<p>Post-liberalisation, the Indian economy has grown faster than the global average. It is the fifth largest in the world today and is slated to become the third largest, overtaking Germany and Japan, in the next decade. Its stature is well witnessed in the global services marketplace.</p>.<p>However, when it comes to manufacturing, the same global stature is not visible. This is not for want of State effort. Right from the dawn of central planning, the principal focus of the State has been promotion of manufacturing. Several ministries/departments exist to do this. There are over 1,600 industrial estates, parks and coastal zones (including 268 SEZs), operational in India, with industrial units numbering in millions. In terms of absolute value, Indian manufacturing ranks at World No 6, ahead of Italy, France and the UK. But this has not translated into export success in the same way it has for the services sector.</p>.<p>India ranks 17th in the hierarchy of manufacturing exporters, below even Switzerland and Taiwan. It is not that our exports are not growing, but that others have grown faster. Also, unlike in services, where our quality is acclaimed, we often hear concerns about the consistency and reliability of Indian products. Some of our companies enjoy a strong reputation for high-quality goods; others face criticism about patchy quality control.</p>.<p>Illustratively, our pharma industry: a success story often in the news for achievements, such as vaccine development during the Covid pandemic. However, it is equally often in the headlines for infringement of regulatory norms of one or the other country. Recently, countries as diverse as Gambia and Uzbekistan went public claiming deaths due to Indian-made cough syrups. The country’s image suffered.</p>.<p>We need to understand why we cannot boast about the consistency of our manufacturing quality as Germany does. Also, why is it that we have grown faster as an economy but not as a manufacturing exporter? Could it be our patchy record in quality control? Why is it so?</p>.<p>In the Planning era, the State controlled both production and markets. It feared latent corruption in State procurement. Thus, the selection criterion was L1 pricing. Cheapest was best. Quality was not the prime factor. This did not change post-liberalisation. Also, as the State wanted to actively ‘promote’ and ‘protect’ our manufacturers even post-liberalisation, trade barriers were set up. Customs duties continued to be used as the tool of control, not quality standards.</p>.<p>As a result, oftentimes, we still do not have product quality standards for many goods. When they are there, they are often different (read lower) than the global standards. So, even currently, our markets allow the co-existence of high-quality goods -- ‘branded high-cost goods’ -- and cheaper ‘value for money’ goods. There are no penalties for producing poor quality goods.</p>.<p>Imposition of quality standards raises manufacturing costs. Rigorous quality control requires frequent checking of ‘in-process quality’ and timely rejection of deficient items, increasing both personnel and material costs. So, firms take shortcuts to save costs. They are not fastidious about quality control as our regulatory approach is different.</p>.<p>Resultantly, they often run into problems in selling to global markets where imports are regulated not by import duties but by quality prescriptions. This is why our manufacturers complain that they are unable to take advantage of trade pacts due to ‘non-trade barriers’ in the partner countries.</p>.<p>On the other hand, the services sector gained prominence riding on the internet revolution. Services delivery was thus not restricted by national barriers. The State was initially not ‘aware’ that serious business could happen through ‘wires’ and thus did not try to intervene to ‘protect’, though it did facilitate.</p>.<p>So, we have a situation in which our newly emergent services sector is globally competitive and acclaimed for quality, but our manufacturing sector struggles in the global marketplace. A common pool of people talent, but a different set of results in the two sectors.</p>.<p>India, as the aspirant third-largest economy, cannot afford to be called a poor-quality centre. We need to change our outlook towards quality. We must move from L1 to Q1, both for Indian and global consumers. This makeover will come at a cost, but it will increase our pool of exports. State subsidy could soften the impact.</p>.<p>Perhaps a form of the PLI scheme to enhance quality assurance within defined clusters, and discouraging production outside these notified clusters, could be considered. It will make the transition easier. Alongside must come a regime of penalties -- not only for the manufacturer but also for the inspector who did not stop the sale of poor-quality shipments. If the inspectors get exemplary punishments, shortcuts will become riskier, and the quality message will spread faster.</p>
<p>Post-liberalisation, the Indian economy has grown faster than the global average. It is the fifth largest in the world today and is slated to become the third largest, overtaking Germany and Japan, in the next decade. Its stature is well witnessed in the global services marketplace.</p>.<p>However, when it comes to manufacturing, the same global stature is not visible. This is not for want of State effort. Right from the dawn of central planning, the principal focus of the State has been promotion of manufacturing. Several ministries/departments exist to do this. There are over 1,600 industrial estates, parks and coastal zones (including 268 SEZs), operational in India, with industrial units numbering in millions. In terms of absolute value, Indian manufacturing ranks at World No 6, ahead of Italy, France and the UK. But this has not translated into export success in the same way it has for the services sector.</p>.<p>India ranks 17th in the hierarchy of manufacturing exporters, below even Switzerland and Taiwan. It is not that our exports are not growing, but that others have grown faster. Also, unlike in services, where our quality is acclaimed, we often hear concerns about the consistency and reliability of Indian products. Some of our companies enjoy a strong reputation for high-quality goods; others face criticism about patchy quality control.</p>.<p>Illustratively, our pharma industry: a success story often in the news for achievements, such as vaccine development during the Covid pandemic. However, it is equally often in the headlines for infringement of regulatory norms of one or the other country. Recently, countries as diverse as Gambia and Uzbekistan went public claiming deaths due to Indian-made cough syrups. The country’s image suffered.</p>.<p>We need to understand why we cannot boast about the consistency of our manufacturing quality as Germany does. Also, why is it that we have grown faster as an economy but not as a manufacturing exporter? Could it be our patchy record in quality control? Why is it so?</p>.<p>In the Planning era, the State controlled both production and markets. It feared latent corruption in State procurement. Thus, the selection criterion was L1 pricing. Cheapest was best. Quality was not the prime factor. This did not change post-liberalisation. Also, as the State wanted to actively ‘promote’ and ‘protect’ our manufacturers even post-liberalisation, trade barriers were set up. Customs duties continued to be used as the tool of control, not quality standards.</p>.<p>As a result, oftentimes, we still do not have product quality standards for many goods. When they are there, they are often different (read lower) than the global standards. So, even currently, our markets allow the co-existence of high-quality goods -- ‘branded high-cost goods’ -- and cheaper ‘value for money’ goods. There are no penalties for producing poor quality goods.</p>.<p>Imposition of quality standards raises manufacturing costs. Rigorous quality control requires frequent checking of ‘in-process quality’ and timely rejection of deficient items, increasing both personnel and material costs. So, firms take shortcuts to save costs. They are not fastidious about quality control as our regulatory approach is different.</p>.<p>Resultantly, they often run into problems in selling to global markets where imports are regulated not by import duties but by quality prescriptions. This is why our manufacturers complain that they are unable to take advantage of trade pacts due to ‘non-trade barriers’ in the partner countries.</p>.<p>On the other hand, the services sector gained prominence riding on the internet revolution. Services delivery was thus not restricted by national barriers. The State was initially not ‘aware’ that serious business could happen through ‘wires’ and thus did not try to intervene to ‘protect’, though it did facilitate.</p>.<p>So, we have a situation in which our newly emergent services sector is globally competitive and acclaimed for quality, but our manufacturing sector struggles in the global marketplace. A common pool of people talent, but a different set of results in the two sectors.</p>.<p>India, as the aspirant third-largest economy, cannot afford to be called a poor-quality centre. We need to change our outlook towards quality. We must move from L1 to Q1, both for Indian and global consumers. This makeover will come at a cost, but it will increase our pool of exports. State subsidy could soften the impact.</p>.<p>Perhaps a form of the PLI scheme to enhance quality assurance within defined clusters, and discouraging production outside these notified clusters, could be considered. It will make the transition easier. Alongside must come a regime of penalties -- not only for the manufacturer but also for the inspector who did not stop the sale of poor-quality shipments. If the inspectors get exemplary punishments, shortcuts will become riskier, and the quality message will spread faster.</p>