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A stronger Make in India will beat the Chinese threat

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If India is to match China in both technology and scale, many bottlenecks will have to be removed. The idea of ‘Make in India’ is not just about internal development, but also effectively countering threats from the outside. In terms of both geography and potential, India’s biggest competitor today is China.

To compete with this economically powerful neighbour, India needs development on multiple fronts. While China has raced far ahead of India, today its manufacturing is slowing down, wages are rising and the labour force is dwindling. On the other hand, the Indian labour force is just coming of age. If we are to match China in both technology and scale, many bottlenecks have to be removed. Apart from the well-known issue of poor infrastructure, there are several areas that need to be tackled on a war footing.

Skills: It is estimated that by 2030, India will have the largest labour force in the world. Yet, the availability of a large workforce alone is not enough. Jobs also need to be created and most importantly, skills have to be developed. ‘Make in India’ seems like the perfect platform to absorb an annual 12 million-strong workforce with jobs. However, unless this workforce is equipped with the required skills, India will miss the bus again. China invested in education and is reaping the benefits. Consider this; in 2004, while China had only eight universities in the world’s top 500, and none in the top 200, the current respective figures are 32, and six. China’s universities are now second only to those in the US in terms of the total research output.

The correlation between the quality of education and the nation’s progress is obvious. The Indian government and the private sector should join hands to align education to practice by encouraging meaningful apprenticeships within industries by amending the Apprentices Act, 1961, to make it relevant in the 21st century.

Multi-pronged reform plan

Over the last two decades, China has striven to transform itself into the world’s second biggest economy, through a slew of reforms, including the mass reallocation of labour from low-productivity agriculture to high-productivity manufacturing. What motivated Chinese workers to slog day and night? This is partly answered by a sociological reason: the people of China and other nations in the Far East have always been disciplined.

A dose of strong-arm enforcement injected into oriental values ensured a disciplined work ethic. By combining worker benefits with relaxation of hiring and retrenchment norms in its labour reforms in 1995, China was well on the way to becoming a manufacturing powerhouse. While China does have unions, they are virtually, without exception, under the control of the All-China Federation of Trade Unions which is controlled by the government and the party (Communist Party of China). Collective bargaining, legal strikes or dispute resolution are non-existent. Here, in democratic India, the present labour laws impede industrial growth. Labour reforms are never easy, as there are multiple stakeholders involved, from workmen unions to politicians and the government.

How did China manage to develop absolute advantage in so many industries? The answer is simple — with the government’s whole-hearted help. State-owned banks give loans to local companies — large or small, at rates as low as two per cent, and local governments across China allocate cheap or free land. In India, funds are grudgingly provided to MSMEs at crippling rates of interest. The export subsidies and incentives granted by the Chinese government helped grow a vibrant manufacturing sector with thousands of small, medium, and large industries, focused on high-volume mass-manufacture aimed at exports. In addition, the market access available to China as a result of its WTO membership, contributed to its impressive trade performance. China also created barriers for imports to maintain huge trade surpluses. For example, products that have passed international quality certifications have to again undergo tests like the China Compulsory Certificate (CCC) for entry into the Chinese markets. Hence, today, China is the shop floor of the world.

In India, on the other hand, myriad rules, regulations and harassment are killing the manufacturing industry. The so-called incentives and subsidies for exports are so difficult to access through the maze of red tape, that manufacturing industries, especially the smaller ones, find them unviable. It is not surprising therefore, that a World Bank report ranks India at 130, and China at 84, out of 189 countries, in terms of the ease of doing business. As a result, Chinese products turn out to be cheaper than the local ones in spite of import expenses, though not necessarily better in quality.

The way forward

While India soared ahead digitally, the manufacturing industry was neglected. The government should now aggressively focus on building robust infrastructure from the foundation, providing support to the industries in the form of low interest loans and subsidies. However, the Chinese model of export-oriented industrialisation is not the way to go. Although China is at the helm of global exports, it is now struggling to boost internal consumption. India has the potential to become a thriving manufacturing hub. There are multiple factors in favour of India; it is up to us to leverage them and race ahead. If all the concerns of the manufacturing sector are addressed, we may well see India and China trading places in the future.

The original article appeared on Deccanherald.

In-house innovation

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Design capability is like a capital asset required to churn out high value returns. It is like a compelling fragrance as it spreads across domains. Design and manufacturing together produce a closed loop system of learning, improvement and further innovation. But, if you do not possess this asset, you are only providing low value manufacturing services while allowing an overseas designer to dictate terms forever.

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Design is a very strong capability since it allows continuous upgradation of products and processes. An ecosystem that encourages innovative design yields new technologies and products thereby leading to large-scale local manufacturing and overall economic growth. Design in India should therefore be the larger objective of Make in India.

Over the last 50 years, there have been many examples of indigenous design. Examples in the ’70s include the Sumeet kitchen mixie, the wet grinder, the Good Knight mosquito repellent and early models of washing machines. In the pre-reforms era, there were many truly Indian products for home consumption. Revolutionary inventions in Indian classical music—a traditional niche area—include Radel’s electronic tambura, tabla, sruti box and veena.

Cut to the present. Why are our large business houses importing simple appliances like bread toasters and electric irons from China? Even in the booming automobile sector, there is not a single vehicle in India that is fully indigenous in design, in spite of large private players having manufactured under licence for over five decades.

Many consumer and industrial products were earlier being manufactured here. Why did these industries turn into traders of imported commodities? Electronics was identified as a sector with high potential in the late ’70s. We missed many opportunities to create a vibrant electronics industry. Companies in the US and Europe offered to set up semiconductor fab plants but we refused. Malaysia, Thailand, South Korea and Taiwan accepted these opportunities and are now miles ahead of India. In the strategic defence sector, India has manufactured battle tanks and aircraft under license for over five decades but doesn’t seem to have learnt how to maintain and support these ageing platforms. On the other hand, in spite of sanctions, the Indian Space Research Organisation demonstrated our capability to experiment, learn and ultimately deliver. ISRO is now launching satellites for international clients at a fractional cost. This is the model to be replicated in defence as well.

The problems of designing and manufacturing in India include long delays for routine matters that result in hidden costs. Exorbitant taxes demanded by authorities, lack of uninterrupted power, water and other infrastructure and rampant corruption by police and tax authorities ensure that Indian entrepreneurs, with a few exceptions, are the least competitive in the world. The last straw for the entrepreneur is the outdated labour laws that encourage undisciplined workers to hold establishments to ransom.

There are no simplistic solutions. Governments need to drastically simplify procedures and cut the red tape. Employees and managers in organisations need to change their work culture and ethics. Chinese organisations execute orders in record time while employees of a typical Indian organisation take days to respond to an email. That’s how they get more orders than us.

The Indian education system, from the primary level, needs to teach students how to think and apply knowledge rather than crack exams. We can still become a manufacturing powerhouse with determination, a change in attitude and the courage of conviction. Time, however, is running out.

The original article appeared on The Week.