JOIN USIndia can gain in a ‘minus China’ world
With the India story taking precedence over the China story, India is frequently referred to as “the one bright spot on the map!” Complementing the country’s strength in services, its recent moves to give manufacturing a push are taking India closer to the East Asian growth model.
Since 2019, India has cut corporate taxes, introduced production-linked incentive schemes in 14 sectors to increase indigenous manufacturing capacity and attract investment, boosted “public capex” and attracted financing by launching the “National Infrastructure Pipeline,” introduced GST and “supply side” reforms to make domestic manufacturing more competitive, rationalised labour laws into four codes for the welfare and security of workers, and alongside digitised the economy to improve the cost and ease of doing business.
Can India now attract global manufacturers looking at a “minus China” strategy by utilising its strengths in core manufacturing? According to the United Nations’ most recent COMTRADE international trade database, India imported approximately US$ 90 billion from China in 2021, including machinery, electrical equipment, boilers, iron and steel articles, and the like, while exporting to China US $23 billion in various ores, iron and steel, copper, aluminium, and other raw materials. A look at the list of items traded shows our continued dependence on China’s manufacturing muscle.
Other trends are equally worrisome. Democratic dividend notwithstanding, professors in engineering colleges lament that today’s students are not interested in studying engineering any more. Since 2012, in Karnataka alone, a total of 19 engineering colleges have closed shutters for a lack of students. College admissions in 2022 showed over 1,800 engineering seats had no takers despite several rounds of counselling. Students have started to show a stark preference for commerce, finance, and management disciplines compared to hard-core engineering subjects.
This phenomenon is not restricted to colleges alone; India’s engineering firms are downsizing on manufacturing in favour of services and projects. Larsen & Toubro (L&T) is a traditional manufacturing and engineering firm with a diversified product offering across engineering and manufacturing and is often considered a barometer of the state of engineering and the general economy. Looking at L&T’s FY 22 Annual Report, one finds the company will focus on data centres, green hydrogen, and other new-age businesses like start-ups in the e-commerce space. The company’s strategic road map, known as “Lakshya 2026,” mentions increasing the company’s share in information technology (IT), digital services, and data centre spaces. Industry watchers have looked up to L&T as a torchbearer for manufacturing, so it is not surprising that other traditional manufacturing and engineering firms in India are replicating these moves.
Nevertheless, the manufacturing sector is replete with success stories.
Firstly, the pharma sector, with its feat of Covid vaccine manufacture, sets a bright example. Despite global competitors using quality and cleanliness parameters to keep Indian pharma products constantly under pressure, the world’s “minus China” strategy can boost India’s API (Active Pharmaceutical Ingredients) manufacturing strengths. As a direct consequence of our pharmaceutical manufacturing prowess, India has the wherewithal to straddle the API market and to produce the biologically active component of a drug, tablet, capsule, or injectable.
The second and another fall out of the “minus China” strategy concerns Apple looking to diversify iPhone manufacturing. India can turn into a global iPhone manufacturing hub, not counting several supply chains that feed smartphone production, potentially making it as big as the auto sector.
Third, consider defence where the SIPRI report projects India as the fourth largest spender on defence equipment, a large portion of which can be fully indigenised in a phased manner. After due consideration of the manufacturing capabilities of India’s private and public sector, the defence ministry has put out indigenisation lists mandating the manufacture of selected equipment and weapon systems in India to significantly boost the country’s manufacturing muscle.
A fourth potential area is high-priced textiles. If India were to focus on modernising its weaving and finishing industries, abandoning today’s labour-intensive textile manufacturing for a clear differentiator vis-à-vis Bangladesh, Sri Lanka, and Vietnam.
Another encouraging trend is India’s digital transformation, which has resulted in significant reductions in machine downtime and increase in labour productivity. With global corporates wanting to shift part of their manufacturing out of China, we are ready for a “minus China” strategy and can become that alternate destination. Perhaps we missed the bus earlier and left a gap too wide, but our manufacturing muscle is prepared for the long haul. Not only are we healthy, but we also are fully capable of becoming the torchbearers of tomorrow’s global manufacturing.
(The writer is former ED and Member, Board of Directors, BEML)