Column : Can India be Germany of East?

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SummaryGermany of the East and not Factory for the West’. In a recent survey of CEOs in India’s manufacturing sector carried out by the Boston Consulting Group in partnership with CII, this came out as a clearly articulated aspiration.

Germany had a social contract between govt, industry and unions—India has mainly mistrust

Germany of the East and not Factory for the West’. In a recent survey of CEOs in India’s manufacturing sector carried out by the Boston Consulting Group in partnership with CII, this came out as a clearly articulated aspiration. The CEOs want to build high value manufacturing sector based on India’s perceived advantage in engineering and ‘jugad’ skills, and not on the large-scale low labour cost driven manufacturing growth model of China. They see the current churn in global manufacturing industry as the best opportunity to shape India’s position for next two decades, an opportunity that was grabbed by China two decades ago when the western world discovered low-cost manufacturing. Thus, China became the factory to the West.

That is the aspiration. What is the reality? Three years ago, the Indian manufacturing was ‘flying high’. The growth rates in one quarter touched a high of 10% and performed consistently around 8%. The National Manufacturing Plan was announced last year targeting a contribution of 25% of GDP for the manufacturing sector in 10 years from current level of 16% and to take India to the forefront of global manufacturing giants. In just three years this high flying sector has come crashing down with IIP growth becoming negative (minus 0.35% over April-September 2012, compared to 5.5% and 8.9% in the same period in preceding years), flat manufacturing GDP growth in FY13 so far and falling investment to GDP ratio (from 38% to 32%).

Perhaps there is no more disturbing data than a comment by an industry leader at a recent manufacturing summit when he said that the number of manufacturing jobs in the organised sector in India today is the same as the number 40 years ago when he joined the industry after passing out from college. As another participant in the same summit said, the labour laws have done a great job in protecting the interests of less than 5% of the total workforce at the expense of the 95% rather than creating new jobs!

Many reasons have been put forth for this short-term decline in performance and the long-term jobless growth in the manufacturing sector. Most of these issues like access to land, raw materials like coal and iron ore, lack of power, cascading taxation, poor infrastructure or stifling business regulations etc are clearly understood, and there are plans and/or bills

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