The future of manufacturing in India

Indian manufacturing is at the threshold of a golden era. The technology advantage, greater impetus for infrastructure development along with some of the best white-collar labour laws in the world has put a stronger focus on India’s manufacturing opportunities for global companies.

Changing labour laws remain a big draw

Prime Minister Narendra Modi has been making significant efforts for overhauling the regressive labour laws, particularly those pertaining to blue-collar jobs, to make India an attractive destination for foreign manufacturing companies as well as investments.

The Ministry of Labour and Employment under the Modi government has taken several initiatives, which include legislative as well as administrative changes, to provide better working conditions and improved quality of life for workers, employment generation, and simplification of labour laws for ease of doing business.

While its blue-collar labour laws are still evolving, India should find solace from the fact that most western companies, particularly those in Europe, would be excited by India's "forward-looking" white-collar labour rules that are quite similar to the ‘right to work’ laws followed by many American states. This ‘right to work’ law adopted by the 28 US states makes it easier for all employees to be engaged with companies.

Since most of Europe, except for Britain, has gone forward with the concept of "protect employees" rather than protecting employment, this stance has sown the seeds for jobs to move out of the continent into countries with more favourable rules such as India.

Like the US ‘right to work’ states, India is among the very few countries that not only have favourable white-collar labour rules, but also the added advantage of a sizable well-educated, English-speaking population which can be easily hired and trained by the western companies.

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Need for plug -and-play infrastructure

India has been making significant investments in improving its infrastructure facilities to achieve sustainable development goals. The government’s goal is to spend US$ 1.4 trillion on infrastructure during 2019-23, which includes investments in housing, urban transport, highways, renewable energy, and communications technology.

While our country has done considerably well in the field of power generation, a lot more remains to be achieved in the areas of roads, ports, and logistics development. The lack of such basic infrastructure facilities, coupled with the challenges of land acquisition has put up a number of hurdles for foreign manufacturers wishing to set up their factories in India.

Early in the 2000s, India introduced the concept of special economic zones (SEZ) to attract larger foreign investments in India by providing quality infrastructure complemented by an attractive fiscal package. However, SEZs have also lost their momentum and we do not see many in operation currently.

India may follow Thailand's model of plug-and-play factories within industrial parks with a complete range of services and utilities to attract foreign manufacturers. The Thai business parks provide ready-built factories supported by a complete range of services such as international standard roads, private security systems that incorporate support from local police, reliable utilities, and waste disposal facilities, and well-maintained green areas, enabling any company to get its business up and running within no time and ensuring FPCA (Foreign Corrupt Practice Act) compliance.

Building such ‘plug-and-play’ infrastructure can be a big draw, especially for mid-sized foreign companies as they would be able to start their manufacturing operations immediately without enduring the hassles of building their manufacturing units from scratch.

Such ready-to-use industrial parks would especially help in attracting companies from around the world, which may be hesitant to make investments in asset acquisitions but would want to reap the benefit of cheaper labour availability in India as well as the large domestic market ensuring that both exports and domestic production go hand in hand.

Set up government body like UKTI

Setting up a government body like the UKTI (UK Trade and Investment) will enable India to attract manufacturers from around the world and get them connected to the local supply chain in a more structured manner.

UKTI, which was later replaced by the Department for International Trade in 2016, was set up by the UK government to help local businesses export and grow into global markets and also help overseas companies locate and grow in the UK. There is a lot of support from the UK embassies as well as UKEF (UK Export Finance) to promote exports of the products that are manufactured locally as well as financing to set up the facility in the UK.

To conclude

The advent of Industry 4.0 – the fourth industrial revolution – will be marked by the new technology-enabled automation of manufacturing processes. Indian manufacturing can also benefit from new technologies such as Artificial Intelligence (AI), 3D printing, Big Data, and Analytics.

However, the level of automation for us need not be at the same level as in other economies if we are to reap the advantage of comparatively lower labour costs even compared to other countries in South-East Asia.

Hence, it is crucial to strike a balance between the level of automation which will amount to increased depreciation of assets versus the cost of labour. Getting this equation right will be key for Indian manufacturing to become globally competitive.

Repeatability and consistency in the manufacturing processes through training and skill development of the blue-collared workforce will ensure that our demographic strength becomes an asset for the country rather than a liability. Investment in vocational training by the private sector as well as the government will be instrumental in making this change.

More importantly, there’s a need for Indians to change their mindset about foreign goods being superior to ‘Made in India’ products. Germany is a great model for us to follow as they always have a strong preference for products made in Germany. Only then can we reduce our dependence on imports, lead the western companies to come to our country to manufacture locally, and allow the Indian manufacturers to grow.