· India is steadily making its presence felt on the global manufacturing front. The recent events surrounding China's decreasing cost competitiveness due to Yuan appreciation, wage inflation and fall in investments as a percentage of GDP has further opened up a plethora of opportunities for Indian manufacturing firms to capture. However for India to fully capitalize on this golden opportunity and propel the economy on a manufacturing led growth, all stakeholders including government and the private sector need to work in conjunction.
In the last three years, the performance of the Indian manufacturing sector has been below the levels targeted under the National Manufacturing Policy. Moreover, its share in the GDP has slipped below 15%, lowest in last twenty years. Nevertheless, India has fared much better in terms of merchandise exports. Over the period 2008-11, Indian merchandise exports posted a 16% CAGR. Moreover, in terms of labour wages India enjoys a significant cost advantage as compared to other emerging market economies.
Mr Jamshyd N Godrej, Chairman of the Summit and Chairman & Managing Director, Godrej & Boyce Mfg Co Ltd said, “The decreasing cost competitiveness of China is opening up a window of opportunity and India is definitely well positioned to capture this. Already our sectors such as Automotive, compete with the best across the globe.” Over the last two decades, labour rate arbitrage was the main driver for off shoring of production to China and provided substantial costs savings of 20–40 percent, in spite of lower productivity levels. However, since 2009, production worker wages have inflated at almost four times the rate of Indian wages. Add to this the relatively low productivity as compared to the U.S. standards, and China’s competitiveness in low cost labour is clearly eroding.
He also added that although the recent performance of the Indian manufacturing sector has been below par, excluding October’s performance. From a trajectory of 8–9 percent, manufacturing GDP growth has slowed down to a y-o-y growth of 2.5 percent over FY 2010–12 and has almost flattened (0.5 percent) during the first six months of FY 2012–13.
Mr Godrej emphasised that the challenge now lies in our readiness in developing and enhancing the Indian manufacturing ecosystem. A low cost focus alone will not be able to drive the differentiation, India needs to also focus on developing other sustainable competitive advantages in order to create a footprint on the global manufacturing landscape. He mentioned that, “The aspiration for India should be to not become Factory to the West, but Germany of the East.”
India is lagging behind its peers in R&D and innovation – less than 1% of the country’s GDP is invested in R&D; there are only 190 R&D professionals per million population, as compared to 1,100 for China and more than 5,000 for Germany. Mr Godrej therefore affirmed, “Manufacturing quality along with R&D and Innovation depth will be key focus areas for India to become a top quality and high technology manufacturing destination.”
Calling on the industry to take action, Mr Godrej mentioned, “To realize the Indian manufacturing vision we need to look beyond low cost leadership and focus on building a cohesive environment of easy regulatory frame work, good quality infrastructure and establishment of common markets.” He asserted that, “Currently there is a need to focus on action and a National Implementation Plan.”
· Mr Pradeep Bhargava, Chairman, CII WR and Director, Cummins Generator Technologies India Ltd. mentioned that, “State governments have an increasingly important role to play in establishing India as the preferred manufacturing destination by facilitating land availability, Industrial relations (IR) and power, as these will be important game changers.” In this context he added, “We at the CII Western Region are undertaking a pilot project to create a good model of Industrial Relations along with some of the leading manufacturing companies, to improve the current industry-labour relations.”
· On acquisition of land being one of the challenges faced by the Indian manufacturing sector, he highlighted that CII has recommended the following:
· Digitisation of land records
· Zoning of land
· Set up State Land Bank Corporations
· Other new approaches like land valuation at NPV, land at renewable long lease, and allowing land to be traded like REITs to monetize the long term upside, could also be explored and encouraged.
· It has been observed that a cluster approach help firms achieve competitive advantage by promoting their common interests, identifying opportunities to encourage and share further innovation, developing worker skills, and addressing issues that impact productivity. Mr Bhargava stated, “The question now is, can we really look at creating 500 clusters in the coming 3 years?”
· Mr Arindam Bhattacharya, Managing Director of BCG India mentioned that India Inc is well positioned to achieve its aspiration. The country has the right ingredients – a strong talent pool in science and technology, strengthening quality systems—as evidenced by a string of Deming awards (Indian companies have won over 50% of Deming awards since 2003), and a strong intent to invest in technology, R&D and innovation. However, this starting point has to be backed by the right policy support and investment by companies into strengthening their R&D, Innovation and quality infrastructure, including aggressively re-branding Indian manufacturing.
· The CII-BCG report titled – Re-igniting India’s Quest for Manufacturing Leadership, to be released at the Summit today disaggregate drivers of the country’s recent performance in manufacturing, examines relevant global trends impacting the sector, and presents the key interventions required to chart a course to achieve the goals in the National Manufacturing Policy. The report states that India’s manufacturing sector can unlock incremental GDP of $350 billion and create 70 million additional jobs.
· Addressing the 11th edition of CII’s Manufacturing Summit on the second day with the theme ‘Re-igniting India’s Quest for Manufacturing Leadership’, Mr Arun Maira, Member, Planning Commission asserted that the manufacturing sector in the country must play a much bigger role in growth and employment than what has been undertaken so far. He mentioned that in order to reach the target of 100 million jobs by 2025 in the manufacturing sector, we must increase our depth in manufacturing and also encourage institutional and stakeholder collaboration, coordination, and consultation which would lead to implementation. He said “A single point plan that the country now needs is Implementation.” He stated that we recognize clearly that action is required at the state level and must therefore work towards fine tuning administration and regulation in the states.
On the National Manufacturing Plan (NMP), Mr Maira mentioned the 12th Five Year Plan was for the first time developed in consultation with civil society organizations, business associations, etc. He added that NIMZs are just one element of the NMP and apart from job creation the Plan focuses on the need to increase “depth” in manufacturing via the level of domestic value addition, enhance global competitiveness through policy support and ensure sustainability of growth. He highlighted that the Plan also envisages increasing manufacturing sector growth to around 2-4% more than GDP growth and making the sector the growth engine of the economy. Increase in the country’s manufacturing depth, competitiveness and job creation will result in the growth of the sector’s contribution to ~25% of GDP by 2025, he added. Mr Maira also mentioned that in order to improve the quality of coordination and implementation of the Plan, they have constituted the Indian Backbone Implementation Network (IBIN).
On the topic of human resources, Mr Maira stated that the labour laws in the country must be changed, as they are old and badly administered. However new labour laws need to be developed out of a consensus and collaboration between industry, workforce and policymakers, he asserted. Mr Maira said, “Human Resource Development is the key to improving manufacturing competitiveness, as it plays a major role in your ability to learn faster than your competitors.” He added that sectors such as the food processing sector and light engineering are capable of creating jobs in the economy if a cluster approach is followed.
Mr Maira concluded by emphasizing that the role of the state is only as a ‘facilitator’ to industrial eco-system growth and not the ‘doer’; this is where industry needs to take the lead.
One of the Panel Discussions at the Summit focused on addressing the issue of “Competitive Advantage of Indian Manufacturing”. Addressing the topic, Mr Sumit Banerjee, Chairman, CII Cement Industry, Division and Vice Chairman, Reliance Cements Pvt Ltd mentioned that India has a strong competitive advantage in its large and growing domestic market, its geographical location, huge natural resources, and demographic advantage. Mr Ranjeet Dalvi, Executive Vice President – Strategy & Business Excellence, Siemens Ltd stated that product design makes the product more competitive and he has witnessed how localization and design can reduce costs by around 50-60%. He also said there is a need to build ‘Brand India’ in manufacturing so that it can come to stand for high quality. In the same context Mr Dalvi mentioned the need to create a culture of quality in the country. In his address, Mr Janmejaya Sinha, Chairman, Asia Pacific, BCG highlighted the immense opportunity in India and said that this opportunity is going nowhere and we must invest because that is how we would win in manufacturing.
The 11th edition of CII’s flagship event, for the Indian Manufacturing Sector, the Manufacturing Summit 2012, is scheduled for 17th & 18th December 2012, at Mumbai.
Over the past two decades, China''s manufacturing sector has proven to be a great growth story relying primarily on its strength in the manufacturing sector. Output across sectors like auto, steel, energy have witnessed jumps of 2-5X over the past decade alone in China. Indian manufacturing has grown by a slower amount at around 9% over the last decade. Over the last year, the growth has slowed down even more to less than 5%.
As China''s competitiveness declines – due to Yuan appreciation and wage inflation, and investment drops as a percentage of its GDP, there is a universal expectation that Chinese manufacturing''s growth is unlikely to continue unabated. There seems to be a clear opportunity for other countries like India to fill this void and become a manufacturing superpower to the world. Indian manufacturing has come of age in several areas. Select sectors such as auto components, gems and jewelry, have been globally recognized for adherence to global standards. Across mobile handsets, cars, engineering components, garments, global leaders have some of their largest factories in India. At the same time, in many other areas of manufacturing – heavy engineering, tooling, process equipment, aerospace, Indian industry is still grossly underdeveloped. The recent slowdown in manufacturing growth has raised further questions on the true potential in Indian manufacturing.
Given this situation, the theme for the Summit was "Re-igniting India''s Quest for Manufacturing Leadership".
The CII-BCG Report and the Leadership Survey were released at the Summit on 17 December 2012. While the Report talks about the rapidly changing global manufacturing landscape, and the emerging window of opportunity for India; the Survey which interviewed from 70 senior representatives of top Indian manufacturing companies, reflects the modest outlook for the sector, with over 75% respondents expecting the sector to grow at lesser than 7%.
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