Even as global political developments are also undermining India's belated attempts to catch up with the manufacturing boom
Just about two years after it was launched, the ambitious ‘Make in India’ programme is in urgent need of a rethink. Egos aside, its contribution has been limited and its future, in a world that is turning increasingly protectionist, is highly uncertain.
Its logic, questioned at the very outset, is appearing even more flawed now. For good or for bad, India bypassed the manufacturing revolution that catapulted countries like South Korea, Taiwan, China and lately Vietnam into high-growth territory.
Less by design and more by serendipity, India went down the services route. Today 61% of India’s non-agricultural labour force is employed in services. So pervasive has been this model that even small and medium enterprises (SMEs), the bulwark of manufacturing in countries like Germany, are seeing faster growth in services than in manufacturing.
Global conditions as well as India’s own inability to ramp up its infrastructure has left it well short of the kind of success needed to make manufacturing the engine of growth and employment. What’s more, structural changes in the processes of production place a question mark over the efficacy of pushing traditional manufacturing.
Among the prime disruptors to traditional manufacturing is robotics, with most experts saying that 3D printing has reached its tipping point and is taking over shop floors faster than had been anticipated. According to a survey by consulting firm PricewaterhouseCoopers (PwC), two of three US manufacturers are already adopting 3D printing at some level. Taiwanese phone maker Foxconn, whose $10 billion investment plans for India gave a huge impetus to the Make in India programme, is increasingly replacing thousands of workers at its plants with robots.
Not surprisingly, the country that took manufacturing scale to unprecedented levels by employing its vast labour force in factories for the world is now also at the forefront of the move towards automating those same plants. With backing from the government, China is now giving new teeth to its manufacturing might by turning to robots in numbers that are again leaving the world gasping. Driven by rising labour costs, China has bought more industrial robots each year since 2013 than any other country, including high-tech manufacturing giants such as Germany, Japan and South Korea. IDC Manufacturing Insights reveals in its latest report titled “Robotics in China Industry" that the adoption rate of robotics in China’s manufacturing industries will grow by 150% by 2018.
This is happening at a time when the space for exports of manufactured goods worldwide is shrinking. World Trade Organisation (WTO) economists have forecast that 2016 will be the fifth consecutive year of trade growth below 3%, well below the average of 5% since 1990. On the basis of the forecast for 2016, world trade will have grown at roughly the same rate as world gross domestic product (GDP) for five years, rather than twice as fast as was previously the case. Such a long, uninterrupted spell of slow but positive trade growth is unprecedented and seems to suggest that the era of nations using exports to grow may well be over.
Global political developments are also undermining India’s belated attempts to catch up with the manufacturing boom. Donald Trump’s election win in the US presidential race came on the back of support from white working-class voters who took his promise of bringing back manufacturing jobs to the US very seriously. Now Trump will have to live up to those promises. Already he has managed to persuade Carrier, a part of United Technologies Corporation, to retain its plant in Indianapolis rather than shift production to Mexico. The president-elect is already holding out the promise of incentives for American companies that create jobs at home while penalizing those who don’t. This lays the ground for a bout of protectionism in the world’s biggest market, hardly the ideal portent for outsourced manufacturing.
The answer for India lies in massive re-skilling. Instead of training people to work as foremen or fitters, it may be better to train them to repair drones or build robots. The World Economic Forum’s Future of Jobs study predicts that five million jobs will be lost before 2020 as artificial intelligence, robotics, nanotechnology and other socio-economic factors replace the need for human workers, particularly manual and clerical. But as the forum suggests, the same technological advances will also create 2.1 million new jobs requiring different kinds of skills and competencies. It is in India’s interest to retrain its vast and growing army of unemployed young to undertake these emerging jobs.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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