Factories in peril
The CMD of Larsen & Toubro says Indian engineers have been recognised as amongst the best but the benefits of this talent do not trickle enough into our economy.Looking back at years2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996
L&T CMD A M Naik
India is at an inflection point in its economic development, but for it to grow at a sustained rate of over eight to nine per cent, its manufacturing will need to expand at 12-13 per cent. We need to recognise that manufacturing has been the engine of growth for all developed economies. It contributes just 17 per cent to India's GDP contrasted with over 50 per cent in China and 40 per cent in Thailand.
The multiplier effect works for factories, too. Every rupee invested in manufacturing adds four rupees to our GDP. Besides, it results in the creation of employment even at lower education levels in our population - a wider distribution of prosperity.
The opportunity is there for India to take. It is estimated that manufacturing offshored to low-cost countries will increase to $4.5 trillion, more than three times the levels around 2002. India has the potential to capture $300 billion of this.
In the 1960s, based on manufacturing capabilities and cost structures, manufacturing activities shifted from the US and Europe to Japan for items like consumer electronics and cars. This was facilitated by world-class infrastructure and labour productivity.
Later, the production of such goods shifted to Korea, driven by the same factors. In the last 15 years, China has emerged as the centre for mass manufactured products, based on its labour reforms and discipline, and top-notch infrastructure.
India, which has missed several opportunities to develop into a manufacturing centre - save in industries such as auto components - again has the opportunity to be one now. But there is no wishing away the role of infrastructure. For the manufacturing sector to grow significantly, we need to develop good infrastructure, and our government needs to make the necessary policy changes to further increase the role of the private sector. Joint government and private sector participation in the development of roads, ports, airports, power utilities and urban infrastructure will result in faster execution and higher quality.
Investments in infrastructure also have a multiplier effect on our economy. Good infrastructure will also facilitate the dispersal of manufacturing units away from the major cities, relieving stress on the urban centres. At the same time, roads and ports with easy traffic will enable quick and reliable movement of manufactured goods to markets in India and abroad.
Labour reforms are also required to stimulate investment. If investors have the option of easy exit when businesses do not succeed, they will be encouraged to invest in India. Thus, labour reforms will actually result in the creation of more jobs rather than fewer jobs in the economy, as some politicians and bureaucrats fear. Such enabling policies will go a long way in attracting capital to the manufacturing and infrastructure sectors.
There remains one big risk to Indian manufacturing, still. Indians engineers have been recognised the world over as being amongst the best but the real benefits of this talent do not trickle enough into our own economy. Manufacturing and infrastructure companies compete for talent against the glamour and high salaries offered by employers in the information technology and business process outsourcing, consumer goods and banking sectors.
In effect, especially in the software and BPO sectors, what we are seeing is the loss of engineering talent to multinational companies setting up offshore engineering centres in India - a virtual " brain drain". But, with students not considering manufacturing and infrastructure as preferred career options, the short supply of talent to these businesses could jeopardise our ability to achieve a 12-14 per cent growth rate in these sectors.
At this point, we have every reason to feel optimistic about India's future status as an economic powerhouse. As Indians, we have a responsibility to bequeath our children with a country that is well-developed and economically strong. India needs our talent: this is critical for our national and economic development.
Buy the Business Today January 9 edition for more such columns by business leaders like Subash Chandra, and Azim Premji.
A.M. Naik, CMD, Larsen & Toubro
The opportunity is there for India to take. It is estimated that manufacturing offshored to low-cost countries will increase to $4.5 trillion, more than three times the levels around 2002. India has the potential to capture $300 billion of this.
In the 1960s, based on manufacturing capabilities and cost structures, manufacturing activities shifted from the US and Europe to Japan for items like consumer electronics and cars. This was facilitated by world-class infrastructure and labour productivity.
Later, the production of such goods shifted to Korea, driven by the same factors. In the last 15 years, China has emerged as the centre for mass manufactured products, based on its labour reforms and discipline, and top-notch infrastructure.
India, which has missed several opportunities to develop into a manufacturing centre - save in industries such as auto components - again has the opportunity to be one now. But there is no wishing away the role of infrastructure. For the manufacturing sector to grow significantly, we need to develop good infrastructure, and our government needs to make the necessary policy changes to further increase the role of the private sector. Joint government and private sector participation in the development of roads, ports, airports, power utilities and urban infrastructure will result in faster execution and higher quality.
Investments in infrastructure also have a multiplier effect on our economy. Good infrastructure will also facilitate the dispersal of manufacturing units away from the major cities, relieving stress on the urban centres. At the same time, roads and ports with easy traffic will enable quick and reliable movement of manufactured goods to markets in India and abroad.
Labour reforms are also required to stimulate investment. If investors have the option of easy exit when businesses do not succeed, they will be encouraged to invest in India. Thus, labour reforms will actually result in the creation of more jobs rather than fewer jobs in the economy, as some politicians and bureaucrats fear. Such enabling policies will go a long way in attracting capital to the manufacturing and infrastructure sectors.
There remains one big risk to Indian manufacturing, still. Indians engineers have been recognised the world over as being amongst the best but the real benefits of this talent do not trickle enough into our own economy. Manufacturing and infrastructure companies compete for talent against the glamour and high salaries offered by employers in the information technology and business process outsourcing, consumer goods and banking sectors.
In effect, especially in the software and BPO sectors, what we are seeing is the loss of engineering talent to multinational companies setting up offshore engineering centres in India - a virtual " brain drain". But, with students not considering manufacturing and infrastructure as preferred career options, the short supply of talent to these businesses could jeopardise our ability to achieve a 12-14 per cent growth rate in these sectors.
At this point, we have every reason to feel optimistic about India's future status as an economic powerhouse. As Indians, we have a responsibility to bequeath our children with a country that is well-developed and economically strong. India needs our talent: this is critical for our national and economic development.
Buy the Business Today January 9 edition for more such columns by business leaders like Subash Chandra, and Azim Premji.
