may exceed the oil import bill, further complicating the already unsustainable trade and current account deficits.

(The author is an independent industry analyst/columnist and automation consultant)