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GOVERNMENT INCENTIVE SCHEME Will the government incentive scheme boost Indian manufacturing?

Oct 16, 2020

The government is planning incentives worth $23 billion to attract companies to set up manufacturing base in India, so as to boost manufacturing activity and will offer production-linked incentives to automobile manufacturers, solar panel makers and specialty steel to consumer appliance companies. This move is believed to have a constructive effect and make a difference in the industry. With inputs from FIBRO India Precision Products, Growth Hacking Partners, Sany Heavy Industry India, Wilo Mather and Platt Pumps, MotulTech India and Indian Manufacturing Academy, the Viewpoint section finds out how this scheme will help in the long-term, how it will facilitate in localisation & boost exports and what’s in it for MSMEs.

Every industry has to train its workers/engineers for 6–12 months before delivering results - Vivek Nanivadekar, Executive Director, FIBRO India Precision Products

It is very difficult to comment at this stage, as we have no clarity in what form these incentives will be given. But whatever the form may be, it would certainly attract foreign companies to set up manufacturing units in India. Now, most government sanctions or approvals are online, without any manual intervention. Manufacturing businesses should firstly apply for such schemes online, with all the proper documentation.

I recently read in the newspaper that more than 30% seats in engineering colleges are vacant. This indicates that there are no jobs for engineers, and hence, it is no more a lucrative career option. It is a simple demand and supply equation – there is more supply of engineers than the demand. The quality of education is another big issue. The government has already announced a new education policy to be implemented from 2022. So, it will be another 10 years that quality engineers, or for that matter, quality graduated in all disciplines to come out for the industry. But better late than never. So, every industry has to train their workers/engineers and staff for 6 – 12 months before they start delivering the results.

I believe some good incentives like low-cost finance, increased duty drawback, etc would certainly make MSMEs become more cost-competitive and can help compete with other countries, like Vietnam, Indonesia and China, in the international market. Considering the current international economic & political situation, multinationals are planning to set up multiple manufacturing locations in different countries so that their business remains unaffected. As such, they would establish supply chain in different countries, and India can certainly take advantage of this situation.

The younger generation in India is well-versed with IT and many start-ups have been initiated by it. If the older generation is willing to give a free hand to this younger generation, they would certainly grab the advanced technologies. Now, everybody in the industry is talking about IIoT, smart factory, Industry 4.0, etc. I am confident that today’s generation will be able to implement these in their respective fields.

It is the biggest opportunity for our MSMEs to pull up their socks - Dr A Balamurugan, Director, Growth Hacking Partners

The government’s intention is a good one. It will be a good opportunity for industries to move into India from other countries since India still offers very good skilled manpower at a reasonable cost and has a good supply of ‘knowledged’ employees. When big organisations move into India from other countries, it provides opportunities for the local ecosystem and manufacturing MSMEs to be suppliers to those organisations. Since most of the organisations coming into India would be bringing in good technology, it will also enable the supplier base to absorb such technologies, develop new skills and grow into more knowledgeable organisations capable of supplying to the world.

But many organisations must develop the skill of ‘deskilling’ and ‘reskilling’. Also, the biggest challenge would be whether our traditionally slow-moving government and supporting machinery would move in fast enough to make a kill. On the other hand, it is also the biggest opportunity for our MSMEs to pull up their socks and transform by looking into taking up challenges of supplying to many of these big and new organisations, who might set up shops in India. Besides, it is time for the MSMEs to adopt digital technology to stake a claim to supply to such companies. If the opportunities are cleverly and wisely used, our MSMEs, who are traditionally cost-competitive but generally resistant to follow world-class manufacturing practices, can grow exponentially.

Plus, manufacturing businesses must accept the idea that small companies can still be world-class companies. The small business owners must start becoming ‘entrepreneurs’ rather than remaining more of ‘engineers’ or ‘manufacturers’. The time has come to eradicate the thought that ‘excellence’ is only meant for bigger organisations. If MSMEs accept, adopt and embrace excellence in every step & process, they would be recognised by bigger organisations, even across the globe.

Local companies will definitely improve on their product quality - Mahesh Tripathi, Senior Vice President – SCM, Operations and R&D, Sany Heavy Industry India

This incentive will definitely boost the ‘Make in India’ initiative by narrowing down the trade deficit of the country and reducing dependency on foreign nations. What’s more, dependence on overseas suppliers will reduce and inventory & logistics costs will be in control. Material costs may also go down with an increase in the scale of production. It will generate more jobs & improve labour skills. These incentives will encourage the advanced technologies to a larger degree, given the large young working force available. This will not only make India an attractive marketplace but also a sustainable manufacturing powerhouse to support global markets.

With new manufacturing technologies coming to India through this scheme, it will enhance to build a huge skilled human resource, which will help improve the productivity & even promote entrepreneurship, which is a positive step for ensuring the success of ‘Make in India’. With companies setting up industries in India, it will give employment to many people. India will also need to realign the education system to focus on the needs of the industry and the country. Furthermore, the Indian manufacturing industry will depend on local suppliers and this will help most MSMEs to increase their revenue. In fact, MSMEs will have access not only to the domestic market but also to the global one. As their capacity utilisation will increase, they will be able to compete with global suppliers. Local companies will definitely improve on their product quality and rework on pricing the products, which will benefit both the buyer and the supplier. To boot, established industries must help the MSMEs for skill development & support on advanced manufacturing technologies, and OEMs & vendors need to work on long-term partnerships.

Manufacturing hubs need to be created across the country - Hemant Watve, Chairman & MD, Wilo Mather and Platt Pumps

This is a very good initiative, particularly focussing on growth segments and linking it to production. In every industrial domain, once a congenial, conducive business climate is available, the entrepreneurship spirit gets a booster dose. The important aspect of productivity-linked incentives comes on the radar, industries become more competitive & innovative and thus, the localisation becomes imperative. The businessman can focus on continual improvement of quality, productivity and cost competitiveness and capture global opportunities. Entrepreneurs and the workers can then focus on specific skill improvement programmes to learn the best in market and benefit the society at large.

These incentives will also boost the volume game and enable domestic players to be highly productive & manage their costs properly. The price–volume graph will work favourably for local manufacturing to compete with international ones and a lot of insourcing can happen. It will work as a pivotal point for making the local industry export houses. In fact, focus industries, like automotive, solar, consumer appliances and most importantly, specialty steel, have lots of potential by jumping into the volume game. The big industries will surely try to secure their supply chain locally. This will boost the MSME segment with ready-made business opportunities. Modern techniques, like robotics and CNC machines, will be applied to become cost-competitive and address the most important quality aspects of today’s world.

To make the most of this scheme, manufacturing hubs need to be created across the country, and the industries must come on a common platform to address the need of technology, manpower, skills as well as financial needs. The whole structure must pivot around productivity, safety, quality and packaging. However, no company plans its future on incentives. If the government spends the proposed incentive amount on creating infrastructure, it will create a magnetic effect.

Manufacturing leaders should also look at the broader perspective - Yatendra Kumar, Business Head, MotulTech India

This scheme is not only going to help the companies that are coming here but also the vendors because, finally, companies are dependent on their suppliers. The global companies who are looking only at export may not choose India as a very attractive option. But for companies that want to cater to the Indian market and also export to other countries, India is the best option. So, export is going to get benefitted. I see two roadblocks at the same time – internal & external. When it comes to the internal roadblock, it majorly concerns our infrastructure. As for external roadblocks, while other countries have manufacturing set up, it will not be easy for them to leave it.

Once bigger companies come up, they have to depend on the local things for small to medium jobs, where MSMEs play a very big role. MSMEs will benefit, but only the ones that are able to change & improve with time. The number of customers, products and their variety, etc is increasing, which gives them more scope. And of course, new skills can be developed to offer different solutions to these big companies.

The incentive may attract some to adopt new technologies but the drive to adopt new technology should come from within the organisation itself, because if a company does not adopt the technologies today, it will be obsolete tomorrow. Some part of the profits should be invested to get new technologies. Manufacturing leaders should also look at the broader perspective. They shouldn’t just see what’s going to happen tomorrow but at the long-term commitments & benefits, in terms of strategy, training & the people who are coming on board. So, they need to see how this incentive can be used in the long-term.

Companies should use the incentive to become more competitive - Srinivas Rao K, CEO Coach, Indian Manufacturing Academy

This incentive will certainly help relevant sectors to attract higher investments as this initial support for the first few years can help companies make a dent in global markets. Companies should take a mature view and use this incentive to invest in Industry 4.0 and manufacturing technology. The scheme can encourage the adoption of advanced technologies only if the industry is using the incentive for improving the efficiencies. The government should give this push by putting link to efficiency improvement and technology utilisation. Industry associations should also generate a good amount of discussion on this aspect. On top of that, the government should formulate a task force for technology adoption with participation from industry leaders.

For a change, manufacturing companies should start looking at the long-term and not look at using the incentives to cover their inefficiencies. They should use the incentive to become more competitive over the medium-term. Maybe the government can put these conditions to get the incentives. In fact, if the incentives are targeted well, then Indian companies may find it attractive to manufacture more parts locally. If a company gets about 6% incentive, then along with other costs of importing, stocking, managing, it can practically get an advantage of almost 10%. This is an incentive big enough for companies to take it seriously. If Indian companies can become cost-competitive, then the world will come to India. As I understand, the PLIs are aimed at larger investments into manufacturing. When it comes to MSMEs, they may not get directly benefitted unless they become innovative and form companies that will have many investors from the MSME league. When they join their forces, then MSMEs can do much more. Other than this, there can be a trickledown effect from larger companies.

Image Gallery

  • Vivek Nanivadekar

    Executive Director

    FIBRO India Precision Products

  • Dr A Balamurugan

    Director

    Growth Hacking Partners

  • Mahesh Tripathi

    Senior Vice President – SCM, Operations and R&D

    Sany Heavy Industry India

  • Hemant Watve

    Chairman & MD

    Wilo Mather and Platt Pumps

  • Yatendra Kumar

    Business Head

    MotulTech India

  • Srinivas Rao K

    CEO Coach

    Indian Manufacturing Academy

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