Government policies can result in slowing manufacturing and making it non-competitive. They can encourage unethical management practices. This is apparent from the outcome of industrial policies framed after 1950. The abolition of the licence and control system in 1991, along with the creation of conditions to facilitate competition, brought about some positive change. However, it was only after 2014 that the government implemented policies that removed most of the obstacles to competitive manufacturing. The ease of doing business programme, introduction of GST (Goods & Services Tax), trusting the private sector to lead manufacturing growth, fiscal prudence and several other reforms have created a favourable environment for the growth of manufacturing activity. The budget of 2024 carries forward this objective.
While government policies can determine whether manufacturing can flourish or not, they cannot actually result in accelerating manufacturing growth. The pace of growth would always be determined by the actions of companies. Companies where managements are solely committed to the growth of their companies perform much better than companies whose assets and resources are treated as the personal property of the promoter. Siphoning money from the company significantly weakens growth and competitiveness by reducing the capability to make investments in R&D and expansion. Manufacturing growth in India has been adversely affected due to undesirable management practices developed prior to 1991. That largely explains why the contribution of manufacturing to GDP remains under 16 per cent.
Advantage India: The manufacturing-friendly policies of the present government, allied to the geopolitical scene, have created a situation where locations outside China are being sought for manufacturing. The foreign policies of the government have created a very favourable environment for us and India has become a very acceptable choice for locating manufacturing activities.
The auto component industry is possibly best situated to take advantage of the global situation. Our car industry has been growing steadily and we are now the third largest car market in the world. The component industry has grown even faster, thanks to the policy adopted by Maruti Suzuki India Ltd in 1983 to treat component manufacturers as partners and work with them to keep improving their competitiveness. The component industry in 2023-24 had a turnover of Rs 6.14 lakh crore and its compound annual growth during the past 20 years has been 16.69 per cent, far above the manufacturing sector as a whole. Component exports in 2023-24 reached $21.2 billion (Rs 1.75 lakh crore), doubling in a nine-year period.
The scope for increasing exports even more is huge. The global trade in automobile components and accessories was $1,862 billion in 2022-23. Our share was just over 1 per cent. The industry needs to rapidly expand its engineering, design and manufacturing capabilities. Component manufacturers have to understand the opportunities that the world offers and how these opportunities are within reach. They have to start thinking on a much bigger scale and enlarge their ambitions. They have to want to play with the big boys and win and not be satisfied by being champions in the third league. Mindsets have to change. There are instances of component manufacturers having done this. For example, the Motherson group has a turnover of almost Rs 1 lakh crore and is among the top 15 component makers in the world.
Time to pivot: Component manufacturers have to enlarge their engineering capabilities and enhance their ability to compete by being able to quickly meet changing customer demands in a reliable manner. In many cases, this may require companies to form joint ventures with foreign partners. The traditional thinking of retaining majority control may need to be modified in the interests of being able to grow rapidly. Companies will also have to look at their management style and consider how to reduce costs, increase profits and generate capital for investment in building engineering capabilities and other critical areas. Frugal and ethical management is essential for this purpose.
The component manufacturers in India have a great advantage in that the domestic production of cars, which has crossed four million, is expected to reach eight million in the next eight years. Further growth is inevitable. The steady increase in domestic demand will derisk their investments in creating capabilities to cater to overseas markets. India has abundant resources of people with the skills required for engineering and manufacturing. Labour is abundant. No other country can offer these advantages.
What applies to the component manufacturing industry also applies to many other segments of manufacturing industry. Entrepreneurs and promoters have to think big and long-term. They have to want to experience the thrill of their companies being amongst the biggest in the world. Wealth will come to them as their companies grow, but they will realise that no amount of money can equal the pleasure and happiness that comes from contributing to national growth and benefitting millions of people. This is now India’s moment. Industry must take advantage of it.
The author is Chairman, Maruti Suzuki India
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