Contact Your Financial Adviser Money Making MC
20
September 2016
 |
| Manufacturing (The Total Investment & Insurance Solutions) |
India has
convinced a lot of people and the world is making big bets on its stature as a
manufacturing and economic powerhouse. However, there are many challenges that
lie ahead. Now that the vision has been set, India needs to undertake the hard
task of execution. The Total Investment
& Insurance Solutions
This reality
is reflected in India being ranked 11th on the Global Manufacturing
Competitiveness Index and is expected to achieve the 5th rank by 2020. The US,
China and Germany are ranked at the top on overall manufacturing
competitiveness. The Total Investment
& Insurance Solutions
In the
Global CEO survey (2016), the five most important drivers identified for
manufacturing competiveness were talent; innovation policy and infrastructure;
cost competitiveness; energy policy; physical infrastructure; and legal and
regulatory environment.
If we
analyze the performance of various countries on these parameters, India is one
of the least competitive countries when it comes to physical infrastructure as
well as legal and regulatory environment with scores of just 10 and 18.8
respectively as compared to 90.8 and 88.3 of the United States and 55.7 and
24.7 of China. India has performed better on cost competitiveness, where it
scores 83.5 compared to 39.3 of the US and 96.3 of China.
India's poor
score on talent (51.5), the most important parameter for manufacturing
competitiveness, is seemingly paradoxical as India has been boasting about its
demographic dividend to the world while its adult population has an average of
only 4.4 years of formal education.
There is no
denying that India has a strong demographic advantage for many decades to come
as its working population will reach 870 million by 2030, the largest in the
world by that time. However, India needs to engage its working demographic
meaningfully and skill them to make them productive. India has suffered a lot
due to poor management and the frustration of its unemployed youth has
sometimes culminated in protest. The
Total Investment & Insurance Solutions
Examples of
this are the Maoist movement, Gujarat's Patel reservation protest and Haryana's
Jat reservation protest. During 1991 to 2013, the Indian economy could only
employ roughly 50 per cent of the job-seeking population. Despite the abundance
of working population, there is a gap in the skill level due to which India is
losing its competitiveness.
The Indian
education system has been accused of not developing skills but focusing on
giving degrees to people. Vocational institutes of training for in-demand
skills like masonry, welding, plumbing, carpentry and operating heavy equipment
receive secondary treatment. People instead get traditional degrees even if it
means staying unemployed due to lack of relevant skills.
Indian
society does not appreciate careers other than being a doctor, engineer or high
ranking government official. Hence aspirations are always aligned towards these
fields, leading to disproportionate competition for limited vacancies. In
Germany, about 60 per cent of the population goes through 2 to 3.5 years of
vocational and classroom training at an industry. As a result of this, Germany
scores 97.4 for talent competitiveness.
The Total Investment & Insurance Solutions
India can
learn from Germany's dual system of education and develop at least one
industrial skill among its people. The
Total Investment & Insurance Solutions
India's
biggest competency similar to China's is "low cost" and on the other
hand the biggest shortcoming for investors is being caught in the web of
government regulations. Since the new government assumed office in 2014, India
has reduced the regulatory red tape and started the Make in India campaign. This
brought in FDI of $9.6 billion in 2014-15 but it dropped to $8.4 billion in the
next fiscal as investors aligned themselves to the ground reality in India.
Investors
remain bullish on India but the Indian government, in its classic style, still
remains elusive by taking two years to pass the Goods and Services Tax bill,
with the new land acquisition bill still pending. These bills were drafted to
smoothen the ground for manufacturing operations in India.
India scored
32.8 on innovation competitiveness compared to 98.7 of the US and 47.1 of
China. India should have the foresight to predict the next technological
advances in manufacturing, with developing countries bullish on technologies
like advanced robotics, internet of things, augmented reality and additive
manufacturing (3D printing). India needs to stay ahead of the innovation curve
to remain competitive in the mid to long term. The Total Investment & Insurance Solutions
A very good
indicator of innovation is the R&D spend. The US and China are the largest
spenders in this sphere at 2.74 percent and 2.1 per cent of their GDP
(purchasing price parity - PPP - adjusted) compared to India's 0.85 per cent of
GDP (PPP adjusted).
If we look
closer home, Maharashtra, Gujarat and Tamil Nadu rank at the top in
manufacturing competitiveness with scores of 67.07, 64.75 and 64.63.
Together,
Maharashtra and Gujrat produced 34 per cent of the gross output of India's
manufacturing sector in 2014-15. The exports of Maharashtra and Gujarat in
2014-15 were 46 per cent of India's exports at $72.83 billion and $59.85
billion, while Tamil Nadu exported goods worth $27.47 billion.
The reason
for their success has been their ability to successfully tap into the potential
of industrial agglomerations and an efficient transport system that has enabled
them to stay cost competitive along with the benefit of having a coastline. The Total Investment & Insurance
Solutions
We need to
draw lessons from successful manufacturing economies of the world and
internally, need to look at the leading states for guidance. India has the
ingredients required to become a manufacturing giant and it can reach its goal
if it keeps on improving on manufacturing competitiveness.The Total Investment & Insurance
Solutions
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