Pawan Goenka (PG) headed the Mahindra & Mahindra Group with elan. Amidst intense competition from multinationals, he piloted the group and helped it maintain its leadership in agriculture machinery, automobiles, information technology, industrial parks… As the Chairman of IIT-Madras he has also been closely involved with the institute maintaining its lead as a prized hi-tech educational and research institution. On his retirement from M&M, Goenka has taken the role as Chairman of the Steering Committee for Advanced Local Value Add & Exports (SCALE). Goenka was the key speaker at the two-day Summit on Future of Manufacturing in South India organised by CII (SR). Goenka provided an interesting roadmap for India catching up for the time lost in keeping abreast of technology development and exports. Excerpts from his address:
THE FOCUS OF SCALE has been to increase exports, reduce imports, do more value addition and enhance local consumption. There are a lot of opportunities in several sectors like electronics, automobiles, furniture, ceramics, food processing…
Many think India has lost its part in manufacturing. I don’t believe so. I still believe there is a tremendous opportunity for India. Making India a global manufacturer has to be a collective objective. To make it happen there should be partnerships among different industries, between government and industry. A lot can be achieved by industry collaborating with each other in a sector, suppliers/ buyers with manufacturers.
There is no need to look at the government for removing the bottlenecks. Lots are in the hands of the industry. Key Performance Indicator (KPI) of industry focuses on minimising manufacturing costs. Add one more to the KPI: to balance the score card, look at the lowest cost of manufacturing and the highest possible local value addition. You’ll see an increase in value.
The biggest facilitator role the government plays is through the PLI scheme. I want to raise a flag that the PLI scheme is given by the government for five years and not for life. Within five years we have to make India globally competitive. Otherwise, we’ll be back to square one.
five things to be fixed
If we can fix the five following things, we will be at the top of manufacturing globally.
1.Cost of doing business. This is related to scale and factor costs – of land, power, capital, infrastructure efficiency, logistics, labour productivity and skills and a strong MSME sector.
2.Ease of doing business.
3.Market access through FPA/PTA
4.Technology and quality competitiveness – R&D and innovation
5.Brand India for manufacturing
A furniture park at TuticorinThe global furniture industry is worth about USD 240 billion. Countries like China and Vietnam are in the lead. The SCALE committee saw an opportunity. The Tamil Nadu government has seized the opportunity and is setting up a furniture park at Tuticorin spread over an area of 1100 acres near the port. There is potential for employment of three lakhs and USD 2 billion of exports. Presently, this labour-intensive industry accounts for less than a billion dollars of exports. The key challenge is lack of scale. There is little knowledge of the manufacturing processes in furniture. We still do old fashioned carpentry; there is little focus on acquiring raw materials at competitive prices and suffer very high logistics costs. The government is extending help to reduce duties as also to encourage production of timber in forest areas. A lot of infrastructure has been built to support the furniture industry. There is a big opportunity for more players to come in. – Pawan Goenka |
Scale, scale and scale up…
The biggest problem in manufacturing is lack of scale. Many sectors don’t have large enough scale {Pharma may be an exception}. Without scale we cannot compete. To create scale the component industry and other supporting industries can come and start manufacturing in India. Smaller countries like Vietnam and Malaysia are able to create scale in several sectors. India is not able to build on such a scale.
Sunrise sectors like the electric vehicle can standardise components to help create scale.
Create capacity ahead of demand
In India I have seen an increase in capacity based on demand projection. Our CFOs will not approve investments without seeing the demand. We have to take a little bit of a leap of faith and create capacity. Otherwise, we will get into a cycle of not having capacity and not having demand.
High power and logistics costs
Land, power and capital costs are important factors. Nothing much could be done on capital costs. But power costs can be rationalised. Power costs are a very big disabler to industry. Such costs, if brought down from Rs 7-9/kwh to Rs 5-6/kwh, would help.
Infrastructure and logistics costs is another big worry. Logistics cost in India accounts for 13 per cent of cost of manufacture compared to 8 per cent globally. GST has helped in rationalising logistics cost. Industries have to work for efficiency in logistics.
Productivity in India is not any way near the best in the world. Productivity and skill development are very important.
Ease of doing business completely lies with the government. Lot is happening. Still a lot more ground should be covered. The new portal for single window clearance is very impressive and would help.
India suffers a big disadvantage in market access through FTA/PTA. The commerce ministry is aware of this and working on it.
Technology and quality competitiveness are completely in the domain of industry. Not enough is invested by industry in R&D – about 0.4 per cent ot 0.5 per cent of revenues. A lot more focus is needed on innovation. Outside India, Indian manufacturing is not a well-known brand. Lot of manufacturing happens for exports from B2B and not so much from B2C.
Making ordinary people do extraordinary thingsThe air-conditioning industry virtually imports everything and puts it together. The value addition is only about 25 per cent. SCALE looks at how the industry can come together adding more value and take the industry from a production of Rs 16,000 crore to Rs 100,000 crore within ten years. The Central government helped reduce imports. Industry has come together to create scale. Copper tubes, aluminium fans for compressor motors… are very mundane things but are not produced in volumes. We help the industry to come together, cooperate, collaborate… The PLI and other schemes are big enablers here. These are working well. Industry has committed to increase value addition to 50 per cent in five years and 75 per cent in ten years. There is no rocket science involved. It is just collaboration among industrial units and the government, between suppliers and manufacturers, between the Centre and state governments. Without doing anything extraordinary we can make a huge difference. – PG |
TIER 1 companies should make MSMEs strong
MSME is the backbone that has to be developed for making manufacturing strong. Tier 1 manufacturers or suppliers must take the responsibility for making MSME strong by working with them, hand holding them, teaching them, giving them technology, skill, processes,
quality… OEMs and Tier 1 manufacturers should support and grow Indian MSMEs. The latter, on their part, have the responsibility for wanting to become strong. They have to opt for technology, build capability for effective processes, scale up, skill their workforce and groom them continuously.
National pride is the x-factor missing in India. I see a lot of it in Japan, Korea…With belief in ourselves and in our collaborators, we can convert national pride into economic prosperity. -SV
