While Modi’s Ambitious ‘Make In India’ Takes Off, 3 Crucial Problems With The Manufacturing Sector

Posted on September 26, 2014 in Business and Economy, Politics

By Mayank Jain:

“It’s complicated, too many relations, too many people can have a say, too many people can block. Currently, there are lots of complexities or uncertainties. Was I surprised at the international backlash post the retrospective taxation, I was not surprised. Has this really backfired on India, the answer is yes. I wasn’t surprised when India’s public image suffered.” – Vodafone Group CEO Vittorio Colao.

Prime Minister Modi, with his unfazed focus on improving the industry and manufacturing conditions in the country, launched the ‘Make In India’ initiative. He has graciously rolled out the red carpet, inviting MNCs and other industrial corporations to consider India not just as a market but as a manufacturing hub. With demographics on our side and every third person with a graduate degree looking out for a job, manufacturing in India is not a bad idea at all and instead, is the need of the hour.

Make In India couldn’t have come at a better time, but will it be enough?

The differentiator between developed and developing economies is majorly seen to be the contribution of organized manufacturing to the GDP, which is devastatingly low in India as compared to our contemporaries. India’s manufacturing sector accounts for only 16% of GDP, while China is already receiving one third of its GDP from manufacturing. The share of Indian manufacturing in the worldwide markets is also pitiable at 1.4%, while China has already zoomed to 13% plus from a level of 2.9% just 20 years back.

Make In India projects India as a fertile industry base, and competent to handle the business needs of MNC’s due to its linkages with the rest of the world. However, the rosy picture depicted in PowerPoint presentations and press conferences seldom holds true on ground as global businesses seem to back off from setting up bases in India; Vodafone, Walmart, and a whole lot of Japanese companies are glaring examples.

The 3 Problem Children Of Manufacturing

Indian manufacturing revolves around the FDI rhetoric so much that we have most likely forgotten that around 8-9 million people join the workforce every year. Not all of them can be employed in projects that come through the way of FDI since the process is usually long drawn and erratic. The Ease Of Doing Business Index, which tracks the relative easiness of setting up operations in the country, reveals the same fact about rampant red tape and lax governance in the country. We are placed on a measly 134th position with countries like Uganda, Kazakhstan and Cyprus ranking above us.

Infrastructure Deficiency: Projects Worth Rs 7 Lakh Crore Stuck In Red Tape

“We need infrastructure, we need highways, we need cold storage facilities”, we have all heard this enough and now we need a break. It isn’t a bad idea to actually think about delivery before planning new projects. Promising is easy, but fulfilling isn’t. A lot of projects never take off from the paper they are inked on, and remain stale headlines in some forgotten newspapers.

Infrastructural development is not just about making better buildings or faster trains, but at the same time, overhauling the overall processes involved in getting a new entity set up. Intellectual properties, research and development grants, a market friendly atmosphere with transparency and focus on e-delivery of services are all part of infrastructure which we can start to build right away instead of waiting for the disbursement of hundreds of crores from the Union Budget every year.

Job-Skill Mismatch: Only 10-15% of regular graduates are employable

People graduate with flying colors every year from popular courses like Engineering, Medicine and Business Studies, but end up looking for their elusive first job simply because they aren’t equipped enough to work in the industry. While we blame the industry for not giving young graduates a chance to work and point out evils in FDI, the focus never comes back to the quality and characteristics of the kind of training and education people receive.

75% of IT graduates are deemed ‘unemployable’, 55% in manufacturing, 55% in healthcare and 50% in banking and insurance, as pointed out in a report produced by FICCI and Ernst and Young, called Higher Education in India: Vision 2030.

Studying about an industry and working on the shop floor are two completely different things, and a lot of surveys point out the anomaly that has crept in our mode of imparting education. The government should start analysing the quality of education soon and industry interface needs to be built in schools and colleges so that students are apprised about the current trends and requirements in the job they hope to take up right from the beginning of their courses.

Agriculture Myth

India is often termed as an agricultural economy whose mainstay is agriculture. However, the contribution of agriculture to the GDP is fast coming down from its above 50% levels at one point. Industry and services together rose over 11% in their contribution to the GDP, but employment figures rose only by 6%. This implies that we continue to employ more and more people in agriculture while income growth is happening in the industry.

share of sector

The mismatch is due to a lot of factors and the major one is lack of skilled labor in the country, which could be employed gainfully in the factories and shop floors. However, lack of education and hereditary patterns observed in the interiors make youth more drawn towards agriculture. This, however, is no excuse to not internalize the industrial development and make work opportunities reach people rather than waiting for them to migrate.

Despite these three big anomalies and other issues like red tape and corruption, Indian industry continues to grow, which reinstates faith in the resilience of the economy. However, it is the right time to take the debate beyond FDI and fix on ground issues at home before we throw open the doors for visitors and expect them to ‘Make In India’.