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"In the next decade, India to build reputation as a manufacturing powerhouse"
Manufacturing is one of the pillars for the Growth Domestic Product (GDP) of a country. With a significant drop in India’s manufacturing output in the year 2011, India would require a prudent and pragmatic approach to bail out the country’s manufacturing sector out of this state. Pothen Paul, Chairman and India Country Manager, Aker Solutions, opines his views on strategies required to strengthen India's manufacturing sector.

An innovation culture, strong manufacturing capabilities and thriving exports of manufactured products are the common attributes of most of the successful nations. The UK, Germany, France, USA and Japan belong to this group, and South Korea and China are two of the more recent additions. It is interesting to note that even though China is still fairly low on the innovation ladder, it has made it big by creating a suitable environment for multinational companies to set up their manufacturing operations and leverage its plentiful labour resources and relatively low labour costs. That as much as 50 per cent of China’s massive exports consist of products bearing brand names of western enterprises gives an indication of the success of this strategy. Even smaller nations such as Thailand and Malaysia have followed this path rather well. So, it is not surprising that the recent floods in Thailand more or less brought to a grinding halt the Indian operations of a number of multinationals including automobile firms who either bring in key components or fully built products from there. Many of us might not in fact know that a good proportion of the white goods we buy including almost every microwave oven and even relatively simple table fans come from China. That is why the contribution of India's manufacturing sector to its Gross Domestic Product (GDP) is a dismal 14 per cent.

Through this strategy, China, Thailand and Malaysia became strong trading nations and generated gainful employment for millions of their countrymen who were neither needed in their agricultural sectors, nor suitable for the services industry. They also very successfully elevated the per capita income levels and living standards of their people and generated opportunities for domestic enterprises to benchmark their capabilities by working at close quarters with local operations of multinational companies.

In the manufacturing arena, globalisation is all about as much manufacturing as possible gravitating towards the most cost efficient geographic regions. Though obviously wages form a key component of cost efficiency, other important contributors are ease of doing business, availability of land and a skilled work force, productivity of the labour force, cost of utilities, costs attributable to labour laws, quality of infrastructure and taxation. So any nation desirous of becoming a manufacturing powerhouse has to address most, if not all of these issues in a holistic fashion. Having said that, it is a fact that none of the above mentioned nations had world-class infrastructure when they embarked on the journey of attracting multinational companies to their shores. This deficiency was initially made up by selectively upgrading suitable regions of theirs such as the eastern seaboard of China and the Rayong area of Thailand.

Problems Facing the Indian Economy
It is truly unfortunate that the financial health of our nation has had to take a beating when the sustenance of growth is so sorely needed for raising the living standards of our vast population. I hope that the current situation will somehow prompt our political class to work together in the interest of the country to fine tune the subsidy and poverty alleviation programmes and make them more need focussed, and less demanding on the economy. We cannot go on living beyond our means, operate high fiscal deficits of the order of 5 to 6 per cent of our GDP, accumulate hundreds of billions of rupees worth of government debts for the coming generations to deal with and still be rated by our peers as a financially prudent nation.

Our fiscal deficit is not the only problem area. On the foreign trade front too, the situation is fairly grim. In fact it is very likely that this year, India would end up with a trade deficit of the order of USD 150 billion, prompted mainly by the oil and gas import bill of roughly equal value. What is very apparent is that if India does not become a strong exporter in the years to come, growing oil imports and rising prices of the same will continue to be a serious burden on the Indian economy to the extent of even destabilising it.

The unprecedented devaluation of the rupee, high inflation rates, high interest rates, declining Index of Industrial Production (IIP) figures and even the partial collapse of share prices of recent days are related problems, though unsettled conditions in Europe too have contributed in some measure to our position.

Is the Success of Our Services Sector Clouding Our Growth Strategy?
Generally, the GDP’s forward momentum is facilitated by the growth of agriculture, manufacturing (a key component of industrial sector) and services. In this, it is an accepted fact that because of its very nature, agriculture can at best be a tortoise, rather than a hare. So in effect, the burden is to be carried by the other two. Unusually, India has been able to sustain reasonably superior GDP growth numbers in spite of a relatively weak manufacturing sector, because of the stellar performances of the services industry, primarily led by the IT sector. Unfortunately, rather than utilise this windfall, and the prestige and awareness it generated for India, as a facilitator for gradually creating a strong manufacturing sector that is globally competitive and export driven, we have been drifting along without a national manufacturing strategy and a consensus on how to execute it. So in spite of a huge captive market, a plentiful supply of labour (though in need of training and skill development) and low labour costs, we continue to be dependent on imports of a number of items including airplanes, ships, and power plants and even microwave ovens and table fans. Consequently, we have not only missed as much as 2 per cent of the GDP growth and the associated wealth creation but also the generation of gainful employment for millions of our youth. In this context, I worry about the downsides of the so called ‘demographic windfall’ which could be an economic time bomb unless we operationalise the National Skill Development Plan and generate between ten to fifteen million job opportunities a year.

Success is Within Our Reach
We have some outstanding success stories of companies, both Indian and multinational, which have not only succeeded in the domestic market, but also are doing well in the export arena. They have proven beyond doubt that India can manufacture world-class products at competitive prices, in spite of power cuts, infrastructure limitations etc. In the next ten years, India has to build a reputation as a manufacturing powerhouse, and a commitment that we will do whatever it takes to get there. As a part of this drive, we need to seek out and invite multinational manufacturing companies to our midst. These organisations have reached the position they currently occupy because they have the latest product and manufacturing technologies and a strong global market reach. In my view, their entrance into the country is the key to India becoming a strong manufacturing and trading nation and earning enough foreign currency to pay for our growing energy imports.