Shaping the future of manufacturing in India
India should embrace digital technologies to achieve the target of becoming a global manufacturing hub
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Since the launch of “Make in India” in 2014, much progress has been achieved in pursuing the country’s manufacturing agenda and global competitiveness. Globally, India is the sixth-largest manufacturing nation and the biggest recipient of foreign direct investments (FDIs), with inflows touching $60 billion in 2016-17, the highest-ever annual inflow into the country. India has also improved its rank on the Global Competitiveness Index and Global Innovation Index.
India’s manufacturing sector, accounting for just 16-17% of gross domestic product (GDP), holds enough untapped potential. At the recent India-Germany Summit in Berlin, Prime Minister Narendra Modi committed to transforming India into a major player in global value chains. Make in India version two is on the anvil to consolidate the ground for further growth in selected manufacturing sectors. Besides, adoption of local content policy in public procurement and implementation of goods and services tax (GST) will provide further impetus to Make in India.
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The global manufacturing landscape is being transformed by digital technologies such as the “internet of things” and robotics collectively called “Fourth Industrial Revolution” or “Industry 4.0”. Huge efficiency and productivity gains are being realized through cost reductions, quality improvements, customization and a quantum leap in performance. Increasing investment in these technologies is propelling traditional manufacturing powerhouses of the 20th century back to the top of competition.
Adoption of digital technologies in India is still in its infancy. So the question arises, can India afford to be left out of the ongoing digital revolution? The answer is an emphatic “no”. In today’s world, digital technologies are key to unlocking competitiveness. As highlighted by industry surveys, India should embrace them proactively to achieve the target of becoming a global manufacturing hub.
India has a number of factors in its favour, including a huge and growing market, a large workforce with diverse skills, demographic dividend, English-speaking scientists and engineers, research and development centres of over 1,000 top global multinationals, the world’s third-largest technology start-up base and a government focus on making the nation an easy place to do business.
While being a catalyst for growth, digital technologies may be disruptive, with far-reaching effects on productivity, employment and well-being. They are leading to key structural shifts in global manufacturing. One, cost economics and competitiveness of manufacturing are fundamentally changing with the trade-off between labour and automation swinging in the latter’s favour. This is enabling small-scale, highly automated localized manufacturing close to end-consumers and hence, disrupting the existing low-cost labour arbitrage based global value chain model. Two, with boundaries between products and services blurring, digital services are becoming growth and profit drivers for manufacturers. Three, rapid growth of exchange of products on digital platforms such as Amazon is creating digital global marketplaces, reducing the need for investing in individual asset-heavy supply chains, and enabling small businesses to participate. Four, digital economy skills, including cross-domain skills, are becoming the most critical factor of production and driver of competitiveness.
What are the implications for India? One, India’s low labour cost advantage is being eroded, but its demographic dividend has potential for transformation into a strategic resource for digital revolution. Two, with the right ecosystem, India could gain a significant share of embedded software services, data management, supply chain restructuring, etc. Three, beyond physical infrastructure, large-scale investments in requisite digital ecosystem are needed. Four, highly competitive micro, small and medium enterprises (MSMEs) can be central to the growth of manufacturing with small-scale localized smart manufacturing becoming feasible. They can compete with multinationals globally on digital platforms without creating their own supply chains.
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India needs a new policy to incentivize adoption of digital technologies, develop the requisite digital ecosystem, augment competitiveness, allow leapfrogging into the digital 21st century, while meeting the requisite skill gaps and ensuring jobs for millions entering job markets. The government has announced the roll-out of a new manufacturing policy to push its share to 25% of GDP by consolidating Make in India and embracing Industrial Revolution 4.0.
India has the potential to become the digital factory of the world by being at the vanguard of the digital revolution. However, timely action is of essence. The government, on its part, has decided to put in place an enabling policy framework. The onus is also on the manufacturers to put their act together for adopting emerging digital technologies to boost their competitiveness. However, there are some critical questions: where does Indian industry currently stand in respect of Industry 4.0? How prepared is industry for the transition? What are the costs of transition to Industry 4.0 vis-à-vis the efficiency and productivity gains?
India’s challenges include issues relating to infrastructure—physical and digital, skill gaps, innovation ecosystem, public-private partnership, support for MSMEs, data security and privacy, standards-based interoperability and a conducive regulatory framework. Collaborative efforts by central and state governments, industry, academia, research and financing institutions are the need of the hour to ensure leveraging of the digital manufacturing revolution and reaping benefits of enhanced competitiveness.
Seema Gaur is senior economic adviser at the ministry of electronics and information technology. Views are personal.
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