Manufacturing has high cost of investment
While the government’s efforts to scale up manufacturing are laudable, they will not get the support of the organized unions
Manufacturing, which was a major part of the Indian economy at the time of Independence, is languishing and the Government of India is making serious efforts for the Make in India campaign. India has a competitive advantage in terms of labour costs, for when you convert the cost of labour from rupees to dollars, it becomes very attractive to manufacture in India.
But there are two major problems that confront every manufacturer here. One is the poor productivity and performance that needs to be scaled up to global levels and this is a major challenge because of the knowledge, skill and competency gap. Many of the workers are first generation or at best second generation and they are not used to the pressures and rigours of coordinated, team-based rhythmic work activity. It is a major challenge for the managements also to keep the activity levels high because it means good resources planning, scheduling, manufacturing disciplines, quality adherence and commitment to delivery schedules.
Apart from labour, the real problem for manufacturing is the cost of investment. While the objective of paying people fairly high compensation for acquiring their land is indeed laudable, the very high cost of land will drive up the capital costs and the break-even points for the manufacturing business. Further Indian companies have to struggle with infrastructure like roads, connectivity, power, etc. and the further you go into the country, the more nightmarish the operations become.
On all these fronts, we are notorious for slippages and it is often a nightmare to get everything right for the full eight hours in a shift. At best, it will happen only for three or four hours. A few companies are getting this right, but when they get this right, suddenly they find that there is no market and there is a major crisis again. But this will change, once the global economy picks up and two countries in the world will reap the benefits: India and China. Any country that ignores this will ignore it at their own peril.
While the government’s efforts to scale up manufacturing and liberalize the environment are laudable, they will not get the support of the organized unions for this as it will be a serious threat to them. The Rajasthan government has already amended the labour laws and this will soon compel other states to follow as no state can afford to be complacent and expect that investments will start pouring in. States like Andhra Pradesh, with the wily Chandrababu Naidu, Version 2.0, will be more than a match for Modi Version 2.0. Tamil Nadu has already started screaming hoarse that all the investments will be attracted to Andhra Pradesh and has motioned the Centre to ensure that they rein in Naidu. Gujarat has already been a good destination for the manufacturing industry where entire businesses are run with contract labour. Other states like Goa and Maharashtra have also been compelled to liberalize the engagement of contract labour in their states because of the rush of investment into Gujarat.
Overkill for Indian competition?
Progress cannot take place without pain. Make In India will not eliminate Indian competition. By expecting that to happen, one is ignoring the resilience and innate competence and capability of Indian ingenuity and innovation. India has given several Nobel Laureates to the world. We have the talent and the capability. Yes, when the market is opened up, there are bound to be some casualties. But, the campaign will bring the best out of Indian businesses, for if they have to survive and grow, they must master this environment.