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Rethinking Make in India


AniruddhaSrinath,Manish Kulkarni, Vijay Jaiswal

Participants, PGPX, Indian Institute of Management, Ahmedabad, India

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The Indian Manufacturing Sector is perhaps at a stage in its long history where it is being observed the keenest. The Make in India Campaign has been studied and understood, key institutional reforms like GST and infrastructure projects are underway and the Government of India is on the path to improve the ease of doing business while providing stable governance on most fronts. On the Demand side, there is a concern of decline in the export markets, which has caused sluggish growth in the sector. In this paper, we analyze the question of whether Make in India should be Made in India as well as Made for India, and hence focus on defining new paradigms. We also discuss the challenges and path forward for the Indian manufacturing story.

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It has been more than 2 years since the Government of India launched the Make in India Campaign, which sought to provide renewed focus on the potential of the Indian manufacturing sector. Incidentally, we are now more than midway into the 5-year tenure of the Narendra Modi led Government. Thus, it seems like an appropriate time to portray this paper into a report card of sorts on the performance of the manufacturing sector from the context of these two milestones. However, our primary theme in writing this report is to understand the perspectives to Make in India the environment in which it is slated to perform for the near future, extend its definition and elaborate on the  challenges and solutions to address these challenges. This paper was the lead up to the panel discussion on Manufacturing Ecosystems in the 2016 version of Connexions, the flagship event of the PGPX Program at IIM Ahmedabad. 

Text Box: Automobile, Automotive Components, Aviation
Biotechnology
Chemicals, Constructyion
Defence Manufacturing
Electrical Machinery, Electronic Systems
Food Processing
IT and BPM
Leather
Media and Entertainment, Mining
Oil and Gas
Pharmaceuticals, Ports and Shipping
Railways, Renewable Energy, Roads and Highways
Space
Textiles and Garments, Thermal Power, Tourism and Hospitality
Wellness

  Automobile, Automotive Components, Aviation

  Biotechnology

  Chemicals, Constructyion

  Defence Manufacturing

  Electrical Machinery, Electronic Systems

  Food Processing

  IT and BPM

  Leather

  Media and Entertainment, Mining

  Oil and Gas

  Pharmaceuticals, Ports and Shipping

  Railways, Renewable Energy, Roads and Highways

  Space

  Textiles and Garments, Thermal Power, Tourism and Hospitality

  Wellness

Make In India: A New Perspective

The Make in India Initiative(Das, 2014), with a focus on 25 industries (see the box below) is led by the Department of Industrial Policy and Promotion. 

The initiative aims to raise the contribution of the manufacturing sector to 25% of the Gross Domestic Product (GDP) by the year 2025 from its current 16%.  It also seeks to facilitate job creation, foster innovation, enhance skill development and protect intellectual property. We feel that the thrust is in 4 major areas, as shown in the table below. 

There is increased economic activity in high-value industrial sectors through increased foreign collaboration. The aim is to propel India into a global hub of excellence for a wide array of products and services. By way of illustration, as a precursor to this initiative, in mid-2014, India enhanced foreign investment in the defense sector and railways infrastructure. As a consequence, defense production, including import substitution for military imports, is finally establishing roots in India.

 

   

Area

Thrust

New Processes

  • Getting Foreign Direct Investment and fostering business partnership
  • Improving ‘Ease of Doing Business’

New Infrastructure

  • Industrial corridors and Smart Cities
  • Innovation and research
  • Training of skilled workforce

New Sectors

  • 25 new sectors

New Mindset

  • Government as a facilitator and not a regulator
  • Government and Industry as partners in economic development

 

 

The Make in India initiative is thus targeted at developing a conducive environment to encourage the manufacturing sector through focus on infrastructure and skill development, creating new FDI guidelines and relaxing the current tax structures. There is also a renewed thrust on cutting down in delays in manufacturing projects clearance, develop adequate infrastructure and make it easier for companies to do business in India.

The issues(kaur, 2015) related to land acquisition for setting up large scale state driven infrastructure projects and development of industrial hubs have been addressed by focusing on land reforms and developing a structured approach for rehabilitation and compensation to the displaced population in wake of the land acquisitions.

Make in India intends to develop an ecosystem that may facilitate the deployment of modern day technologies and foster innovation for creating a center of excellence for manufacturing and services in the identified sectors. This drive is complimented by a roadmap to establish a robust mechanism to protect intellectual property, environment leading to advancement in education including research and development (R&D), supplemented by foreign collaboration with an eyes on sustainable growth.

 

Beyond the definition of Make in India

The definition of Make in India, as it has been widely understood, assumes to make India a manufacturing hub for goods which can be exported. Domestic demand is also considered in conjunction with this larger export market. The primary attractiveness of making in India is the cost attractiveness aided by other conveniences. We have a young population which will translate to a stable, English speaking workforce. Our perceptions about Make in India, shaped in part with the extended conversations we have had over the past two years with various experts on this topic influence our formation of the following hypothesis about the current snapshot of Make in India:

  1. China was fortunate to have expanded its manufacturing base from the 1980s onwards, a time when the industrialized nations were still indulging in a substantial chunk of imports to meet the burgeoning needs of their factories and customers. India is trying to grow manufacturing in a very different world scenario. Demand for imported goods has slowed down and hence domestic demand is going to be the largest and most important constituent for our manufacturing goods market. This crops up the danger of trying to over stimulate the economy, which has been the reason why many emerging markets have always tried to export a majority of their manufactured goods. However, India’s growth potential seems to be steady, at least over the next decade with a large segment of our population, especially the rural population not even having access to avail basic goods and services. It seems highly unlikely to us that India might make much inroads into the markets of the world’s largest market (by population), China as that country itself has overcapacity. Hence, it seems logical to look more inward and Make in India, largely for India (Rajan, 2015). This comes with the risk of the temptation to over stimulate the economy, which has been the reason many Asian tigers chose a path of export in the first place.
  2. Stan Shih, the founder of Acer Technologies, proposed a graph called the Smile Curve(Brookings Institute, 2012) to understand value creation (in terms of profitability) in the product realization value chain. As per his graph, manufacturing derives the least profitability. In fact, manufacturing was one of the first activities which developed economies and their firms outsourced, retaining the more profitable design and marketing elements with themselves and converting them into their core competencies (Apple is a famous example). Hence, it may emerge that, even if we create a replica of the China model of manufacturing competitiveness, which is anyway hard, we would still be creating an overcapacity of a capability which has low profitability.

 

3.Closely related to the above two factors, and partly deriving from them is the insight that the era which we are expanding in is the era of mass customization. Naturally, with India being the largest market for our goods, we need to design, make and sell our goods in accordance to domestic needs and tastes. Design thinking is crucial here, as it drives us to empathize about the very specific requirements of our target customers(Parmar, 2015). Gone are the days when products can be introduced in the Indian markets by only making cosmetic changes like functional requirements (electric plug design) or miniaturizing in order to create an affordable segment. The Indian customer is well informed and is critical about product and service aspects, and is expecting additional elements of frugality (value for money) and sustainability (lower life cycle cost, environmental friendly) paradigms.

Hence, it is imperative that firms not just Make in India but Create in India and Make for India. Time and again, we have seen spectacular products and services which prove our point (Srivastava, 2016). The inexpensive Mitticool refrigerators, which cost just $50 and keep food cool for 5 days using only clay. The Aravind Eye Care System, which is bringing eye surgery that is quick, affordable and of very high quality to much of rural South India and makes cataract lenses at the lowest costs anywhere in the world. Examples abound.

The next logical step in this course is to create a brand for Indian products as it has been created for much of the services sector. Some negative perceptions about the Made in India brand are of quality, perception of being technologically low, the lack of a flagship brand or products (watches for the Swiss, electronic components for Taiwan and so on). Branding efforts must be concurrent with larger gamut of activities(Chakrawal & Goyal, May 2016)

Challenges and path forward

Labour productivity

Indian manufacturers depend heavily on labour cost arbitrage instead of investing and quality and productivity improvement. Because of rigid labour laws Indian manufacturers have to hire large number contract workers. Lack of appropriate automation, outdated manufacturing processes, limited use of design-for-manufacturing, and  non-value-added tasks contribute to lower labour productivity.

Path forward – Manufacturers and SMEs’ should improve their operations by efficient line balancing, lean plant layout and de-bottlenecking and use automation selectively for quality and productivity.

Skilled manpower

India faces shortage of skilled and “employable” manpower. The quality of training imparted by it is not as per the industry standards. Firmshire large number of contract workers due to rigid labour laws in India. This limits development of highly skilled and productive workforce. Curriculum is more analytical and simulation based and lacks hands on experience to manufacturing.

Path forward – Firms should form clusters to establish vocational training.  Manufacturing sector could replicate large scale skilling programs employed by Indian IT firms and train fitters, welders, machine operators and maintenance engineers. Maruti has started expanding some of its training programs to include its suppliers.

Supply chains

Indian supply chains suffer due to suboptimal infrastructure and transportation. This increases the inventory throughout the supply chain and lowers the profitability. Poor supplier performance and reliability forces manufacturers to increase inventory levels to mitigate stock outs. This hinders smooth flow in the production line and reduces productivity.

Path forwardCompanies should implement agile practices to lower inventory and manage the production flow better. Supply chain should be used as a strategic tool Use of data analytics could improve forecasts and hence supply and demand planning. Appropriate ERP tools should be used for coordination to rationalize the inventory levels. Indian IT industry should lead this transformation by building custom tools for SMEs. Manufacturing clusters allow companies to get benefit of network effects created by concentration of suppliers, sharing of infrastructure and remove bottlenecks in supply chain.

Quality of products

Tier 1 and tier 2 suppliers tend to be small or medium enterprises. They hesitate to make investments in statistical process control and product development. This results in higher rejection which is “waste” in the production process. Rework due to quality problems also reduces labour productivity. The speed to market of Indian manufacturers is slower compared to global competitors.

Path forward – OEMs should invest in suppliers to transform them into lean manufacturers. OEM supplied jigs and fixtures and poka-yoke could reduce quality issues at supplier end. Indian companies need increased focus on Quality systems. Some of the Indian companies have taken steps in this directions. Tata Steel won prestigious Deming Prize in 2008 for Quality and Process Improvement. Frontloading of product development efforts could improve speed to market for Indian manufacturers.

 

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