At the CII held annual CII Manufacturing Summit held in Mumbai this week, the Boston Consulting Group (BCG) submitted its report on the future of Indian manufacturing that indicated a roadmap for bridging the gap as also assessed progress of the Make in India thrust and elaborated on the comparative manufacturing eco-system of the states and the global shifts. The discussions by the leading heads of the manufacturing companies on the basis of this report, laid the firm ground for identifying the areas where immediate actions are needed for making India a manufacturing hub in the real sense. The report mentioned of the p[problems facing China at the present moment and how India can take the advantage by projecting itself as a supplementary to China as a manufacturing hub to the foreign investors, especially the European and the US investors.

The report takes stock of the recent progress of the manufacturing sector and the Make-in-India initiative, an year down the launch. The outlook is broadly positive given the growth in IIP as well as clear uptick in the manufacturing FDI. The overall IIP grew 3.2 per cent in the first quarter and 14 of the 22 sub-sectors showed positive growth. The buzz around Make in India has been positive and many large ticket announcements have been made. The report also notes the efforts on reforms related to land, labor, GST and procedural simplifications. However, only 20 per cent of the executives surveyed feel that there has been an improvement in 'ease of doing business'. Nevertheless, 42 per cent of the executives feel that the government's manufacturing drive has been effective, as against the 21 per cent who feel otherwise.

The CII-BCG report highlights the declining attractiveness of China as a manufacturing base due to labor and yuan challenges, and emergence of new destinations such as Ethiopia and Vietnam which are becoming competitive. In addition, the report notes that the adoption of advanced manufacturing technologies is disrupting the advantages of low labor cost. According to an analysis by CII-BCG, the cost of industrial robots will decrease by an estimated 20 per cent by 2022, while their performance has been increasing at 5 per cent per year. These developments point to a clear imperative for the Indian industry to focus on innovation. The survey responses also corroborate this focus as 75 per cent of the respondents indicated innovation as focus of their technology investments.

In a positive development, several states are upping their game to attract manufacturing investments. The report calls for continuing action by the State and the Central government on reforms, simplification and infrastructure build-out. In addition, it also highlights the industry responsibility to invest in creating long term capabilities and shun the urge to adopt “jugaad” methods.

As the Chairman of CII Manufacturing Summit Jamshyd N Godrej explained, “Strength of services sector combined with the strength of manufacturing is the future. To reach our full potential though, we need close co-operation among a vast number of agencies especially between people involved in complex system of manufacturing. We have to understand all connections and complexities of its working.”

He said “We have some of the finest manufacturing companies based in India doing exemplary quality production. We have strength but the question is how do we build on those strengths and improve upon areas that need improvement. We have to realise that the industry cannot ask for protection. Because the more protective we become the world will react in the same way. Our strength comes from competitiveness and not from protection. India benefits from essentially being more competitive.”

According to Dr Arindam Bhattacharya, Senior Partner & Managing Director at BCG, said “Make in India initiative couldn’t have been launched at a better time. Global manufacturing is in turmoil with the low cost model of last 2 decades coming under pressure. China's competitiveness is eroding. Brazil, seen as one of the most competitive 10 years ago is becoming a high cost country. In contrast, world's largest economy, the US's whose competitiveness had eroded has become one of the most competitive and is bringing back manufacturing capacity from offshore low cost countries.

In contrast India's relative competitiveness has remained constant. This turmoil provides a unique opportunity to become a top 3 manufacturing player in the world, becoming a top 5 country manufacturing exporting nation from current 15th position. Make in India has changed the mindsets – both inside and outside the country. Accelerated implementation of reforms being implemented in the fundamental build blocks of Ease of doing business, power/coal, infrastructure build-out, labour laws, taxation could ensure that this is not another missed window of opportunity for India.”

In fact Mr. Ajay Shankar of DIPP was most candid. He said “We have to do a lot to inspire both Indian and the global investor to invest in India. And this can happen only through genuine partnerships, be it between manufacturing and services or business and labour. We have to create 100 million jobs in the country if we are to remove inequality and poverty.” Highlighting the connection between the services and manufacturing sector, he said, “For a long time we had this wrong idea that we will bypass manufacturing and directly become a service industry economy. The world has changed and so has this old way of thinking manufacturing and services as different. The two have to become partners in creating jobs and value in India. Manufacturing is finally getting the centre-stage it deserves. Growth in the manufacturing sector is no longer an aspiration but a necessity for us. We have to succeed in creating jobs because if we don’t we risk social instability.”

Mr. Shankar said, “We have had some extraordinary successes but we are nowhere in the global scale for conventional labour intensive manufacturing. This is a weakness for us. Because of rising labour costs, 300 million jobs are moving away from China. There is a window of opportunity of 100 million jobs there. We can get 50 million of those if we get our act together.” (IPA Service)