1. Column: A strategy for making in India

Column: A strategy for making in India

The sustainable long-term gains will come from a “new pivot” for Indian manufacturing.

By: | Published: April 23, 2015 12:25 AM

It is almost axiomatic that, to grow, India has to make more and different things than it does now. The debate launched by the “Make in India” policy goal has been about what to make and who to make it for. The obvious implication for policy, irrespective of the specific answer to these two questions, is that doing business in India needs to become easier. This goal has also been clearly articulated. What is missing from much of the debate is a sense of how India’s businesses will develop competitive advantage in a global economic environment that is more challenging for growth than in previous decades.

Pankaj Chandra, former director of IIM Bangalore and an expert on manufacturing management, has recently provided an answer to the question of an appropriate strategy for fostering making in India, in an article, “Pivoting Indian Manufacturing Differently,” published in a special issue of the journal India Review that focused on Indian economic growth and reform. Chandra argues that there is a fundamental area of policy confusion with respect to manufacturing in India: “The rationale behind our industrial structure and the resulting competitiveness or lack of it.”

Chandra begins by giving examples of post-liberalisation failures to help Indian firms build technological capabilities in the face of increased competition. This line of reasoning clearly assumes that there is a public good aspect to technological upgrade. Chandra goes on to suggest that there has been a dysfunctional mix of controls and inattention that has hurt Indian manufacturing in the past two decades. He describes the gains from fixing infrastructure, improving the ease of doing business, and dealing with distortions in tax structures as “low hanging fruit” for policy reformers. But, according to his analysis, the sustainable long-term gains will come from a “new pivot” for Indian manufacturing. What does this mean?

In his 2009 report on the National Manufacturing Survey, Chandra had argued that the most competitive firms in India were those that focused on high value, low to medium volume, and high variety, and this is still the case. These firms are flexible and capable of high precision in manufacturing. The question then becomes how to allow such firms to start, grow and become more dynamic in their product and process innovation. Chandra’s answer is that new types of incubators and clusters need to be developed. There is a key difference from traditional industrial estates in Chandra’s conceptualisation: “It is not a collection of several competing firms but a competitive network of collaborative firms that comprise the entire manufacturing ecosystem.” Chandra goes on to point out the specific deficiencies in India’s existing, more traditional clusters, and encapsulates his vision as one of collective scale with individual flexibility.

The analysis translates into specific goals for firm creation. Chandra estimates a need for at least 50,000 manufacturing start-ups every year, which could engender 5,000 mid-size firms after five years, and 50 large ones after 10 years. This kind of firm creation and growth is a minimal condition for generating 100 million new jobs. Chandra is also careful to draw out the human resource implications of such development. He describes the different types and levels of skills needed throughout the manufacturing value chain, and where India has the most severe deficiencies. Interestingly, this tight feedback loop from skilling potential employees for manufacturing and the creation of successful manufacturing firms does not seem to have been analysed or even thought about in the context of “Make in India.”

Chandra’s vision of manufacturing in India is one that gets to the heart of the driving forces of industrialisation in the modern world, where there is global competition and the rapid development of new technological capabilities. His vision is one where workers are not necessarily trapped in unsafe, low-skilled factory jobs that might have been the central focus of industrialisation in Victorian England, but have opportunities for participating in increasing productivity, because that is what is required for this new world.

There is much more detail in Chandra’s analysis, which should be required reading for every policy-maker and politician—at national and state levels—who can influence manufacturing policy. For that matter, business leaders should also be absorbing Chandra’s analysis, because it helps them see what they need to do collectively, to shape policy debates and go beyond lobbying for individual favours to creating an environment for sustainable growth in Indian manufacturing. This kind of positive conceptual collaboration between government leaders and business leaders was one of the hallmarks of industrialisation in many East Asian countries and, earlier, in parts of continental Europe. India faces many challenges in the current global growth environment, but it has the advantage of greater conceptual understanding of the process of industrialisation, starting from the individual firm, up through clusters and industries, to a manufacturing sector that accounts for 25% of the economy and provides tens of millions of good jobs. It needs to turn Chandra’s understanding into action.

The author is professor of Economics, University of California, Santa Cruz

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