OPEN FORUM

New Delhi, 10 February 2006

 India’s Manufacturing Sector

INNOVATIVE & HIGH GROWTH IMPERATIVE

By Dhurjati Mukherjee

A transformation in manufacturing and trade has definitely swept the entire world. There have been demands, and quite justifiably, that the developed world has not shown magnanimity in sharing capital and technology to the extent necessary with their Third World counterparts. But even then there have been significant improvements in manufacturing technology of the latter countries, obviously through their own efforts. 

One may mention that the kind of goods exported by the developing countries in 1965 were in the form or primary commodities (85 per cent) which have shifted to manufactured goods (79 per cent) by 1998.  In fact, a great deal of new manufacturing in the world is now taking place in countries in which just a few decades ago, there was practically no manufacturing.

The Indian manufacturing sector has also made rapid strides since the last decade but more explicitly in the past three-four years. In the wake of liberalization, the manufacturing sector got its act together after initial jitters, presenting a face of confidence and growth. In 2004-05, the sector grew at 8.9 per cent which is expected to be around 10 per cent, in the current financial year.

At a recent meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI), Prime Minister Manmohan Singh said manufacturing is critical for a country evolving from a farm-based economy.  “Manufacturing is the sponge which absorbs people who need to move out of agriculture in pursuit of higher incomes”, he observed.  However, the Prime Minister expressed concern that the share of manufacturing in the national income had shown a marginal improvement from 15.8 per cent in 2001 to 17 per cent in 2003.

Though the sector has overcome basic challenges like inefficiency, quality standards and high cost of production in recent years, India is still way behind in manufacturing with hardly 20 per cent of the gross domestic product.  A study in Vikalpa, of the Indian Institute of Management, Ahmedabad, some time ago found very slow improvement in manufacturing parameters in most companies such as productivity, quality, on-time delivery, manufacturing cycle time, procurement lead times, raw materials inventory, average unit production costs etc.

There is thus need for further improvement in manufacturing through technological innovations and greater emphasis on research and development (R&D) which the country with its large scientific and technical manpower is quite capable of doing.

The new economy of information technology and telecommunications can help improve deficiencies in manufacturing through better monitoring, catching defects before they arise and computerized operations.  It can help customized production at no additional cost, thus making products more unique and attractive to the customer. It can enable speedier innovation by cutting the time from getting an idea to getting it converted into a product in the market.

Though in the heavy industrial sector, manufacturing techniques have greatly improved, the picture in the small scale and cottage industries sector is greatly different. Most of their products do not match international standards, while the costs of production are relatively high. As their products are not marketed on a centralized basis, as is being done in China  If manufacturing is handled effectively by any centralized agency, both in India and abroad, turnover would greatly increase.  This would give an impetus to the small scale sector to develop their manufacturing technologies and become quality conscious and cost effective. and many other countries, these industries suffer in various ways.

Infrastructure, especially availability of power, has also come in the way of development of small scale and cottage industries.  The Chinese example needs to be emulated in India, if rural industrialization is to spread all over the country which, in turn, would generate lot of employment (and self-employment). But for this to crystallize, the Government has to extend some subsidies, so that the manufacturing techniques of this sector improve and become cost effective and, at the same time, maintain a level of quality.  China’s dominance in world markets in labour-intensive products like garments, toys, leather goods and so on explains its emphasis on quality, costs and marketing.

However, things are changing fast and with research and trade institutions very active, new technologies may become available easily and this will obviously have an impact on quality and costs in the coming years.  Though R&D expenditure in the country is still very low at around 0.80 per cent of turnover, this is steadily increasing.  Moreover, Indian scientists, engineers and technocrats are acknowledged to be of a high standard and their endeavours in various fields should help transform the Indian economy in a big way.

The recently-released draft report on national strategy for manufacturing by the National Manufacturing Competitiveness Council has recommended enhancement of government focus on imperatives, creating conditions for growth of the sector; lowering cost of manufacture; investing in innovation through emphasis on R&D; strengthening education  and training; adoption of global best practices; promotion of small and medium industries; enabling public sector manufacturing industries to emerge big and strong; infrastructure development; creating a monitoring mechanism and measuring performance.

There is today an integration of national economies into the international economy through trade, direct foreign investment, flow of technology and flow of workers.  Thus people, capital, technology products and services are expected to flow freely into India.  Efficiency and value engineering have already been recognized as tools for global competitiveness which the country will have to pursue more vigorously in the coming years.

In such a situation, manufacturers have to change radically to compete successfully with foreign entrants and develop ways and means to expand operations and enter new and unexplored markets.  As trade with the neighbouring countries as also with ASEAN nations is destined to increase rapidly in the coming years, there has to be sustained efforts to tap these markets with a wide range of products. ---INFA

(Copyright, India News and Feature Alliance)