Manufacturing Industry: Quantity in alignment with Quality

Context: Indian Economy

• The current debate is about whether the production of the manufacturing sector should be governed by the quantity produced or should the impetus be on production process that not only increases quantity but also maintains a quality
• Make in India is makeshift program initiated by the Government of India (GOI) to encourage national as well as multi-national companies to produce their products in India
• At the same time ‘zero defect, zero effect’ (ZED) is another scheme initiated by the GOI according to which the production should be free from defects so that it can compete in the world market and zero effect implies products that does not cause any harm to the environment

Status of Manufacturing Sector

• Manufacturing has emerged as one of the high growth sectors in India
• Prime Minister of India, Mr Narendra Modi, had launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy.
• India is expected to become the fifth largest manufacturing country in the world by the end of year 2020
• India’s manufacturing sector has the potential to touch US$ 1 trillion by 2025
• There is potential for the sector to account for 25-30 per cent of the country’s GDP and create up to 90 million domestic jobs by 2025.

Importance of Manufacturing Sector

• Productivity growth and technological advancement lie at the root of economic development, which is why manufacturing is so important.
• Most technological breakthroughs have been associated with the manufacturing sector
• Efficiency across all sectors of the economy has improved as a result of technology diffusion from the manufacturing sector
• Manufacturing industries help in modernising agriculture, which forms the backbone of our economy.
• Manufacturing industries also reduce the heavy dependence of people on agricultural income by providing them jobs in secondary and tertiary sectors.
• Industrial development is a precondition for eradication of unemployment and poverty from our country.
• Manufacturing is also important for creating good jobs.
• The International Labour Organisation (ILO) says countries with a high share of employees in industry tend to have more people in wage-employment, rather than in informal, vulnerable jobs.
• Export of manufactured goods expands trade and commerce, and brings in much needed foreign exchange.

Make in India’s and Manufacturing Sector

• For the Make in India campaign, the government of India has identified 25 priority sectors that shall be promoted adequately.
• These are the sectors where likelihood of FDI (foreign direct investment) is the highest and investment shall be promoted by the government of India.
• The ‘Make in India’ initiative unveiled by Prime Minister Narendra Modi in 2014, provided the much-needed boost to the languishing manufacturing sector and also an overarching framework for long pending structural reforms
• The bureaucratic approach of former governments, lack of robust transport networks, and widespread corruption made it difficult for manufacturers to achieve timely and adequate production
• Make in India is a measure to remove these hurdles and make the nation an ideal destination for investors to set up industries.

Upgrading Manufacturing Sector following ‘ZED’

• While the ‘Make in India’ program has been incessantly analyzed by economic commentators, the relatively less talked about the initiative is the effort to align with “zero defect, zero effect” (ZED)
• ZED or Zero Defect, Zero Effect scheme is a new initiative launched by the Narendra Modi led NDA government.
• The initiative is meant to raise the qualitative standards of the unregulated micro small and medium enterprises (MSME), which is considered as the engine growth of the economy, driving almost 38% of the nations’s GDP and employing 110 million dollars.
• Hence, it is seen as a keystone of the flagship Make in India program, which is aimed at turning India into a global manufacturing hub, generating jobs, lifting incomes and boosting growth.
• ZED will handhold MSMEs across the country in all Make in India sectors, through government-constituted quality control cells, which will also rate the MSMEs depending on yearly assessments of their products.
• ZED will ensure that the products of the manufacturing sector has ‘zero defect’ so that it does not come back or gets rejected from the world market and ‘zero effect’ so that the manufacturing doesn’t not have an adverse effect on the environment.

India’s position in the World Competition

• A survey conducted by Statista-Dalia Research in 52 countries showed that ‘Made in Germany’ products were perceived as the best among 49 countries
• Germany was followed by Switzerland and EU reflecting the inherent strength of their manufacturing engines
• Interestingly, China was ranked last (49th) in terms of quality perception.
• India only fared marginally better at 42nd position.

Possible Take-Off for Indian Economy

• The positive side for India is is that no other Asian country is listed in the rankings, presenting an opportunity.
• Despite the two-decade lead taken by China in unleashing its manufacturing prowess, it continues to be at the bottom in the battle for perceived quality.
• Enhancing the quality quotient of ‘Made in India’ is a huge challenge as well as an opportunity for India’s manufacturing push
• The Global Manufacturing Competitiveness Index published by Deloitte Touche and the Council on Global Competitiveness indicated the rise of the “Mighty Five”—Malaysia, India, Thailand, Indonesia and Vietnam.

What India needs to be Aware of?

• First, Chinese factory wages have increased over the past decade and are almost at par with eastern Euro-zone countries.
• Low-cost production jobs are now moving to countries in South/South-East Asia.
• India could potentially be one of the countries to benefit from this realignment.
• Second, about 131.29 million people are employed in as many as 58.5 million establishments in our country, according to the sixth economic census, 2016 reflecting the ultra fragmentation of our manufacturing base.
• Small and steady steps taken by some States in labour reforms need to be scaled up to remove the hurdles for micro units in achieving the scale of operations.
• Only reasonable sized enterprises shall have the economies of scale to compete globally.
• Finally, while low-cost manufacturing is important for India, a comprehensive policy on value-addition to transform the economy is needed.
• Existing competitive edge in sectors like textiles needs to be supplemented with focused strategies under the ZED philosophy (certification, productivity, technological depth, energy efficiency and IPR).