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Business News/ Opinion / Pick spots and scale strategically to make ‘Make in India’ a success

Pick spots and scale strategically to make ‘Make in India’ a success

For 'Make in India' to fire the engine of growth and jobs, some basic structural shifts now need to be made as India moves forward

The Narendra Modi government launched the ‘Make in India’  initiative in 2014 with an aim to position India as a global design and manufacturing hub. Photo: HTPremium
The Narendra Modi government launched the ‘Make in India’ initiative in 2014 with an aim to position India as a global design and manufacturing hub. Photo: HT

The Narendra Modi government, which in May completed three years in office, designed the ‘Make in India’ campaign as a call for action that aims to position India as a global manufacturing hub. Its most visible metric— the quantum of foreign direct investment (FDI) inflows—is up. However, for the initiative to fire the engine of growth and jobs, some basic structural shifts now need to be made as we move forward.

To achieve competitive scale, market definition is key

Let us first examine the issue of scale. To create a compelling business case, competitive scale is vital, and that requires getting the market definition right. Consider the case of medical devices. The government is keen to have more local manufacturing, especially for higher-end products such as stents, pacemakers and CT (computed tomography) and MRI (magnetic resonance imaging) scanners. However, since up to 80% of these devices are currently being imported, local manufacturing could detract from the larger goal of providing affordable healthcare in the domestic market. Compared with global numbers, domestic demand for medical devices is tiny, at $5–6 billion. The market for stents and pacemakers in India, for example, is estimated at just $500 million out of $9 billion globally. Besides lack of demand, India’s underdeveloped electronics ecosystem is a handicap. Factor in the regulatory price controls for some of these devices and the L1 tendering process (under which the lowest bidder wins the contract), which eschews quality and lifetime value in purchasing decisions, and manufacturers have diminishing incentives to set up shop to address domestic demand.

There are lessons to be learnt here from Ireland and China. In the medical device category, the success story of Ireland, which supplies 80% of the world’s cardiovascular stents, can be attributed to an ecosystem built through attractive taxation, talent pool development and university collaboration.

The picture isn’t much different in solar module manufacturing either, where there is a huge opportunity gap for India.

The automobile sector, however, is an example of a success story. Passenger carmakers such as Hyundai Motor Co. and Honda Motor Co. have created world-class facilities in India. These companies are focused on a large and growing domestic market, even as they export to other markets globally. Thinking about both regional and global markets is critical to getting to scale beyond India—and, in many cases, to being competitive. It’s not surprising that more investments are now pouring into the automobile sector.

Lessons from China: pick our spots and embark on a journey of quality

As a nation, our next priority should be to pick our spots to double down on in the future—in terms of industries and mix of manufacturing capabilities—and ensure that we become world-class in those areas.

The manufacturing boom in China that created significant employment opportunities was almost entirely focused on lower-end activities. Today, however, China’s manufacturers are desperately trying to move up the value chain, as increasing wages and competing geographies threaten their longer-term success. India, too, has to settle on the right mix of basic manufacturing, assembly and higher-end technology manufacturing that will create jobs in the near term and remain sustainable in the mid- to longer term.

India is a powerhouse of pharmaceutical and chemical-based manufacturing. However, we also have a significant opportunity in biotechnology, and there is potential to increase our contribution from $11 billion today to $100 billion. If we make the strategic decision to win in the next generation of pharmaceuticals, we will need policies and sustained investment to create the enabling ecosystem. This means building sector-specific talent pools with educational institutions, as well as strengthening intellectual property (IP) protection and technology. We also need multinational companies to actively participate in developing our capabilities as a nation, as they have done in China, where foreign-invested enterprises contributed 43% of export revenue in the period from January-April 2017.

Looking back at the last couple of decades, China has acquired a ‘poor quality’ label for its products, in addition to not having emphasized standardization and the right level of automation in manufacturing. That is set to change. In its Made in China 2025 initiative, quality is a key priority, backed by significant investments in industrial robots. India, too, needs to set up a quality ecosystem and make quality a way of life—which, in the mid-term, may not necessarily mean compromising on job creation.

To move India forward, make and innovate

It’s also important to ensure the sustainability of such initiatives beyond short-term hype. Research and development (R&D) is critical to enable competitive manufacturing and stay ahead of other nations. At nearly $19 billion (or around 0.8% of GDP—all numbers are from Euromonitor), India underspends on R&D compared with countries like China at over $225 billion (around 2% of GDP). Our proportionate share of industrial and corporate R&D is also about half of China’s.

We must aspire to spend more on innovation and become an R&D hub for the rest of the world, attracting industry leaders to invest in research that’s customized to the needs of India’s citizens while also serving consumers in other global markets. GE Healthcare is a terrific example of how we can leverage our excellent engineering talent base and take a clean-sheet approach to designing products that are market-appropriate and significantly more affordable for emerging markets. Such efforts will lead to more sustainable manufacturing for India over time.

To make this vision a reality, Make in India should move in parallel with a push to innovate in India. We can embrace global competitiveness and quality even as we get the basics right by urgently addressing the key policy enablers around land, labour and ease of doing business.

Karan Singh is the managing director of Bain & Company India and a leader in Bain’s healthcare practice.

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Updated: 10 Jul 2017, 02:26 AM IST
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