INDIAN MANUFACTURING

Merchandise exports have picked up in line with global trends. Within India, industrial investment has seen a 29% rise last year (Rs 100.5k cr). FDI has surged 18% and a whopping 38% in manufacturing. Insurance, newly opened to FDI, is top 2 in attracting FDI. Railways and Defence OTOH have received little. The private sector is willing to invest in India, but perhaps not where Govt retains an all-encompassing presence.

Textiles and electrical equipment, two high employment areas with export potential, are top gainers of new investment. It appears to be a boon for small electrical equipment sector while textiles is benefiting from Centre's textile package. Though India has a comparative advantage in textiles, it has failed to capitalise on its strengths.

Is ‘Make in India’ beginning to bear fruit?

India as a Major Global Manufacturer

India has integrated its manufacturing within global value chains, though not benefited large sections of the low-skilled workforce. Global value chains favour lax environment in labour laws, no domestic content and easy market access. India has not benefited from high-value addition in its manufacturing. India has given away its markets to foreign manufacturers at the expense of its domestic industries. Its effects are seen in higher merchandise exports but not much in the way of manufacturing GDP growth. The per cent of manufacturing GDP remains dismal as does the share of global GDP in each sector.

Can India become the new factory of the world?

For India to do better
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A.
Reduce the cost of doing business
Reduce Govt meddling— for transparency, no corruption, rule of law
Delivery of good public service—hassle-free, safe to work
B.
Indian raw materials or semi-processed inputs
Broad range of strengths in domestic ancillary sectors
Sophistication of its products and production processes
Adequate number of agile competitors. Efficiency
Focused R&D
C.
Active government intervention
Domestic content
Market access
Also: https://arvindagarwal1.blogspot.com/2019/03/global-manufacturing-competitiveness.html

A.
i) Cost of doing business, Govt meddling & public services delivery
Could look at "Ease of doing business" ; GST ; Lower cost of logistics, faster travel, viable multiple modes of transport ; Trade facilitation ; Lesser cost of basic inputs—due to efficiency and competition in basic industries ; Very good business environment— where business have high integrity, good customer service & good overall quality ; Good skilled workforce ; labour market reforms.

eg.
TELECOM—India has excellent competition, sophisticated operators. Govt has ensured greater reach and trying to create a national optical fibre broadband network.

COAL—India has surplus coal. Ministry is working on providing assured quality, availability on demand, lower procurement costs, exploit coastal shipping & waterways routes, GPS tagging, streamlined supplier-customer interface and commercial mining.

STEEL—India has excellent competition, good range of suppliers. Quality and special steel is becoming available. Govt is encouraging higher R&D, technology partnerships, good linkages with raw materials, capacity expansion & building of very efficient plants.

POWER—24/7 access, overall quality, speed of connections, lower power tariffs for new business, tariff rebates for export industries, higher investment in transmission & distribution and cheaper & highly efficient new generation (solar, wind, nuclear, super-critical coal). Energy efficiency is delivering benefits. Indigenous equipment or MII with high domestic content is being promoted.

GAS—India has significantly increased LPG import capacity, gas-pipeline network and has assured, diversified suppliers. Industrial and city gas networks are expected to reach all locations. India is expected to double gas production. It may get a direct pipeline connection with Iranian gas fields.

LOGISTICS—India has wide-ranging initiatives to totally upgrade its logistics infrastructure. India is creating a capacity to improve speed, expanding networks to poorly served regions, adding freight specific infrastructure and digitalising systems like e-tolling & scanners. As well as this, it is developing coastal industrial zones.

AGRI MATERIALS—States are promoting micro-irrigation (for sugarcane, other cash crops), pond irrigation & minor irrigation projects. Centre is funding irrigation in drought-prone regions (eg. Bundelkhand). Major growth is seen in horticulture, dairy, poultry and meats. Promising areas getting traction are eg. food processing, cold chains, covered horticulture, contract farming, floriculture, sericulture, deep sea fishing, marine caged fisheries, biofuels and organic fertiliser (perhaps from crop residue). Crop cycle shortening can create a third season. More could be done for palm oil, summer moong, desert plants, fodder and GM crops (for soybeans and corn).

B.
ii) Indian raw materials or semi-processed inputs where India has good potential is willing to invest monies and can create good value addition.

iii) Broad range of strengths in domestic ancillary sectors to support domestic production. Services are a good example. Capital goods (like machinery) is another sector. Where India has shown proficiency, domestic content should be imposed.

iv) Sophistication of its products and production processes is required for the domestic investment to go into manufacturing, and to grow the sector from whichever stage it is at.

v) Adequate number of agile competitors. Efficiency is the key, but competition gives the impetus to go for innovation, investment and improvements.

vi) Focused R&D where India wants to achieve comparative advantages, to help competitiveness for domestic producers. Govt can work on getting technology partner from a non-manufacturing country or a small country like Israel.

C.
vii) Active government intervention to promote higher technologies, efficient production, high quality. eg. Steel mission is all about this. The government can take a holistic view. Effective check-points to block entry esp of banned goods.

viii) Domestic content
Where critical mass has been achieved, and players are capable, competitive and well resourced, add domestic content into contracts.

eg. Metro coaches. India doesn't need to import and should develop the industry internally. Actions would be competitive tendering, modern specs, innovation, exports targets met, ease of doing business and access to inputs. If technologies are not available then put the effort into getting them, either by 3rd party agreement or by promoting R & D.

ix) Market access for its high-value addition products or where India has a comparative advantage.

DEFENCE MANUFACTURE The Indian defence budget is under stress - and this despite producing everything at PSU costs. How can we change India's ailing defence sector? One answer is resource management. 1. Invest to reduce maintenance 2. Rationalise logistics, bring IT into the value chain 3. Insist on high-quality control as this may also save cost 4. Bring automation if this reduces cost and improves quality 5. Introduce modern production technology (eg modular naval construction). Doing it with PSUs or private hardly makes a difference. Jobs will be created regardless. OTOH, competition will bring required efficiency, quality control and accountability (timely delivery, servicing, correct stock levels). Govt will benefit and this should ease its financial stress. Also standard of equipment, the speed of manufacture and even range of Indian production will be much higher. Then there is a need for bringing higher sophistication into production. Defence sector should be a leader in new production technology. Lessons learned here can be applied broadly across sectors. Hopefully, it spurs innovation in production processes and technologies.

No more red tape, private sector may soon lend a cutting edge to India's weapons capability