india-manufacturing
Manufacturing and Process Management

Why is Indian manufacturing in such poor shape?

Among all the hoopla and great flurry of announcements made by the new government about manufacturing in India, a 50 year old car manufacturing unit quietly downed its shutters rendering thousands of workers jobless and stranded on the streets of West Bengal. Ambassador was an iconic car, once a favorite with the ministers and top officials of India. 

I was dismayed at the death of the Ambassador, the work horse and pride of many Indian families. There were rumors that the manufacturing unit will be revived and we all felt that the government, which seemed to be talking big with its slogan of ‘Make in India’, would do something for this beleaguered unit. But it looks as if it’s business as usual and no one really cares about such matters except for shedding a few crocodile tears. Ronin Roy, an ex-employee of Hindustan Motors, makers of Ambassador, says that rampant unionism and rank apathy resulted in its closure. This got me thinking about the future of manufacturing in India. 

Manufacturing in India has always been our weakness. There are historical reasons for this. India became independent from British control in 1947. The first Prime Minister of India, Jawaharlal Nehru was a big fan of socialism. At the same time, the Indian psyche somehow could not accept the communist philosophy. Therefore India became a mixed economy – neither here nor there. Soon major manufacturing units and even the Airlines were nationalized. As a result, the government started running businesses without understanding the business.

Mines, ports, infrastructure as a whole were managed by the government or the public sector. Private businesses could only operate with the benevolence of the political class. Hurdles in the form of licenses and permits were put in place to restrict the number of private players in business. This was known as the license raj. And the public sector undertakings soon became unproductive due to unionism and political patronage. Corruption and nepotism finally brought the core manufacturing sector to its knees.  

Obviously the political class did not want to let go of the goose which lays the golden eggs. Billions went down the drain and into the pocket of politicians. Black money was sloshing around in the Indian economy. In 1990, India was left with enough foreign exchange to manage imports for two months. The government of the time, led by then finance minister, Manmohan Singh pushed for reforms and started privatizing the public sector. Since then, the story of Indian manufacturing took on a happier mood. Some of the notable names in private manufacturing sector are Tata, Bajaj, TVS, Hero, Birla, Larsen & Toubro and Hindustan Lever.  But even now all put together they play a very minor role in the Indian economy.

In a way, the Indian manufacturing industry is suffering from the past indulgences of the government. The reason why our economy is doing reasonably well is thanks to our service sector. Our exports mainly consist of software and BPO services. The reason for this is simple. Software and related activities are fairly recent developments and the government has not had the time to meddle with the industry. Moreover these services do not need extensive infrastructure. A desk and a desktop are the only requirements. You don’t need roads, ports and heavy machinery for IT related work. The only bottleneck used to be internet access which has also been resolved to a large extent by the private industry. Infrastructure required for manufacturing on the other hand requires large capital investment, which few can manage. Indian banks have an unholy nexus with the political class and dole out loans only to those who are well connected.

Given the historical background of our engineering sector, we simply lack the culture required to design, develop and produce quality products. Heavy machinery needs extensive design capabilities and a healthy engineering mind. The students passing out of our premier engineering institutes go on to do management and finally join a bank as financial or marketing personnel. You will find most IIT grads taking up non-engineering jobs. There are no takers for core technology careers. As Lovly Aluwalia, a career consultant wryly said, “Why sweat it out on the factory floor when you can sit in an air conditioned office and dictate letters.” This sums up the attitude of our working class. Manufacturing is considered a lowly job which involves shift work and physical labor.

We Indians have an insatiable appetite for foreign goods. We love to wear foreign clothes, drive in a BMW and cover ourselves in Christian Dior perfume. Estee Lauder, Versace and Dolce & Gabbana are household names. Even the fake clothes sold in our street shops have foreign labels. Using Indian made product is considered passé and beneath our dignity. In such circumstances, Indian manufacturers are bound to suffer.

Setting up factories requires land. But land acquisition has become a contentious issue. The Indian government passed a land acquisition bill and landed in trouble. There is a feeling that the government is favoring big industrialists and will acquire land from farmers at unreasonably low rates. Meanwhile many infrastructure projects remain unfinished. Banks who have lent to the infrastructure segment are reeling under bad debts. Borrowing by the manufacturing sector is likely to get tougher because of this experience. 

The Indian government, for its part, is doing its best to deter businesses from setting up manufacturing units. Lack of clear guidelines, too many clearances and widespread corruption add to the woes. According to Samir Dadia, who has developed a web-based application for tracking and monitoring compliances in an organization, there are over 300 compliances covering over 60 statutory acts which are required to be met by a manufacturing unit - a daunting task by any standards. 

Where does Indian manufacturing stand today? Looking at things as they stand, there are many issues which have to be resolved before anyone has the courage to set up a manufacturing unit in India. Our cultural background and mindset is unlikely to change. Indians will continue to worship foreign goods alongside their gods and goddesses. The government will continue to pay lip service and we will continue to drive foreign cars and wear imported clothes.

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Sankarambadi Srinivasan

Sankarambadi Srinivasan, ‘Srini’, is a maverick writer, technopreneur and a geek. He writes on transformational social processes and technology trends which influence our daily lives.

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