In the last several decades, many countries that transitioned from the middle-income to the high-income status benefited from either joining the large European market or being endowed with natural resources like oil and gas. There are notable exceptions, like South Korea, Taiwan and Israel, who have avoided the middle-income trap through manufacturing backed by R&D and innovations. Some countries used commodity exports or manufacturing and did well for some time, but eventually floundered. In this backdrop, India will have to create its own path to prosperity, where manufacturing will play a key role. Still, it will have to be a multi-dimensional story, with growth being inclusive and sustainable. We will have to go up the value chain based on cutting-edge innovations but will at the same time also need labour-intensive industries to employ our youth gainfully.
Disruptions to global supply chains owing to geopolitics and Covid have made countries and businesses adopt the ‘China-plus-one’ strategy, that is, look for alternatives to the Asian giant. However, India will not be the only player vying to be the ‘plus one’ to China. To be a big player in manufacturing, we must be able to compete globally in terms of cost, quality, customer service, capital productivity, innovations and branding.
The government has taken several steps to improve the cost competitiveness of Indian industry. These include huge investments in physical and digital public infrastructure, launching production-linked incentive (PLI) schemes and the Goods and Services Tax (GST) regime, and reducing corporate tax rates. The areas where India needs to put in more work to achieve competitiveness vis- -vis its peers are the costs of logistics and capital—these need to be reduced by 300-400 basis points each.
India had missed the first two industrial revolutions, and we were a much smaller economy when the third revolution took place. The fourth revolution or Industry 4.0 plays to India’s strengths. Cyber-physical systems, nano factories, artificial intelligence/ machine learning-based forecasting, nerve centres for cognitive and predictive decision-making, robots and additive manufacturing etc will have to be adopted at scale to reduce costs and enhance people and capital productivity. Leveraging GST and harnessing Industry 4.0 practices have enabled expansive supply chains like Hindustan Unilever’s to reduce the number of fulfilment centres and set up multi-product/ format factories closer to the source of demand. Adopting technology across its value chain, it has factories recognised by the World Economic Forum as ‘digital lighthouses’ and has one of the lowest conversion costs and highest capital productivity in the FMCG industry across the world.
Quality management: Improving quality and customer service must become an obsession in Indian industry. This will entail implementing quality management systems, robust mechanisms for capturing and analysing customer feedback, adopting Customer Relationship Management (CRM) systems, benchmarking and fostering a customer-centric and continuous improvement culture.
R&D and innovations: A big change our country must make is around R&D and innovations. India spends less than 1 per cent of its GDP on R&D. South Korea, Taiwan and Israel spend 3-5 per cent and China about 2.5 per cent. It is not just about increasing the quantum of money we spend but where and how we spend it. China files over 20 times the number of patents India does. The sweet spot of innovation is where you meet the unmet needs, at costs that are competitive and where you appropriate a large part of the value chain. To differentiate ourselves, this will have to be supplemented by products that are high on sustainability.
We will have to build innovation ecosystems where public sector as well as private sector R&D, academia, venture capitalists and start-ups come together. For instance, Wageningen University in the Netherlands, recognised for its research and innovation in agriculture, food sciences and biotechnology; the MIT Media Lab in Boston, renowned for its cutting-edge interdisciplinary approach to research; and the Hsinchu Tech Park in Taiwan, known for its R&D in semiconductors, electronics and telecommunications, are great examples of innovation ecosystems.
Nurturing MSMEs: Also, MSMEs will have to be nurtured by enhancing their presence and leveraging their strengths. We must create greater ease of doing business, provide higher access to capital and technology and assist them in reducing their carbon footprint. Manufacturing cannot break into a gallop without skill sets that match industry needs. This will entail extensive vocational training, deploying digital tools for efficiency and scalability of upskilling and reskilling. In tandem with growth in manufacturing, we will have to take concrete steps to build brands that are differentiated and recognisable across the world.
India and its numerous states will have to focus on industries where they have a competitive edge or where it can be created. In sunrise sectors, we should look at drones, space, modular nuclear reactors, renewable energy, smart mobility and life sciences. In labour-intensive sectors, the focus should be on leather products, handicrafts, furniture, garments and agro-processing, among many other sectors. India has the foundation, the entrepreneurial zeal, the drive—of both the government and its people—and the right external context to become a ‘product nation’. Let us not miss this opportunity. Our destiny beckons us. n
The author is Executive Chairman, L Catterton India, and former CMD, Hindustan Unilever Ltd
Tune In