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ROADMAP FOR SUCCESS IN INDIAN MANUFACTURING INDUSTRY The future of Indian manufacturing: Bright or gloomy?

Mar 22, 2022

India has set the target of manufacturing to grow up to 25% of GDP to $500 billion in a few years. The major sectors identified to have high employment and growth potential range from automobiles & its components (with a focus on EVs) to aviation to textiles to thermal power. These sectors will lead India to its future of manufacturing. To accelerate the process, the government has taken measures on several fronts, the broadest being the Production Linked Incentive (PLI) scheme. The Cover Story suggests a roadmap while finding out how the PLI will impact Indian manufacturing, if it is sufficient to reach the $500 billion goal, if the tiny tax base of the central & state governments, particularly in the service sector, is a challenge to grow and more. - Er Sanjay Chavre, Retd Senior Development Officer, Department of Heavy Industry, Government of India

Since the Indian independence in 1947, the domestic manufacturing sector has travelled from building the industrial foundation in the 1950s & early 1960s to the license-permit raj between 1965 and 1980. Then it underwent a phase of liberalisation of the 1990s and finally, to the present phase of global competitiveness.

The Indian manufacturing sector currently provides employment to around 12% (2014) of the country’s workforce. Various studies have estimated that every job created in manufacturing has a multiplier effect in creating two to three jobs in the services sector. In a country like India, where employment generation is one of the key policy issues, this makes this sector a critical one to achieve inclusive growth.

Statistics released by IBEF show that the Gross Value Added (GVA) of India’s manufacturing industry stands at about $350.27 billion during the first half of the year 2021. The IHS Markit India Manufacturing Purchasing Managers Index (PMI) crossed the 55.5 point in March 2021, which is unprecedented in India’s manufacturing industry history. This is a record high figure because it represents that the manufacturing GVA now contributes about 19% of India’s GVA in total.

Make in India

The 'Make in India' initiative has been built on layers of a collaborative effort. The Department for Promotion of Industry and Internal Trade (DPIIT) initiated this process by inviting participation from Union Ministers, Secretaries to the Government of India, state governments, industry leaders and various knowledge partners. Next, a national workshop on sector-specific industries in December 2014 brought secretaries to the Government of India and industry leaders together to formulate an action plan for the next three years, aimed at raising the contribution of the manufacturing sector to 25% of the GDP by 2020. This plan was presented to the Prime Minister, Union Ministers, industry associations & industry leaders by the secretaries to the Union Government and the Chief Secretary, Maharashtra, on behalf of state governments.

These exercises resulted in a road map for the single largest manufacturing initiative undertaken by a nation in recent history. They also demonstrated the transformational power of public-private partnership and have become a hallmark of the 'Make in India' initiative. Plus, this collaborative model has been successfully extended to include India’s global partners, as evidenced by the recent in-depth interactions between India and the United States of America.

Production Linked Incentive (PLI) scheme

The major sectors identified to have high employment and growth potential range from automobiles & its components (with a focus on EVs) to aviation to textiles to thermal power. These sectors will lead India to its future of manufacturing. To accelerate the process, the government has taken measures on several fronts, the broadest being the Production Linked Incentive (PLI) scheme. The country’s Finance Minister, Nirmala Sitharaman, has announced an outlay of ₹1.97 lakh crores for the PLI schemes, across 13 key sectors, to create national manufacturing champions and generate employment opportunities for the country’s youth.

Boosting production and therefore, exports, through the PLI scheme is not enough. We need products for the Indian and export markets. The products need to be developed and this is possible through technology. So, the choice is to import technologies to make these products or allow special incentives to MNCs to make these products or develop these technologies in the country. Perhaps we have to do all three, but most of the resources should be put into indigenous technology development as this is the long-term and most sustainable solution, as demonstrated by western economies.

The case in point is EVs. This is a new product which will exponentially grow in India. We need EVs to be made in India and not be imported wholly on in SKD/CKD forms. Tesla, the global largest player, wants concessions beyond our capacity to make their products in India. So, the government should support the Indian private sector to develop EVs for India and exports. This route of technology development is needed in order to achieve the manufacturing target. The same goes for 5G technologies, high-tech machine tools, atomic energy, etc.

Tiny tax base and strategies to boost tax

Today, GST is at ₹1,38,394 crores, which is a trickle compared to its potential. The US tax collection is $5,553.90 billion, China’s is $4,422.27 billion, while India’s tax collection is $1,899.36 billion. So, we can easily double our taxations; the GST growth will be more due to it being a relatively new tax and having an ever-increasing tax base. In fact, we should collect carbon tax and deploy it for green activities. Plus, the government / judicial services should recover their recurring costs, if not capital costs. Besides, tax rates should be moderated and peaks should be reduced to increase compliance. We should study global best practices to learn how to increase our tax collections.

GST growth

India is witnessing continuous growth in GST, in spite of the current COVID times. For instance, ₹1,29,780 crores in December, 2021 to ₹1,38,394 crores in January 2022. With a growth rate of about 15%, the GST should double in about five years. With more money in the kitty, more public investments would be possible.

The role of technology in manufacturing growth

IT, auto, pharma, services, etc are all examples of growth based on technology. Technology enables new features / products / services, which expand the market. Today, the global market is so competitive that finding new markets from growth is more difficult. The best way is technology. Every auto company continuously changes its technologies by adding features and introducing new technology products. A new compound exponentially adds to the market of a pharma company. A new software explodes market avenues. So, for manufacturing growth in India and the world, technology is the key, which will unlock the bright future of Indian manufacturing, too.

Technology promotion for growth

The key to international competitiveness and meeting local demands & exports is local technology development for domestic as well as export markets. In the USA, Japan, China and EU economies, technology development is led by the private sector through government support, in mostly government set-up universities, colleges and institutes. We have some good colleges, but unfortunately, our industry does not spend on technology; it prefers to spend on marketing and sales. One cannot sell an average product beyond a point, while an excellent product will speak for itself. Therefore, it is the government’s job to take the technology development process forward.

There is a global benchmark that a sector must spend 2% on R&D. Our national spends are half of this, 60% of which are public spends. So, the need is to up the R&D spends by the Ministry of Finance. There is a financial logic to this – on an average, an industry contributes 18% of its turnover to taxes directly & indirectly. So, if one ninth of it is ploughed back, it will give nine times the return to the Ministry of Finance in five years, which will be recurring forever. Every ministry must be allotted 2% of the turnover of its sector as R&D expenditure every year. To begin with, the list should be limited to the ministries of the focus sectors.

We have some experience in running R&D schemes in these ministries, based on which a better model can be culled out. One such model proposed is –

  • The first priority should be given to the venue for technology development; maybe government-run institutions & colleges like IITs/NITs. The second option could be the industries themselves. Other locations may be the third choice, including overseas, through contract technology development.

  • The grant support may be up to 100% for capital assets in government institutes, up to 50% in India-based other locations & zero for overseas locations, on case-to-case basis

  • Ministries may identify and prioritise the list of technologies to be developed in consultation with the user industries

  • The IPR of the technologies developed may be held jointly by the government, user industry & the technology development team/institute

  • The institutes may create the balancing capital assets of global class, which they can use for their other research requirements as well

  • Up to 80% grants for recurring expenditure and 100% for capital expenditure may be given to institutes for industry-sponsored industrial projects, leading to postgraduate and/or Ph.D programmes

  • The grant programme may also be open for any other strategy for technology development, such as acquiring parts of technologies and developing them for suiting Indian/export markets, technology development challenges, patent acquisition, bi/multi country technology development projects, technology acquisition through capital goods to serve as common facility, etc

The above strategy is out of experience of working on such initiatives. If the above strategy is adopted, then in 10 years, India will have all the technologies required, such as high-speed railways network, high-tech military hardware, telecom technologies, etc. From a nation always importing technologies, we will transform to a nation that exports technologies. This will help us in our $500 billion manufacturing sector goal, which may grow to 25% of our GDP.

Apart from the above sector-specific technologies, there is a need to develop the following technologies that are used by all manufacturing sectors. The best location for running the scheme is the DPIIT. The strategy will be that of technology missions and to create at least five Centres of Excellence in northern, southern, western, eastern and central India. The technology missions have to be 100% funded by the Central Government and planned and executed with the industry through organisations like CII, FICCI, ASSOCHAM, EEPC and other IT/electronic associations. Here is a brief of a note by the Engineering Export Promotion Council on the future of manufacturing technology in India, which is not far away, if we act as above –

The future of manufacturing technology in India

S Gupta

Executive Director

Engineering Export Promotion Council

Industry 4.0, often touted as the future of manufacturing across the world, are the set of such evolving technologies, which are the culmination of ICT, electronics, embedded sensors and data science, etc and other such range of technologies implemented at a systemwide scale. The Industry 4.0 technologies are sprouting the next generation of entrepreneurs, skills and business opportunities at a macro level.

Besides, the recent developments in emerging areas, like blockchains, may set the foundations for the next level of growth. Similarly, metaverse and distributed production model may help overcome the logistics hassle at a global level, localised manufacturing and faster distribution, while exploiting global talents remotely. The COVID pandemic resulted in the widespread adoption of remote operation and monitoring technologies.

The top technological developments of the future are expected to be as follows –

  1. Distributed Production System (DPS)

  2. Blockchain & manufacturing

  3. Metaverse & manufacturing

  4. Decarbonisation & manufacturing

  5. Servitization & manufacturing

  6. Agile manufacturing

  7. Industrial Internet of Things

  8. Machine vision

  9. Robotic grasping

  10. Cobots

  11. Simulation modelling

  12. Drones

Most of the above technologies mentioned have already begun with their widespread adoption across manufacturing verticals. India, today, has around four crore MSMEs working across different sectors. They are the backbone of our economy. They offer highly competitive products and services. They offer quality, flexibility and resilience across the value chains. Today, India has also emerged as the fastest growing start-up hub in the world. This is the very advantage that India stands to reap in the future, while assimilating emerging technological trends.

Let us discuss the most pervasive of these manufacturing technologies through a note by IIT Roorkee –

Additive Manufacturing – Future of manufacturing technology in India

Prof Dr S K Nath

IIT Roorkee

Additive Manufacturing (AM), also called 3D Printing, is a process that allows for a three-dimensional solid object to be created from a digital file. AM uses computer-aided design (CAD) software or a 3D object scanner to direct hardware to deposit material layer upon layer, in precise geometric shapes. As its name implies, AM adds material to create an object. By contrast, when we create an object by traditional means, the material is removed through milling, machining, carving, shaping or other means. AM was first used to develop prototypes in the 1980s. The term “rapid prototyping” is also used to describe AM.

In AM, parts that were previously required for assembly and welding or brazing multiple pieces can now be grown as a single part that ensures greater strength & durability. AM has been finding increasing applications in aircraft, aerospace, defence, automotive, electronics, power generation, sports, medical, building construction and architecture and jewellery sectors.

In AM, there is the use of a computer, 3D modelling software (CAD), machine equipment and layering material. Once CAD digital 3D model is produced by using a software programme, a digital model may also be created through reverse engineering, using a 3D scanner. Then this model is sliced into multiple layers. The AM equipment reads in data from the CAD file and adds successive layers of the material, in a layer upon layer fashion, to fabricate a 3D object. The process involves the spreading of metal powder, layer by layer, and uses either a laser or electron beam to melt & fuse the powder together to create a part. The process is repeated until the entire part is created. Loose or unfused powder is removed during the post-processing and is recycled. In AM, not only metals, polymers and rubber but ceramics & biochemical are also used. AM successfully develops components that use functionally gradient material for aerospace applications, where the outer part of the component is a high temperature ceramic and inner parts are of metals.

Lightweight and complex shapes for high-value products, ranging from aircrafts to racing cars, are being produced by AM. Boeing debuted government approved 3D printed titanium parts for the 787 Dreamliner. General Electric is increasingly using AM in manufacturing jet engine parts. Adidas has started manufacturing sports shoes by AM.

The US, China, Germany and Japan are global leaders in AM. AM adoption in India is not very encouraging. India is holding a meagre 1.4% of the global market share. The challenges in adopting AM are high cost of equipment and monopoly of market by foreign companies.

Government led efforts under the aegis of Atal Innovation Mission, private sectors, academia and research organisations are trying their best to push India to be among the global leaders.

India’s manufacturing sector – The sky is the limit

There is no doubt that if we adopt the technology route for our manufacturing sector’s growth, it will take us to our target at the fastest speed and in the most economical manner. What’s more, it will sustain us in the future further to that. India will then become the third largest manufacturing destination, after China and the US.

Image Gallery

  • We need EVs to be made in India and not be imported wholly on in SKD/CKD forms

  • India is witnessing continuous growth in GST, in spite of the current COVID times

  • Drones will be one of the top technological developments of the future

  • AM is finding increasing applications in different sectors

  • Er Sanjay Chavre

    Retd Senior Development Officer

    Department of Heavy Industry

    Government of India

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