A new hope for Indian manufacturing?

Discussion in 'Economy & Infrastructure' started by nrj, May 11, 2012.

  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

    Nov 16, 2009
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    It is now believed that India can emerge as a leading global participant on the back of its technically skilled labour and the entrepreneurial abilities of its managers

    For the past few months, the National Manufacturing Policy (NMP) has been introduced and discussed in policy and industry fora. While it is accepted that there are no short-term solutions to the problems which plague Indian manufacturing, it is also increasingly being realized that there is no alternative to investment in manufacturing if a significant proportion of our massive, partly employed rural workforce has to be transitioned into higher income, higher skilled economic activity. The share of manufacturing in GDP needs to increase from 16% currently, to near 25%, as the NMP projects, over the longer term.

    Of course, the duration and speed at which this progress will be achieved is uncertain, given the challenges of resolving issues related to land, infrastructure, skills and finance availability for the manufacturing sector. The proposed national manufacturing investment zones envisioned in the policy are intended to address these challenges in a holistic manner.

    Yet, there is a buzz in industry circles, where some are speaking of manufacturing as the next big wave for Indian industry. Partly, this is due to the realization that the country’s demand and consumption trajectory has reached global scale for many manufactured goods. Partly, it is the result of increasing confidence and global acquisitions by both large- and medium-sized Indian manufacturing groups. In certain skill-intensive segments of manufacturing, it is now believed that India can emerge as a leading global participant on the back of its technically skilled labour and the entrepreneurial abilities of its managers.
    Does this imply that Indian manufacturers should now invest more in Indian manufacturing rather than in international markets? Should multinational corporations ramp up their presence in Indian manufacturing facilities, developing them into a genuine global supply base? The answer lies in looking at the specifics of “industry sub-segment level” and “company-level” competitiveness of the companies in question, going beyond the broad country-level or industry-level competitiveness that economic policies try to achieve.

    By industry sub-segment competitiveness it is meant the quality and efficiency with which products of specific sub-segments in an industry may be manufactured in India. In the electrical equipment industry, for example, our competitiveness may differ when one compares, say structural fabrication-based engineered products such as transformers or transmission towers, where Indian raw materials and technologies are likely to be efficient, vis-à-vis electronics or automated controls-based products, where Indian suppliers have some way to go to achieve global levels of competitiveness.

    Company-level competitiveness means the specifics of tangible or intangible assets owned or available to the company in India, which are not fully transferable should the company decide to invest in manufacturing in some other country. Established relationships with small but efficient local suppliers are an example, so are a tightly integrated local management team and processes customized to meet the needs of the local environment. In many situations, such firm-level factors among Indian companies have led to their successfully leading in India as well as exporting Indian manufactured products globally.

    Hence, some of the questions manufacturers and investment analysts may ask, as they assess the impact of NMP on specific companies and industry sub-segments in India, include:

    • Which specific sub-segments of broad industries such as automotive, engineering, textiles or chemicals is Indian manufacturing expected to be competitive in, from a resource perspective? Are companies in these sub-segments numerous enough and strong enough to take advantage of this potential?

    • Is there a distinct set of capabilities that their local supplier ecosystem can offer to offset the potential disadvantages of key local costs such as power, basic raw materials or cost of finance?

    • To what extent are the company’s product design, regulatory requirements and manufacturability interlinked, thus leading a preference for localized manufacturing?

    Indian manufacturing needs to support and take advantage of the intended positive policy environment to boost its competitiveness—and consider investments in the emerging manufacturing regions that would soon come up; however, individual companies should not overlook the importance of assessing the extent their own strengths emanate from being in their current locations or alternate locations, global or Indian.

    Biswanath Bhattacharya is director, management consulting, KPMG Advisory.

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  3. Iamanidiot

    Iamanidiot Elite Member Elite Member

    Dec 21, 2009
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    As long as Bengali jhollahwallahs and the idiotic labour laws drafted by them exist.We have no hope about manufacturing
  4. agentperry

    agentperry Senior Member Senior Member

    Oct 24, 2010
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  5. cir

    cir Senior Member Senior Member

    Dec 28, 2010
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    Manufacturing contracted 4.4% in March.
    The situation will continue to worsen in April and May and....

    The days of relative fast growth are gone for at least the next 5 years. India needs to face the reality.

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