Debate : India’s Manufacturing Policy

Dear all, here, I am sharing my thoughts and findings on the recently approved National Manufacturing Policy by Government of India (GoI). This policy, if successfully implemented can change the face of rural India in the next decade, please share your views.

National Manufacturing Policy Objectives

This policy aims to propel growth of manufacturing output. The objectives are to:

1)Increase share of Manufacturing in Gross Domestic Product (GDP) to at least twenty five percent by the year 2022.

2)Create one hundred million additional jobs by the year 2022.

In addition, it aims to impart manufacturing skills in rural population, and build the technology required to create products that are globally competitive.

Why manufacturing growth is important?

The fact that most of the services industries/services exist to support manufactured products (with exceptions such as media, entertainment, and personal care) underscores the importance of strong manufacturing sector for overall economy. Although, India currently amasses foreign currency by selling services (such as IT, BPO, and KPO), conventionally countries earn foreign exchange by selling products across borders.

Manufacturing provides employment to people of varied skills and it is the biggest source of employment for less-educated. India, with only about 27 percent of working-age population (aged between 15 and 65) educated beyond secondary school level (tenth standard), the obligation on Government to create employment opportunities for wider population cannot be over emphasized. The challenge of ensuring employment and social security for wider sections of population will only be compounded as India grows to become the most populous country by 2030, surpassing China.

Unlike service companies that create mostly direct employment, manufacturing companies create indirect employment through their supply chain partners, besides direct employment of factory workers. A major challenge India faces is the growing social divide between rich and poor. Strong manufacturing base will reduce this divide by proving employment to less privileged citizens of the country.

According to Reserve Bank of India (RBI), manufacturing contribution to GDP has increased only by two percent, i.e. from thirteen percent to fifteen percent over the past three decades. This growth is very low as compared that of China. Despite China’s GDP growing at above eight percent since 1980, manufacturing contribution to GDP has always been above thirty percent (indicating manufacturing has kept its pace relative to over all GDP).

Implementation – Industrial Clusters/Parks

In the Manufacturing Policy, GoI proposed to establish industrial clusters/parks to achieve the targeted production and create employment. An industrial cluster is co-location of group of companies belonging to a specific sector (such as automobile, leather), for example, leather goods manufacturing clusters in Italy and wine production clusters in California. The group of companies includes manufacturers, suppliers, R&D providers, educational institutes, etc. Co-location of firms in a cluster enables sharing of human resources, plants, equipment, and storage, etc, and provides benefits of economies of scale for all the firms involved in the cluster regardless of each firm’s individual size. Firms within a cluster compete to differentiate from each other and in the process become more productive and innovative. Eventually, few firms will become globally competitive earning respect for themselves as well as for the cluster. Silicon Valley, an IT cluster, is another great example.

In addition, GoI proposes to reduce delays involved in carrying out formal procedures to set up and run manufacturing units by ensuring all such formalities can be completed quickly within the cluster vicinity, eliminating the need for entrepreneurs to run from one Government office to another for permissions.

Implementation Challenges

Manufacturing requires continuous supply of energy; many state governments are unable to meet the electricity requirements of existing manufacturing units. Though, GoI has taken initiatives to increase electricity generation by investing in nuclear and hydroelectric power plants, considering future demands and distribution inefficiencies, supply of electricity to industrial clusters will be a challenge. If Government has to subsidize electricity to allow manufacturing companies earn profits initially, hence to encourage new generation of manufacturing entrepreneurs, annual fiscal deficit increases curtailing investments for other development and welfare initiatives.

Majority (currently, about 53 percent) of Indian population has been employed in agriculture for decades. Hence, skills development programs for creating manufacturing workforce are required in massive scales. However, given the state of education systems and resource shortages even at University level, building skilled workforce will be a challenge. Considering cultural and language differences from one state to another, such training programs demand active participation and commitment from state governments and local authorities. But, is it realistic to expect such commitment is the question.

Adequate steps must be taken to avoid using fertile land for industrial purposes. Though, India’s farm output is the second largest in the world, productivity is very low. India’s agricultural Value Added per Worker (VAW) has increased only by about fifteen percent as compared to sixty percent increase in China’s VAW and hundred percent increase in Brazil’s VAW, from 1990 to 2004, according to a European Commission report. The VAW are 385, 525, and 3760 units for India, China, and Brazil respectively. Any decline in agricultural output due to decline in either land availability or workers availability for farming will have negative consequences on food inflation.

Apart from the above mentioned challenges, wide-spread corruption, unstable political environment, lack of proper infrastructure such as rail/road connectivity to rural areas and access to financial sources will impact successful implementation of the policy. Nation’s ability to attract private (as well as foreign) investments into manufacturing has to be questioned considering recent scams and gloomy global economic scenario.

Opportunities

India has two advantages. Firstly, the average hourly compensation to a manufacturing worker in India is about $1.0, which is a fraction of compensation in US and less than the compensations in China and Brazil. Secondly, India’s working-age population will be much higher than China’s working-age population over the next few decades.

Few of the debatable items are:

1) How will this policy impact Agriculture ?

2) Can Government actively and impartially participate in developing industrial clusters ?

3) Can Government provide necessary electricity and infrastructure ?

4) Is our education system in a position to support this initiative ?

5) How long will it take to produce Globally competitive products ?

6) Honestly, has this policy been much delayed ? Should it have come long ago ?

References

Shorty

First, Discover the Possibilities

This is my second post in the series of posts on how to keep worries out of our minds.

As a business consultant, to solve a business problem I execute the below six steps:

1)

“God give us this day our daily bread”

M.S. Dhoni, the captain of Indian cricket team patiently replies, “For us, it’s all about winning one game at a time, improving ourselves as cricketers”, to the provocative media quizzing him to predict the end result of a match series. Of course, his team plans and prepares ahead for the entire series, but on a given day, the team is not worried or anxious about the outcomes of the following day.

Renowned Indian poet and dramatist Kalidasa enlightens us on why Today is more important than Yesterday, or Tomorrow, in the below poem.

Look to this day!
For it is life, the very life of life.
In its brief course
Lie all the verities and realities of your existence.
The bliss of growth,
The glory of action,
The splendor of beauty,
For yesterday is but a dream
And tomorrow is only a vision,
And today well-lived, makes every yesterday a dream of happiness And every tomorrow a vision of hope.
Look well, therefore, to this day!
Such is the salutation to the dawn.

As we know, the great visionary, Steve Jobs was inspired by the thought: “If today were the last day of my life ….”. Practicing it helped him to set priorities, be humble, put away fears of embarrassment, failure and external expectations. What Steve Jobs emphasized was that by keeping away fears of tomorrow, one can focus on accomplishing something remarkable today which makes one happy.

Most of us be stewing yesterday’s jam and stewing tomorrow’s jam instead of spreading today’s jam thick on our bread right now, as Dale Carnegie quips.

It has been scientifically proven that human brain cannot execute two distinct tasks at the same time and it is inefficient in multitasking, hence we should not burden it with the worries and anxieties of past and future.

While working on MBA projects, I used to break a complex research question into mutually exclusive and collectively exhaustive smaller research tasks and focus on each one separately. That allowed me to pay as much attention as it requires to each task and complete it to my satisfaction. There is so much to write on this technique of one at a time, but to keep it concise, I am ending this here.

I will write about the other techniques of keeping away worries and anxieties in the next posts. Please share your comments and if you liked the posts, either “Like” it or Share it.

 

 

What worry can do to us.

Last week as I was browsing through the books at Landmark bookshop, I come across a book on Leadership by John Maxwell, a popular author on leadership skills. In one of the chapters of the book, Maxwell emphasizes the need to understand human psychology to build and maintain harmonious relationships and he advises to read the writings of Dale Carnegie.

I picked up the book titled: “How to stop Worrying and Start Living” by Dale Carnegie, as I felt it will be a very useful book to read and learn from, given the tensions I have of late. Here I would share some of the important facts about what worrying might do to us according to the author. There might be nothing new in the information provided here, but by reading it, you will turn your focus to an important, everyday aspect of life that needs to be well managed.

Long periods of worry and anxiety might most likely make a person ill. Scores of illnesses such as stomach ulcers, heart disturbances, insomnia, headaches, lack of appetite, high blood pressure, aching muscles, inability to concentrate, additions, are all caused by prolonged emotions of anxiety, worry, fear, hate, frustration, and despair. In addition, Anxiety makes one easily irritable and hot-tempered. I can recall many instances when I picked up a verbal clash with my teammates or housemates on trivial issues when I was deprived of sleep due to anxiety.

The affects of worrying might manifest themselves on your physical appearance, obesity, facial wrinkles, grey hair, are all consequences of negative emotions. I know of people who have become obese after facing misery in their personal lives. Did you come across people who look older than their age suggests? Perhaps excessive worrying quickened their ageing. So if you wish to look youthful forever, learn to conquer your anxiety.

According to Dale Carnegie, worry is like constant drip of water on our forehead, and those constant drips make one insane. In other words, the affect of worry is cumulative and slowly disables our minds and bodies.

According to MIND, a leading mental health charity in the UK, most people can relate anxiety to feeling tense, uncertain; worrying about feeling uncomfortable, appearing foolish or how successful one will be. It is unclear weather anxiety causes depression or depressed people or more anxious. Can these feelings be controlled ? Dale Carnegie and several other authors recommend certain simple yet powerful techniques which will be discussed in the next blog.

Please share your own experiences on this topic and share/follow the blog if you liked it.