Indian manufacturing sector has the potential to elevate much of the Indian population above poverty by shifting the workforce out of low income agriculture sector. Manufacturing fuels growth, employment, and also strengthens agriculture and service sectors. Enormous growth in worldwide distribution systems and opening of trade barriers, has led to astonishing growth of global manufacturing networks, designed to take advantage of low-cost yet efficient work force of India.
Apart from low cost advantage, Indian manufacturing sector must focus on areas like improving the urban infrastructure, ensuring fair competition, reduction of import duties, quality improvements in education and increase investment in R&D to gain global foot print.
There was widespread expectation that the Indian manufacturing sector would be the world’s hub for components. A low cost base, liberalization and capital equipment would do the trick. But it didn’t happen. Indian manufacturing did not make an impact on the international manufacturing and it’s nowhere near to that of Korea, Taiwan or China. Even domestic manufacturing companies are turning to China for components sourcing. As a result, manufacturing sector contribution to India’s GDP has fallen to 15% in 2008 from 17% in 1991. Except commercial vehicles and pharmaceuticals almost all other categories of manufacturing are procuring components from China.
When we consider a ten-year horizon, there is a good chance that products which require world class design, complex manufacturing skills and large investments will be in the MNC sector. It means pretty much every product. At the lower end, there is a likelihood of Indian manufacturers wresting market leadership, mainly on cost considerations.
Extensive subcontracting and contract manufacturing are the order of the day. Traditionally MNCs avoid increasing the number of employees in the main plants. Wherever production can be performed by contract workmen, even inside the main plants, it will be done through such an arrangement. As a result we can see a lop-sided employment pattern in manufacturing sector. While this may be good news from a cost point, it can severely limit the process of building technical skills in this sector and attracting the right manpower to it.
The WTO pressures, surplus foreign exchange and lack of domestic alternatives will ensure a large presence of Chinese and Korean products in Indian market. The key challenge now we have is to internationalize Indian manufacturing in a way it utilizes our human potential while protecting national interests. Getting it right, learning the lessons from the recent past and removal of the policy hurdles blocking the way, we can still become the leaders in engineering and manufacturing supplies to the world.
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