Wednesday, October 15, 2014

INDIAN MANUFACTURING DREAM...UNDER A TOSS

The Indian manufacturing segment is on the path of massive revolution where ‘Make In India’ is being invited. In my research I find some socio economic areas where improvement and cautious approach is required to be adopted by the Business Chambers of Commerce and also by the Indian government and regulatory system.  We are inviting FDI investments and investors to open shops here. We are proud to invite but how much trust the business houses like CII,FICCI, ASSOCHAM has in these initiatives. Since they have been the biggest suffers over the last 5 years in terms of policy actions. We are not criticizing the concept or the dream but we have a long way to go and achieve the same. We are indirectly asking FDI to create India as an exporting hub.  But, how well we are prepared for an instant flow of the FDI’s in India. We are not discussing about infrastructure growth but we are discussing about other prime socio-economic factors which will support in real terms for Make In India.

In India we have witnessed the trend of slow project progress and high escalation cost as we all know that certain percentage of the project goes as bribery to the various people in the system to start the project. Bribes to the politicians and high levels of corruptions have been the land mark of India. We have one of the traditional processes of getting approvals for starting a business and getting necessary approvals for the same. The new companies ACT 2013 might have been some relief but still red tape policies take its own course of action. The below data shows the rank of India among doing business easily in India:

Hence the above data cleanly states that in order to Make In India successful we need to climb down many steps down. Manufacturing segment faces the biggest problem of labour Union and Power shortages. Last year in a research by FICCI it was found that over the last 2 years deficit of electricity have been 15% of the peak levels which translates into a loss of $64 billions to the economy.  India has installed capacity of 250 Giga watts but produces only 160 GW. The recent coal scam and the Supreme Court verdicts create stupendous problems for the manufacturing base to grow in India. Its easier to dream and think but we don’t have the basic infrastructure to support the same. Now the biggest hurdle will begin and this Make In India would turn out to be sour when infrastructure as well as FDI investors opens their shops simultaneously and policy delays and setup delays creates problems for the rest. We must remember that initially their will be some peanut investors who would come to India to taste the waters. Once they found the water is full of salt rest of them will stay offshore and the Dream will end up somewhere and will become a strong point for the opposition party of BJP in the near term.

Law and order is one of the key areas where every state should come up together to make this Make in India initiative to be successful. We must remember that we have already witnessed TATA NANO –Singur matter and hence efficient system and stringent measures should be implemented so that these type of things don’t happen which damages the scope of the Make in India to grow. One of the most important things is that we are inviting FDI investors for opening manufacturing base in india but where they will open their shops and what type of facilities would be promoted by the state governments. We have 29 states in India currently and hence we need joint effort by every state-politicians to come together to create this Make In India. But we have found in history that every state competes with each other due to so many regional political parties holding key position of individual’s states. The game of bribery and manipulation starting from land deals etc begins from these state level competitions. We need joint effort and equivalent facilities being provided by every state and not providing any scope of exploitation.

Now coming to the labour reforms and policies have been totally in jeopardize over the last 60 years. The recent case of Maruti is enough to say about my thoughts. The Trade Unions played extensively their political game and many politicians have come from being only an illiterate Trade Union fellow who was active in fighting and creating problems with promoters of the company. The Indian economy has a plethora of examples where managers/employees have been burnt to death in the hands of the Trade Unions. We need labour laws which will not be cheap proposition for using the labour as well as the labours would not take things for granted. There is requirement of flexibility and every state should understand this concept. If we look at the historic pattern of lock outs and strikes we find impreesive numbers currently but still lot needs to be done.

India's labour laws have continued to be cited as "archaic" or regressive and they are many –44 different laws on labour at the central government level, often with contradictions.  In my research I find that Central Government rules and regulations have little scope to play here and much of the responsibility of the labour laws is in the hands of State Government.  Just take the example of West Bengal which just got ruined in the hands of the trade unions over the last 3 decades in the hands of the CPIM through these trade unions. Every business and Industry were compelled to exit the state and get into some peaceful state. If someone says that Gujarat, Hyderabad , Banaglore has grown  phenomenally then one must remember that their trade union policies were flexible and were well controlled. On the other hand state government has taken some active steps to improvise the labour reforms police which would create significant growth of these states in the long term.


There have also been cases where respective state government has made the law more stringent, for example West Bengal. Such states, where laws are more rigid, have done relatively poorly. The need of the hour of this decade is that we need flexible labour laws and friendly for both the players. We need zero politics to be mingled in these policies. We must understand that today the citizens of India are more literate and we need to stop think for our vote banks biased approaches. If you want India to be an exporting hub for the global world then we need flexible, unbiased and friendly labour policies.

Schemes like NREAGS were all created since there was lacks of skill development and technical education level where the huge manpower/labour could be utilized for manufacturing base. If there were more focus towards skill developments and asking the NGO’s that one NGO will get taxation benefits only when he is a part of Skill development then this should have created a well sustainable labour force over the long term. I used the NGO over here since they have more rural presence than any other segment across India.

The government has a target of skilling more than 500mn people by 2022, aided by the National Skills Development Corporation (NSDC), which has been given the objective of skilling 150mn by 2022, and rest through various ministries. Of this, 50mn is targeted in the 12th 5-year plan. NSDC is a Public-Private Partnership (PPP) which acts as a catalyst in skill development by providing funding at low rates(grants, equity, soft loans) to enterprises/companies/organisations (skilling partners) that provide skill training. The skilling programs are developed in consultation with the industry.

Poor basic education creates repulsive affects on the labour force which creates the mindsets of comparisons of pay scale with others. The below data clearly indicates the poor level of education in different segments of labours in India:


 The above data clearly shows that we need chain of actions for the skill developments and hence we need PPP models to come active in skill development. On the other hand its being found that always whenever there is some growth of the Indian economy there has been a wide disparity of income between the labour force and the capitalist. Well what I want to focus is that the pay structure of the labour force should be compensated adequately and skill based and education/training lead compensation should be the key parameter for labour pay in any manufacturing base. It true that Indian labour cost is cheap but don’t make it so cheap that trade unions gets a ground to play and some foul people become politicians over the next 5 years.

Complicated Trade Unions rules and regulation, leads to small attraction of manpower of less than 10 workers/employees SME segment. SME segment is one of the fragile sectors and hence they are the key long term economic powers but this power is very much scared of Indian labour laws. Further complicated inspection and various regulatory aspects create more fear and hence schemes like NREAGS comes into play.

We are promoting exports indirectly through Make In India.  If India needs to be global manufacturing hub then we need reforms not only on infrastructure but also in our minds sets and approaches. We need to upgrade the skills and education levels of the manpower of India. We need continuous supply of resources which will keep the manufacturing alive. We need negligible biased approach of the state government and also in-depth co-operation of making make in India to be successful. We need state governments to come forward and look for the long term benefit of the Indian economy rather than competing within 29 states.  Remember that India adds 12mn people to labour force every year. Job creation statistics from the NSSO (National Sample Survey Organisation), and cited by the BJP (party leading current Government), show that between 2004 and 2012, India created 15mn jobs. This was much lower vs c.60mn jobs created during FY00-05. Hence we have a long way to go and we don’t want that Make in India goes for a wild toss. In my next article will cover the impact of Cost Audit and Costing methods removals on the Make In India dream.


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