Manufacturing silver linings

Five years ago, India had just a handful of manufacturing companies that were globally competitive — like Reliance, Hero Cycles, Sundram Fasteners, Hindustan Lever and Ranbaxy.
Not any more. After going through a painful decade of transformation, a greater number of Indian manufacturing companies are making their presence felt, led by a new generation of managers and entrepreneurs.Some of these companies are old names like Tisco, Telco, Bajaj Auto, TVS Motors, Sundaram-Clayton, Gujarat Ambuja, Dr Reddy’s Laboratories, Asian Paints, Hindalco and Ballarpur Industries that have reinvented themselves remarkably — Arvind Mills may well join this list soon.
But there are some fresh names like Vardhaman Spinning, Zodiac, Balrampur Sugar, Bharat Forge, Moser Baer, Hindustan Inks, Sigma Corporation and CG Igarshi Motors that are leading the international charge of Indian manufacturing. In addition, foreign companies like GE, Tecumseh and Hyundai have started using India has a manufacturing base for their world-wide operations.
Public sector companies like BHEL, Bharat Electronics and Hindustan Aeronautics are also demonstrating their manufacturing capabilities. Of course, Indian manufacturing continues to face severe handicaps, apart from poor infrastructure. Small-scale reservation and restrictive labour laws have prevented the emergence of a vibrant labour-intensive manufacturing industry to serve both home and global markets. The incidence of indirect taxes, both Central and state, has prevented the mass growth of the consumer goods industry. Whenever fiscal levies have been lowered in the past, like in the case of refrigerators and colour TVs, total revenue collections of the government have actually increased on account of the growth of overall demand. Innovative corporate strategy that focuses ruthlessly on cost-reductions also leads to market expansion as the example of Nirma showed in the 1980s and as the example of the Ghadi detergent brand is now showing. In some specific areas, because of the legacy of policy mistakes in the past, governmental initiative will be needed to force the pace of restructuring.
The steel and textile industries are two prime examples which have to see the type of fundamental restructuring that industries like, for example, cement are going through. We cannot aspire to be an IT superpower without building a domestic hardware base. On a different plane altogether, a special focus is also needed in those areas of primarily unorganised manufacturing that are the life-line of towns and cities across the country like Surat, Rajkot, Bhiwandi, Meerut, Aligarh, Jalandhar, Coimbatore and Tiruppur. Contract manufacturing and international sub-contracting holds great promise.
Sundram Fasteners showed that FDI is not absolutely essential for our companies to occupy global niches. But given that between a third and a two-fifth of international trade in most manufacturing industries is intra-company sales, FDI will play a catalytic role in global expansion as it has in China. But for this to happen, companies coming into India to make India a global platform have to see the expansion of the domestic market as well. The emerging frontier is the integration of services into manufacturing. For example, embedded software is the wave of the future whether it be automobiles or refrigerators. This is an area where Indian companies can capture world markets like the Chinese have done in labour-intensive manufacturing. India’s economic future depends crucially on the revival and expansion of its manufacturing industry. This has begun but the process must accelerate.
The establishment of a broad-based National Manufacturing Competitiveness Council is urgently called for. Instead of waiting for the government to move, for a change industry must take the lead and force the pace.
kautilya@indiatimes.com