Route to become a manufacturing hot spot

Ever since the national focus shifted to the importance of the manufacturing sector in the overall GDP mix of the country and the need to increase the manufacturing sector’s contribution to the overall GDP of the country was articulated, many opinions have been expressed, action plans have been formulated and concrete steps have been taken to realise the goal of India being recognised as a manufacturing hub.

Clearly, the need to increase employment in the country has been an overarching goal, spanning the entire manufacturing sector. 

One must therefore ask and answer the question, as to which sectors ideally lend themselves to generating incremental employment and is this the only goal to be achieved even as we strive to increase the manufacturing sector’s share in the economy. 

There are sectors that lend themselves easily to the twin objective of increasing employment and increasing manufacturing. There is a conflict between those sectors which generate manufacturing activity but which do not generate employment, and those that do both.  As an example let us examine three sectors. But first, employment.

Garment manufacturing

Clearly the sector that can generate employment with relatively lower skill levels is the garment industry — other sectors that generate employment with a higher skill level is perhaps the auto component industry. The garment industry is relatively easy to set up, the lead time is minimal in comparison to other industries such as steel, oil, gas and petroleum and even the auto sector, and the capital requirements are relatively modest in comparison to other sectors. The gestation period is also much shorter. This is one industrial sector where the big garment retail chains like Uniqlo currently source their product from countries like Phillipines, Vietnam and China. Can India get a slice of this action?

Auto component

This is another sector which has relatively modest capital requirements, but the skilling requirements of manpower are definitely at a higher plane in comparison to the garment sector. The challenge for this sector is of course to grow in tandem with the automobile sector, and therefore whatever adversely affects the automobile sector ( the current diesel ban in the Delhi NCR region is a case in point) also affects the auto component sector.

On the other hand if the automobile sector gets an opportunity to set up shop in a particular region the entire region develops as the number of auto ancillaries that set up shop in the vicinity to cater to the automobile company mushrooms generating employment and opportunities for the machine tool sector, the job work sector and of course large swathes of the service sector to grow alongside the automobile firm.

Importance of the infrastructure

Whenever an international sourcing expert assesses a country he looks not just at the state of orderliness and cleanliness of the shop floor but also of the location where the unit is situated. Thus for an autocomponent unit, the infrastructure is of paramount importance — the roads leading upto the unit, the easy ingress and egress available to 18 metre articulated trucks to transport the components in time to the automobile maker and of course the time taken to reach the nearest sea port for overseas shipments.

While an Indian manufacturer may boast of the state of the art technology in the machines he has in his factory, the cleanliness of the shop floor comparable to the best in the world, and the best of skilled labour he will lose out in gaining an order if the world immediately outside his factory is chaotic — bad roads, bad driving conditions and a creaky infrastructure. It is this which is preventing Indian manufacturing from gaining prominence and therefore India suffers.

Therefore, if the Indian manufacturing sector is to grow the government must play its part in building good roads and infrastructure in the industrial estates it creates — the handling of effluent, the pollution levels in our lakes, the groundwater contamination, the adherence to waste disposal rules will be a shared responsibility of both industry and government.

Regulatory  issues

Regulatory issues will play a role in shaping the growth of the manufacturing sector, and each sector will have its own nuanced approach to the introduction of regulation. Care must be taken in the introduction of new regulation that it does not kill the growth of industry but rather facilitates planned growth of industry. For example, the introduction waste management regulations by the Ministry of Environment is a very welcome step — but are our industrial estates in a position to comply with such regulations?  Once industrial estates across the country accept every bit of regulation on the environment and take up that responsibility in spirit, and law then it becomes easy for industry to grow.

There are other regulations that govern the growth of individual sectors of industry, that must be calibrated such that a defined time line is given for industry to adapt to. For example, the introduction of Bharat Stage (BS) 6 fuel was first slated for 2024 and then the automobile industry accepted 2023 as the planned date. It was changed yet again to 2020 recently, though across the country we are yet to introduce BS 4 fuel and dual fuels BS 3 and BS 4 continue to exist across the country.  In the event the oil and gas industry falters in meeting the deadline of 2020 are auto companies going to take the risk and invest in BS 6 engines to be ready by 2020. Yet again, we  have older cars that have BS1, BS2 and BS 3 engines running today and using BS 4 fuel to no one’s advantage. Thus regulation has to be comprehensive if India is to flourish as a manufacturing hub.

In summary for India to become a manufacturing hub individual sectors that generate employment, produce products in compliance with world wide environment standards, develop industrial estates that are world class in terms of road access and truck movement and most important of all provide reliable supply of industrial and potable water in addition to providing industry with good quality and reliable power.

(The author is the Vice Chairman at Toyota Kirloskar)