India's Second Manufacturing Dream

It is not the first time that the Indian government has woken up to the need of manufacturing in India. But the efforts seem to be more serious this time. And not just because it is being driven by Kapil Sibal, arguably one of the most effective ministers in the government. Every dream needs a motivatorwho can forget the role played by Nasscom-McKinsey report for the BPO industryand this time, there is a strong motivator for the manufacturing dream. Sam Pitrodas pitch that our semiconductor imports bill will soon overtake our fuel imports bill has struck the right chord with everyone. Which sensitized Indian would be able to ignore that statement? Especially when all of us know and cherish the fact that our engineers, sitting in Bengaluru or Chennai or Pune, design these chips for the semiconductor companies from everywhere in the world.

While that is a good beginning, that may not be enough to see it through. Unlike in IT/ITeS services, where quality of manpower almost single-handedly managed to bring the world to Indiatelecom actually played catch-upin manufacturing, you need much more.

We are already late and we need a definitive strategy to make the dream successful. We simply cannot do it by just replicating what someone else did 20 or 30 years back. While we may have several weaknessesas compared to say, a Chinasuch as higher labor cost, lower productivity, availability of manpowerand we need to tackle some of them head on, we will not go anywhere by following their model of efficiency-driven competitive advantage. We need to look at a radically different path, especially in electronics manufacturing. And that could well be playing on our strengths. India is great in design. And India is a diverse marketmore of a representative microcosm of the emerging markets than China. These two realities can be played up both at a holistic level and at a tactical level. India is already designing the chips for most global semicon companies, be it Intel or Texas Instrument or Hitachi. Its engineering services firms are designing consumer electronics products and medical electronics products for global majors. But it is not playing on the entire value chain. Manufacturing can complete that value chain. Today, 50% of a car is electronics. An Indian company can work for an automotive company or a tier-1 supplier by designing the chip, getting it manufactured in India and supply it to the client in what they often refer to as arts to parts. Further, it can test the product in Indian markets, tweak it around if needed, and then create a mature product for the entire emerging markets. So, you essentially take care of the entire value chain. India would do well to position itself as an end-to-end product maker for the emerging world than a low-cost manufacturer for the developed markets. We can never dream of being anywhere near China in that game. It will always be more efficient.

When it comes to execution, we need to learn some of the lessons from China such as developing clusters, building skills, offering incentives, as well as creating infrastructure. The efficiency that they have achieved through mass training can be achieved in India by right utilization of IT.
It is the beginning of a great new journey.