Without a shred of doubt, the nation’s transition in manufacturing, from the fettered times of the Licence Raj to the more recent one of global competitiveness, has been noteworthy. And yet, the nagging question remains—how do we go beyond and substantially increase the sector’s relative share of GDP to cross the 15-17% range, where it has remained static for a very long time. Perhaps in equal measure—can it be done at all? The answer to the latter part of the question is a resounding “Yes”, a notion shared by policymakers and industry chieftains alike.
Demographic dividend, a term bandied around freely, is the country’s real strength. Hundreds of millions of young people constitute over 60% of the population who, if imparted the right training, can hold their own against global challenges in terms of expertise or skills, paired with the inherent advantage of labour arbitrage. Towards meeting this goal, NSDP had set an ambitious target of skilling 500 million Indians by 2022. Admittedly, the present annual capacity of skill development programmes is woefully small—3 million or thereabouts. With 1.5 million engineers passing out annually, a significant proportion of who face employability issues, manufacturing in its latest avatar could provide a viable opportunity. Daunting as the challenge may be, the silver lining could well be the country’s pool of scientists, the third largest in the world.
The vision of Make-in-India eloquently articulated by the prime minister time and again, rests on 3Ds—democracy, demography and demand. Skilled labour, a robust legal framework which protects IPR and a strong commitment towards calibrated liberalisation provide a strong framework for attracting global investors. Among the 25 sectors identified, a few like IT BPM, electronic systems, automobile have already forged ahead to stay globally competitive, provide high-end products and services, and sustain their position in the growth curve.
The Indian landscape in almost every state is dotted with industrial parks, SEZs and sector-specific clusters. In addition, country-specific zones provide assistance and support for setting up shop. Towards building adequate infrastructure—a precursor to any form of manufacturing activity—the government’s efforts to build various corridors have been significant—Delhi-Mumbai Freight Corridor (DFC), Bengaluru-Mumbai Economic Corridor, among others.
The Ease of Doing Business Index, often cited as the economy’s Achilles heel, has shown some positive movement as well. Upending previous trends, it has crept up 12 positions in the last 18 months, and though still precipitously low at 130/189, raises hope that we might breach the 50-mark sooner than we think. As was recently noted in the power forums in Davos, India is the only large economy that has clocked a 7.5% GDP growth. As such, it holds hope of providing a strong growth engine for the global economy at a time when the rest of the world has slowed down, and even China has shown a sub-7% growth rate. In the last 12 months, RBIs monetary policy can be termed favourable, dexterously balancing the twin and opposing objectives of increasing liquidity and keeping a tight check on inflation. The steps taken by the government to make India a favourable destination to do business in, while partial in scope, are creditworthy. DIPP, by leveraging its broader mandate, has advised ministries and state governments to simplify and rationalise the regulatory environment, and enable the online e-biz portals to provide genuine single window clearance.
The Indian Electronic Systems Design & Manufacturing (ESDM) has been growing at nearly 10% CAGR in the last five years and is soon expected to touch $100 billion. Revenue growth is driven by mobile phones, TVs, laptops, computers, accessories and the like. That we already have more than a billion mobile connections today, demonstrates that domestic demand in itself is robust enough to support this segment of the Make-in-India vision. Another interesting piece of statistic: over 65% of current demand for electronics is met by imports! In terms of exports (prospective), significant opportunities beckon in MENA and Latin America. The line between hardware and software is rapidly blurring, as we see embedded software playing an increasingly dominant role in the kernel of most hardware devices. Notably, the fabled success of the $146 billion IT BPM industry in itself, lends solid credence to the case for collaboration between the two sectors. This is even more evident when one considers the fact that the engineering and R&D segment of the IT-BPM sector which subsumes design capabilities, is the fastest-growing segment within the industry with a growth rate of 16-18% annually.
Government policies of providing special incentives, customs duty relaxation for certain components, setting up electronic clusters, introducing minimum local/MSME sourcing norm for government procurement, skill development, harnessing the available R&D capabilities and supporting the setting up of Centres of Excellence, have all been positive factors. Investments seen from countries like the US, South Korea, China and Japan, provide encouragement for others to follow suit.
This industry is not constrained by demand. If at all, the challenge will be on the supply side. If the country is able to provide the right talent (both quality and quantity), infrastructure, incentives and effective legal framework, who can predict what miracles the manufacturing sector may yet accomplish in the future—and how it contributes to India’s positioning on the global growth map.
The author is president, Nasscom