Is Manufacturing in India poised to take off ?

Recently , I came across presentation of a leading Indian bank on NFO for their Manufacturing Fund. The presentation builds on the logic that with the improvements that are realised  in enabling factors , India is now well poised to become a Manufacturing Power House.    It expects India’s  manufacturing value added to grow to over 1.3  trillion US$ by 2030 – representing  growth of ~14% per year from the current level. Exciting , but is this doable ?  

Setting a winning aspiration is  the first step towards building a good strategy. In the year 2014, while   launching  Make in India programme, India  did  set an aspiration of  raising the contribution of  Manufacturing Sector to 25% of GDP by 2020. How far have we succeeded ?  Look at the data points contained the attached presentation.

 Reality Check

Is the Lion lazy ?

• Over last  12 years, India’s manufacturing value added has grown at 4.3% per year.
• India’s manufacturing value added as % GDP has remained in the range of 15% for many years now

• China with Manufacturing  Value Addition of 4.1 trillion US$  per year, contributes 31% to world’s manufacturing .  Compare this with India’s share of <3%  in world manufacturing. China’s manufacturing  value add is  nearly 11 times larger than India’s

• India’s merchandise exports have grown at the rate of in 6% past 12 years. Exports from Vietnam grew by 15% per year during the same period.  India’s share in global merchandise exports has remained  at <  2%

• Trend in Private sector investments in India does not reflect the enthusiasm of an aspiring manufacturing leader,

With the data in front of us , we cannot be too excited about India’s  prospects in manufacturing . It is work in progress and –there is  a long way to go.  

India needs strong manufacturing  

“You can’t build strong India on weak manufacturing”

India needs strong manufacturing to boost economic growth , to create jobs and to reduce political and business risks. Steps taken by the Government  such as rapid growth of physical and digital infrastructure,  improvements in logistics,  enhanced ease of doing business, PLI  for manufacturing in key sectors,  thrust to  push production of electronics , semiconductors , mobile phones-  have and will lead to better manufacturing climate.  

Will now see transformation of Indian Manufacturing  ? Are we to see  a multi decadal double- digit growth ?

In my view,  we  are not yet there ,there  have been some successes – but there are still challenges and  the priorities that the country and the industry  need to address :

The  Decisive Factors :

1.       INVEST  IN FUTURE  :

“If you believe in India story, the time to invest is now.”

• Manufacturing growth  requires investment. We have seen strong government spend towards infrastructure. But the private investment is lagging ( see the chart of private sector - gross capital formation )
• What will take Indian businesses to discover  their animal spirits and invest big in the future of India ? You cannot wait for local demand and consumption to grow, before initiating  large investments.

2.        GROW EXPORTS :

“ It is time Mohmmed goes to mountain .”

• Countries with strong manufacturing invariably have robust exports . Depending  on local demand alone  will not  take Indian manufacturing to the path of high growth .  Exports must form a strong component of every business strategy. Competing with the likes of China is surely not easy – yet I think, in terms of both - quality and cost , Indian businesses have improved their competitiveness. It is time India approaches global markets, at least  in some focus sectors -  with a resolve to win. 
• Industry must  commit significant strategic investments towards development of   business and products focused on exports -and set up effective international  marketing and engineering network to  gain breakthrough in global businesses.
• How exciting will it be to see several hundreds of  Indian companies becoming successful global brands in their respective categories ?  But for that to happen, businesses may need to take  short- term pains , show willingness to absorb stock market shocks when  quarterly  results do not come up to expectations –and yet remain steadfastly focused to grow exports business for long term success.

3.        RAISE THE EFFICIENCY BAR :

"Customers do not pay for inefficiency ”

• Irrespective ,whether you are small , medium, or large enterprise , you must achieve global level of excellence in your field. Indian manufacturing value chain has number of leakages and waste that require plugging.  .Waste is antithetical to efficiency.
• Some Indian companies have done remarkably well to imbibe the culture of continuous improvement and have set global standards in operational excellence, but the country needs many more success stories.   

4.       PENETRATE MASS MARKETS: 

"Future lies at the bottom of the pyramid .”

• While we hear of growing trend of premiumisation , the real growth in demand  will  come from the expanding  lower and middle class.  Manufactures  who innovate and develop products that appeal to the middle and bottom of the pyramid , will create new high- volume markets. ( Remember Nirma ?)
• Over the years India has given up its share of trade  in sectors like apparels, jewellery  , plastics to low-cost producers. The Industry and Government together  need to relook at factors such as economies of scale , designing to cost and use of appropriate technology to succeed at least in some select sectors which have potential to create large employment. 

5.       SCALING UP THE SMES : 

"Transform SMES, empower them to change orbit , Fuel Growth."

• Unlocking growth potential of SMSEs is vital for India’s manufacturing growth.  Many SMES are stagnating and are suffering from low productivity.    Those companies which show willingness  to come out of comfort zone need to be supported in the  areas of strategy , marketing, best practice implementation and raising of  capital - so that they can scale up  in capacities, capabilities, and competitiveness. 
• We need  strong  ecosystem to help SMEs in their transformation process.   We can learn from  the success of German manufacturing  which was largely driven by family owned small and medium enterprises who passionately built  Made in Germany - a symbol for excellence. 

6.       EASE OF DOING BUSINESS  :

" Watch how some countries are keeping  it simple, smart "

• Most multinationals invest in India to access local market- but that does not make India as their obvious choice when they look for locations to  set up factories for global production. You have an example of Samsung – a market leader in India, having hugely invested in Vietnam to cater to the global demand .
• Initiatives towards ease of doing business in India have made progress -but manufacturing is a complex business . A new company has still to go through labyrinth of approvals across centre, state and local authorities  India needs to offer a winning  proposition and  simple , effective ,single window approval process -  sans all bureaucracy- that is  comparable if not better than what some of the successful emerging economies are offering to attract manufacturing investment.

7.        LEAD THE TECHNOLGIES  OF TOMORROW :

• The government’s  initiative to encourage investment in critical sectors such as electronics, semi- conductors , mobile phones , e-  mobility ,renewable energy , defence , aerospace etc – is indeed welcome – though some of these come at a hefty price. But let us not forget one successful large company builds  tens of globally competitive companies in its  supply chain – as the example of Maruti Suzuki  has proven.
• Technologies of tomorrow need more focus, more enterprise . more support . So, there is no need to shy away from  offering initial incentives- while emphasising step by step, , time bound - realisation of full manufacturing depth to attract investment in these critical sectors.

8.       COMPETENCE DEVELOPMENT :

"Power the future – empower."

• Blue Collar workforce  is the heartbeat of the industry. We  need to make blue collar competitive and relevant by strengthening their core technical skills and training them  in modern day  skills of digitisation , automation, and data analysis .
• Equally important is to imbibe a culture of discipline ( disciplined people, disciplined thoughts, and disciplined actions ) - and build enabling environment where collaboration and innovation thrive.  The Skill India initiative needs to be taken to the next level. Organizations too ,must take long term view invest in competence and culture development to  achieve people powered  excellence.

 9.       DESIGN IN INDIA :

‘ A good design is where a customer finds a simple solution to her current problems and  an answer to her future aspirations. Building design capabilities can thus be your biggest competitive advantage in a crowded market.’

• India’s investment in R& D has remained low at 0.7%of GDP ( USA 3.5%, Japan     3.3%, Germany 3.1%. China 2.4% . World average 2.7%) . 
• Success of GCC in India vouches for availability of design talent in India. Investment in  Design and Innovation will help Indian businesses move up the value curve.     

 What Next ?

“ Execution is everything .Incredibly successful people focus on executing incredibly well “

None of the measures listed above is new.  Make in India website – lists most of these and many more.  So, what is the message then?

• While good foundational work has  been done ,and there have been some successes,  Indian manufacturing is not on an accelerated path of multi decadal double-digit growth. Not yet. Let us accept this reality as a starting point.
• Quality of implementation decides the success of a strategy . And what gets measured gets improved. Instead of moving from one target ( slogan ? ) to another , it is good to stay focused , learn from experiences ,  improve quality of execution, and regularly measure progress against the world’s best .   
• Indian companies- not just MNCs – must start investing now if we believe in India story.
• Exports must be a strong element of every business strategy. It is time to take the bull ( dragon ? )  by horn and compete globally. Be ready for short term pains for long term success in exports business.
• We need to do something more than the average to lead in technologies of tomorrow.
• There have already been number of initiatives to support  Make in India . It is important to compare the quality of these initiatives with the  global  benchmark and progress quickly to become the best in class in some.  It is important to look for sustainable results and not get too excited about sporadic successes.

Indian story  has always been about the difference  between Potential and Performance.  We need confidence ( not euphoria ) , hard  work , global benchmarking , regular reality  check ,occasional path correction, and off course a lot of enthusiasm to make India a powerhouse in manufacturing.