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The recent events in the Maruti-Suzuki factory in Manesar shocked the entire nation, but it just an example of the underlying discontent within the manufacturing sector in the country. Indian manufacturing has never been the darling of the masses unlike its services and agricultural counter parts.
Manufacturing sector came off in very bad shape thanks to License raj and by the time Indian liberalization came about, we were way behind counties like Taiwan, Thailand, Malaysia and China.
The Indian story was never a manufacturing story but rather an agricultural story that was abruptly high jacked by services.
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The Manufacturing sector has been in more trouble since the 1990’s as evident by these two findings.A study by Unni, Lalitha and Rani in 2000 showed that industrial productivity both in the organized and the unorganized sector has actually declined in the 1990’s. A study by McKinsey showed that Indian labor productivity was only 15 % of the global highest standards as displayed by China.
This they felt was a direct impact of low wages, lack of investment in technology to improve productivity, process improvements and better managerial practices.
Though some firms like the TATA’s, Bharat Forge, Moser Baer and Mahindra’s have shown that Indian Manufacturing sector can compete; these are more of the exceptions than the norm.
There have been many reasons for the lack of new Industrial activity in the country. According to Prof Rishikesha T Krishnan of IIM Bangalore,author of the best seller, "From Jugaad to systemic innovation" the lack of infrastructure, followed by the environmental clearances required and capped by inspections are the three main reasons for the inertia among budding entrepreneurs in setting up manufacturing.
As compared to this we have IIM graduates take up Dairy and Organic farming. And we have technologists forming services firms. But rarely would you hear the setting up of manufacturing unit.
Also PE and venture capital in India traditionally chases services opportunities, with its high rate of return and low exit barriers. Manufacturing on the other hand is a Capital intensive industry with a high exit barrier.
But I think the biggest stumbling block for manufacturing is the lack of man power in India. The low wage, poorly skilled manpower, whether in construction or in factories is really the final nail in the coffin for Indian manufacturing. This has led to simmering discontentment among the blue collar workers.
As the industries get more competitive and price is the only differentiator, cost cutting at the expense of the workers has led to the incident at Manesar.
The incident and unrest may have been controlled but the implications ill echo for a while, and the starting point may be Maruti may lose its number one status in India. But Indian manufacturing may never find its status in the global economy.
One doesnt see entrepreneurs in the Manufacturing sector for some of these other reasons:
ReplyDelete1. Capital intensive and involves land acquisition, which is a big issue. Entreprenuers in the IT sector have thrived even with small offices and work from home policies, cleverly avoiding any potential land grab allegations. Event the Tatas had to face the Singur wrath, despite being a well established business house.
2. Involvement of Labour unions and Labour laws. The IT sector or hospitality for that matter does not come under the direct purview of unions. Although one can contest a case against long working hours and por working conditions, one seldom does because of th lack of a union backing it.
3. Intensive training requirements for staff. The staff in the manufacturing sector is perhaps the least trained of all labour in this country (except agricultre, perhaps). In contrast, the services industry has greater choice in picking candidates who might require least training. This calls for the government to set up more ITIs and offer basic employability skills to candidates so that some burden of training costs are reduced for companies.
All these reasons, plus the fact that you are working on something tangible (unlike a service) result in fewer innovations in the sector.
I agree and all three are critical reasons why manufacturing has lagged other sectors in India. This gap is bound to increase as we evolve further as an economy and nation.
ReplyDeleteJust just wondering
ReplyDeleteSeeing from a more holistic view , ie sitting in space, and watching the planets production and consumptions centres, it might be okay for india to not have the manufacturing prowess...
As long as we are almost there, and lack of manufacturing muscle, does not become the exploit factor or becomes root cause for social unrest/starvation, we are fine.
/A M.S (AnonyMouS)