Are we ready to Make In India?

The Indian growth bubble has been in a state of constant flux. From a high of 11.4 per cent in 2010 to a low of 4.4 per cent in 2013, the Indian growth story has hiccupped and spluttered during the rule of the last UPA government.

This great uncertainty led to one of the most unanimous elections, propelling Narendra Modi to the apex of the Indian political scenario. In the last two quarters of 2014, the sheer positive expectations of the world combined with the steps from the new government is pushing the graph in the upwards trajectory. The GDP is forecasted to grow from 4.6 per cent 2014-15 to 5.7 per cent in 2015-16.

When BJP launched its electoral campaign for 2014, it had promised to create 20 million jobs in the manufacturing sector. Staying true to his word, Narendra Modi launched his ambitious ‘Make in India’ campaign, the biggest growth reforms in recent times, towards the fag end of September 2014. His main aim was to raise the contribution of the manufacturing sector from 15 per cent of the GDP to 25 per cent. According to the industry, ‘Make in India’ will create 9 crore jobs in the next decade if the campaign goes according to plan.

So, why is ‘Make in India’ important for a country like India? Well, India has more than 50 per cent of its population below the age of 25 and more than 65 per cent below the age of 35. Despite the presence of a huge working population, unemployment is a rampant problem in the country. The Make In India campaign, which aims to turn India to a global manufacturing hub, seeks to not only address this social issue, but also get in more foreign investment into the country, thereby improving the purchasing power of the average Indian. Though he has not laid out a concrete plan to attract the much-needed foreign capital, he has promised easy and effective governance, faster decision making, rule of the law and better policy environment for global and domestic corporates.

The ‘Make in India’ initiative has also resonated in the strategic foreign visits that PM Modi has been doing this year. There is great irony in this initiative as the BJP had opposed FDI when it was in the Opposition, but has now put its pedal on the metal to make FDI happen. Inviting Japanese investors to Make in India, PM Modi said, “There is no better place than India for Japanese investors. India is one of the most competitive markets in the world.” Following the visit, Japan announced doubling of its private and public investment in India to about $34 billion over the next five years for development of projects including infrastructure and building of smart cities.

Modi’s US trip also infused new energy and vigor into the relationship between India and the US, with conceding of ground on both sides on the trade facilitation agreement (TFA) and on World Trade Organization (WTO) related matters. America also promised investments in defence, infrastructure and smart cities. Similar sentiments were shared in Australia as well.

With such large scale expectations and promises, there is a dire need to spell out the finer policies that will ensure that these investments can be supported with the right infrastructure. A great concern among many leaders is the current Industrial Relations situation and the kind of pressure that such an increase in manufacturing will put on it. Some of the recent IR cases have been large scale and hugely violent in nature. Most of the industry believes that if we cannot get our act together and improve the IR situation in the country, such an ambitious plan will not see the light of day.

There are two angles to the ‘Make in India’ campaign. Even though Make in India in itself seems like a powerful juggernaut, the alternative reality of the present scenario might just stop it in its tracks. We talked to several unions and we came to understand that they were not principally opposed to investment coming into the country as it will lead to new industries and more employment. However, a new argument of ‘Make in India’ vs ‘Made in India’ came into being.

Academicians believe that if the first happens, the second automatically takes place. IRII Director Dr. Krishnamurthy said, “Make in India is really ensuring that you have the capability and can progress to the next level. Today, our potential and capabilities are not harnessed to the extent other countries have done. We have tremendous natural resources like minerals, coal and raw materials. Scams and scheming have made a coterie usurp control to the detriment of the larger good and the nation has been short-changed in the process.”

However, the industry is more speculative when it comes to the finer details of the campaign. Speaking to Prabhakar Lingareddy, VP-HR, ITC, he stressed that we should start with ‘Make in India’, and after that look at ‘Made in India’. He believed that the key driver should be to create a growth trajectory that provides jobs, which is the immediate priority of the campaign. Lingareddy says that the current issue of unemployment was a huge issue that needed to be dealt with on priority.

“In the process, there could be risk of India becoming just a place for cheap labour with profits getting expatriated out of the country,” Lingareddy says. “However, that should not deter us from strengthening this initiative. The inherent risks can be addressed through appropriate checks and balances,” he adds.

One of the approaches is for the government to control and monitor the arbitration challenge is to have appropriate fiscal and taxation policies. The other is creating a virtuous cycle of market and consumption within India. This is a market-led check and balance. For goods being manufactured in India, there can be a very big captive market in India, whereby domestic consumption will be significantly higher than exports. A strong domestic market cushions the initiative from vagaries and uncertainties of global markets.

Vineet Kaul, Chief People Officer, Hindalco Industries Limited, says that the Union government has taken certain initial steps to make business more viable and sustainable, including the promotion of skill development, streamlining the social security framework and services, and improving transactions in Provident Fund. However, a few issues like restrictive practices/ laws will have to be looked at for areas relating to wage levels, working conditions, safety, welfare and social security. He also added that the Rajasthan government has started off on the right foot by making state-level amendments to three critical and archaic Central government labour legislations – the Industrial Disputes Act, Contract Labour Act and the Factories Act – thus paving the way for corporates to unshackle themselves from the stringent requirements of the laws. He suggested that the other states can follow this model.

Divakar Kaza, President-Human Resources, Lupin Limited says, “It is expected that in 2020 the average age of an Indian will be 29 years. We have high unemployment/ disguised employment and ‘Make in India’ is the right move for Employment Index growth. With at least 33 per cent of the population below poverty line, ‘Make In India’ is the right pitch rather than Made In India.”

However, trade unions believe that ‘Make in India’ and ‘Made in India’ are two very different concepts. Virjesh Upadhyay, General Secretary, Bharatiya Mazdoor Sangh, says that for a company coming to India and setting up an industry in a particular community area, there are a number of advantages like more employment and additional industries that arise. However, it is not the same for local industries. While setting up an auto industry in Coimbatore, employees brought their own brooms, he said, adding that local industries never got a penny. Unions believe that if it is only a Make In India campaign, then MNCs would come and use India’s cheap labour to manufacture their products and take away all the profits with them.

Stressing on the need for a more detailed definition of the campaign, trade unions said that it might be detrimental to the growth of the existing industries and adversely affect the Indian industry climate. The campaign needs to generate profits not just for the companies, but also the society and more policies need to be enacted to strengthen domestic industries and avoid such exploitation.

The economic growth witnessed in the recent past has been a jobless growth and employers have taken recourse in technology intensive industries. The number of contract labour has risen dramatically and have provided a fillip to the increased manufacturing output. However, as the number of contract labour workforce rose, it also brought to the fore simmering tensions with the permanent workforce. In most cases, industries are now depending on floor supervisors and shop managers to deal with labour issues. However, this section of the workforce is highly unequipped and untrained to handle any situations. Hence, issues that could be handled at earlier stages go unnoticed. There is also another major challenge. Labour is a subject in the concurrent list of the Indian Constitution where both the Centre and the states can amend and frame labour laws. As a result, labour laws vary from state to state and it becomes difficult for IR managers to follow the laws strictly.

BMS’ Upadhyay says that the reality is not about perks or benefits; it is about the very basic struggle for existence and minimum wages. Pointing out a fundamental issue, he says, “Companies need to deal with workmen first as humans. With the kind of scenario that is prevalent in the industry today, unless the companies understand that there are some basic requirements that any human being will need for life and work, there will be no movement.”

Another growing threat, which is a major cause of concern for industries around the globe, is the disparity between the regular and contract workmen of the industry. Contract workmen form almost 80 per cent of the entire workforce in India. While there is an apex body working towards the interest of the regular workmen (the Trade Unions), the un-organized sector of contract workmen are left out and are being exploited from all ends. The disparity in wages, inability to bargain (No Collective Bargaining provision), lack of permanency are some of the key reasons of unrest among the contract workmen in the current times. The government needs to understand the immediate need to bring in some labour reforms to help develop a framework that is relevant to today’s business scenario.

Apart from labour, the real problem for the manufacturing sector is the cost of investment. While the objective of those who give up the land being compensated well is indeed laudable, the very high cost of land will drive up the capital costs and the break even points for the manufacturing business. The land acquisition law will require a lot of undoing to make India manufacturing friendly. Then there are problems of the infrastructure, transport, housing, power, water for industry apart from environmental issues. In most experiences, Indian companies have also had to struggle with infrastructure amenities and the further one goes into the country, the more nightmarish becomes the operational activity. In comparison, the Chinese government allows the manufacturer to focus on what he does best, that is manufacture. Here, an employer is required also the be a social engineer to manage the myriad of multifarious interest groups and problems, with a lethargic bureaucracy and a law and order machinery that does not help in quelling problems at the sites. Getting things done in this environment is indeed a major challenge. However, there is a ray of hope with the new government. There is an awareness of the issues and honest and genuine efforts are being made to set this right. But persistence and speed of action are required to get the chemistry right.

To become a global hub for manufacturing, the cost of manufacture must be competitive. Technology, manufacturing capabilities, and resources are all available. But labour has to become very competitive, and here productivity and performance must improve to become world class. The government has attempted to bring this in a big way by focusing on skill, scale and speed. However, we are a long way away from that. One of the steps is to amend the Apprenticeship Act to focus on skill building and create the skills to attract investment. The best of investments will suffer if manpower is not able to perform and make the investments productive.

In states like Maharashtra, there are laws like the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, Mathadi Act, Private Secuirty Guard Board Act that pose a lot of challenges to employer and mar the investment climate and environment for the employers. They have to also be tweaked to make a major difference to organizations. The Government has started in a small way to dismantle the Inspector raj regime but a lot more needs to be done and fundamental changes in the way we help the industry resolve disputes and conflicts. It is fundamental to ensure that manufacturing is truly unhampered and operates at full throttle.

However, in the words of Anand Mahindra, “We have to make this (project) work. We all have to do our bit.” All expansion plans and setting up of manufacturing units will not succeed if the people working in those units are not managed with the right mix of humanity and respect. IR professionals will play a major role in ensuring that this is brought forward. Make in India will be a success only with the participation of the people and it is on the HR industry to ensure that they are prepared at this basic level to handle their part.

The efforts of the Modi government are serious about the initiative they have taken, and the openness for feedback and response to suggestions is quite positive. We cannot expect overnight changes. What was not done over decades cannot be rectified in such a short time frame. Engineering the change and making it happen in India will not be just by sloganeering. It would involve great effort and at the nut and bolt level, the government of the day is attempting to get involved in these basic fixes. Make in India has to succeed if manufacturing has to get a fillip. We also need to master the mechanics of making it right first time right. We are good the second or third time around. But getting it first time right requires discipline, competence and capability. We are getting there and make it in India will expedite this process.