India’s Manufacturing sector is ripe for transformation
As a sector that contributes around 17% to India’s GDP, the manufacturing sector is a sleeping giant.
India is the 3rd most sought-after manufacturing destination in the world and has the potential to export goods worth US$ 1 trillion by 2030. Manufacturing sector employs 20% of the workforce in the country.
Through the implementation of different programmes and policies, the Indian government hopes to have 25% of the economy’s output come from manufacturing by 2025.
However, the challenges faced by the sector need to be addressed on a war footing to take advantage of the huge opportunity that India has in the context of China plus one strategy.
Lets examine these one by one.
Productivity
The productivity of the sector over the last decade has been pretty low, yet the potential that is waiting to be unlocked is substantial.
Indian manufacturing productivity is significantly lower than that of the United States. In 2020, Indian productivity ($94,249 per worker) was approximately a fifth of the US levels ($484,862 per worker), or three-fifths when adjusting for differences in purchasing power parities (ASI, 2019–20, US Bureau of Labor Statistics, 2021). Another trend that was noted was the heterogeneity in productivity across Indian states: states in Western and Central India have the highest average productivity, while states in the East and South have the lowest.
The trends noted suggest that making strategic investments in the workforce can potentially lead to substantial improvements in productivity. They also suggest that addressing the substantial disparities in productivity across different states and industries is imperative for the sustainable development of India’s manufacturing sector.
Skills Development
IBEF reports that India’s manufacturing sector currently employs around 27.3 million workers. Year after year, this workforce is further augmented by more than 1 million engineering graduates. On top of this, millions of technically qualified students who pass out of Indian universities and vocational training institutes such as ITIs, ITCs and NIVT, armed with degrees and diplomas can be gainfully employed in the manufacturing sector if training and skills development is taken up in a programmatic manner.
Government, Industry & Academia Collaboration
To tap into this huge talent pool, Government, industry and academia need to collaborate with a clear road map, execution plan and put in place tangible measures to track progress. There are excellent examples of industry is setting up R&D centres and assigning projects to promising students from these institutions that will help hone their problem solving and innovative capabilities.
The L&D programs at such centres expose individuals to real-world scenarios and problem situations and encourage them to come up with innovative technology solutions using automation, AI, ML and Design Thinking.
BEsides the above, internship is another effective way of training, developing and employing students on successful completion of their course. Students who go through these internships are well prepared to contribute effectively when they start their employment with the company.
HSE matters
Apart from the above, one of the areas that needs critical attention is safety and physical and mental well being of workers in the manufacturing sector. Save for a few well established and professionally run companies, a number of smaller organizations in the sector do not invest sufficiently in HSE, making the working conditions hazardous for their workers.
Pollution and extreme heat and cold can have detrimental effects on workers’ health, consequently impacting productivity. A study of the effects of rising temperatures on worker productivity in Delhi and Gujarat, was carried out, focussing on how these effects vary for manual labourers and labourers in automated manufacturing settings. They found that for a one-degree celsius increase in temperature, productivity dropped by 2%.
On a positive note, by adopting cooling technologies and energy-saving methods, like LED lighting, Indian garment firms created a conducive working environment that positively impacted productivity.
Supervisory and managerial practices
Effective managerial practices such as performance monitoring, information sharing, and focussing on long-term impacts can lead to increased productivity through improved quality, efficiency, and organisational learning.
Climate Action & Net Zero
India aims to increase non-fossil energy capacity to 500 GW by 2030, meet 50% of energy requirements from renewable sources, and reduce the economy’s carbon intensity by 45%.
To achieve this, several actions are needed, including increasing renewable capacity from 10 GW to 40–50 GW, reducing hydrogen costs by 50% by 2030, reducing battery and green hydrogen costs by 40% by 2030, implementing nationwide EV charging infrastructure, encouraging sustainable rice cultivation practices among farmers, and setting higher circularity targets for material circularity.
Government Initiative — a step in the right direction
One of the initiatives by the Government of India’s Ministry for Heavy Industries & Public Enterprises is SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs. This is expected to increase competitiveness of the manufacturing sector in the capital goods market. With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation.
The corridors would further assist in integrating, monitoring, and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.
SAMARTH Centres have been providing assistance to MSMEs in training the workforce on Industry 4.0 technologies in the following ways:
- Organizing Seminars/ Workshops and knowledge sharing events on Industry 4.0
- Training to create awareness about Industry 4.0
- Providing consultancy (in areas such as IOT Hardware, Software development, data analytics) and incubation support to start- ups including MSMEs.
Road Ahead
The first step in a transformation initiative is becoming aware of the areas that need to be transformed. When this is done thoroughly, identifying ways in which the transformation has to be carried out, and figuring out the key players and their roles becomes key.
Looking ahead, India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury, and automobile brands are looking to establish their manufacturing bases in the country. Key sectors with growth potential include automotive/EVs, FMCG/CPG, chemicals, life sciences, MMC, semiconductors, mobile devices, and data centres.
By carefully taking concerted efforts and steps to address the big challenges that it is facing, the sector has the potential to reach US$ 1 trillion by 2025.
