Sustainable Economic Growth - Actions For Manufacturing Innovations

Note: This set of suggestions is somewhat different from the usual ideas in the Open Spring. They were more oriented towards new actions or by a small group. This set of items is more complex. Would involve working with Government, Industry Associations and others. But if some young people and also much experienced elder people decide to work together to change policies, and also create some actions, there is lot of ideas in this and specific ideas.

Try your hand on these. If you succeed, India will succeed.

INTRODUCTION

Sustained and sustainable economic growth is crucial to bring prosperity to all segments of people.
Sustainability of growth is essential to ensure security and stability of people's incomes and employment.

Often the sustainability agenda is taken up by environmentalists narrowing the discussions only to the issues of earth's environment and natural resources. Many of modern scientific researches and technological advances especially in the developed world are addressing these issues through energy conservation, continuous reuse of 'waste' materials achieving zero waste processes, newer material combinations, new energy sources, etc.

In the course of next two decades eco-friendly sustainability would have been incorporated in almost all sectors of economic and social activities through modern technical and business processes. But such achievements will be true, looked at a macro-global perspective

But another crucial sustainability of human life - common peoples' lives - resolve around sustainable economic growth in their societies. For India, this is very important since the benefits of modern globalised growth are yet to reach hundreds millions very soon. And much more crucial is to maintain the benefits of growth for all segments for their generation and beyond.

To enable and ensure such a sustainability of growth, it is just not enough to look at the macro-statistics of growth. One needs to look at the details of how the growth is being effected and what its foundation is.

INDIA'S GROWTH

Some achievements are :

  • India has broken loose from the slow growth syndrome.
  • Current growth rate is good and can grow more.
  • Foreign exchange reserves are good.
  • Current account deficit is high, close to $ 40 Billion. A good part off set by remittances of Indians from abroad. (It is more than all of software enabled exports).
  • Manufacturing sector is also picking up. For example there is a 30% growth in Machine Tool Sector but two-thirds are from imports. Such is also the case from other Capital Goods sector.

Let us look at the growth of IT sector and then the manufacturing sector.

IT Sector

It is well known that a very large percentage of the IT sector is dependent on orders from abroad. Domestic consumption of IT is very low. Bulk of the main software is imported or licensed on royalty. Thus there is a large flow of money abroad. More importantly almost all the hardware for IT sector are imported or having very low local value addition.

In the current fashion, if domestic use of IT is expanded the import of computers/hardware and royalties for software will push up the import bill. Already some analysts estimate that while IT sectors contribute substantially to domestic employment and incomes, the net foreign exchange earning is probably in the negative.

This net negative deficit will increase if there are no local manufacturing with large local value addition.

Currently the traditional export sectors like gems & jewelry (net earner), handicrafts, primary products (like ores, tea, etc) cannot be stretched beyond a point. As also the remittances from abroad. Agriculture has its limitations to export.

Therefore local manufacture in ICT sector with larger and larger value addition is required for stability of current ITEs driven growth. That is to make it a sustainable growth.

MANUFACTURE OF CAPITAL GOODS

A similar situation exists in the manufacturing sector as well. Be it textile or leather or construction machinery or chemical plants or agro-processing units or energy installations or electric power generation/distribution systems or other capital goods for transportation sectors or mother industries like machine tools, the situation is massive import of machinery and plants.

Modernising companies are acquiring their competitive advantage through heavy imports of machinery and know-how.

As of now, they have little options as the Import tariffs are low and foreign competitors offer better products.

Once the large currently laggard SME's start modernising themselves in this fashion (similar to spread of IT applications to domestic sector), their import bill will also be huge, much bigger.

The balance of trade will exert a tremendous pressure on Indian economy.

Even expansion of health sector another crucial social sector will require many modern diagnostic equipment and hardware. Presently the only option is massive import scaling up the present inputs several fold.

Alternate to the modernisation of SME's is not to deny them latest equipment.

All of them should modernise with better and better technologies - with technologies which are also eco-friendly as it will be so demanded in foreign markets and also insisted upon for domestic consumption.

WHAT NEXT ?

Can we sustain the economic growth by allowing the current mode ?

Also let us not forget that each import displaces some job in India. Unless we offset it by some other job creation, there is no scope of spreading prosperity to our people.

Developed countries shed low value jobs and create greater value adding (innovation, R&D driven) jobs for their own people.

Are we in a position to do so ?

Already our agriculture is suffering the effects of low productivity due to too large a number of people dependent on it (60 to 70% workforce). It has to be brought down to 30% if our farmers have to be reasonably prosperous and have stable incomes even through bad weather periods.

Our services sectors have to depend on high tech equipment and costly software if they have to survive. Even if they produce some high end software in the country and get global markets, they would have contributed their mite.

What then happens to Indian economy in terms of high imports and employment of people due to loss of jobs in agriculture and huge volumes of imported equipment in all sectors.

Only remedy is to step up high value adding manufacture within India, even though we may temporarily import capital goods etc as explained a little earlier in this paper.

HOW TO ?

The above mentioned goal for manufacturing sector cannot be achieved in a year or two. It requires a major R&D base with close participation of our Industry and establishment of a complete innovation system within our Manufacturing Sector. It is not a blind nut-and -bolt-self-reliance nor import substitution type of self-reliance.

Such an emphasis of high value Manufacturing Innovation Chain to be established in India, cannot be merely inward looking to upgrade the domestic production and increase the value addition in domestic capital good manufacture. It is a globalising world. India has to be major player. Therefore the Indian innovations in Manufacturing sector have also to aim at global markets.

It is to be done with the acceptance of global interdependence but having some crucial elements of Innovation Chain made within India. It will also make Indian innovations in Manufacturing Sector to reach all the global value chains (not merely a supplier to the Indian Innovation Chains). Then alone India will be able to balance imports and exports reasonably. And play the global game with sustainable foundation. Mere acquisition of foreign companies is not adequate to transform the severe gaps and weaknesses of Indian value systems. Also while Indian MNC's are welcome, we should also be socially conscious to create high value adding manufacturing base within India so that all our people (with different grades of skills) can be absorbed in productive employment. (There is a limit to export of Indian talent abroad !).

It is therefore of immediate importance to establish mechanisms to create high value addition in the Indian Manufacturing of Capital Goods in the following areas to begin with :

  1. Electric power generation/transmission/distribution
  2. Advanced Water Management/Water Recycling Systems
  3. Agro Food Processing Sectors
  4. Machine Tools
  5. Textile Machinery
  6. Transportation Machinery
  7. Construction Industry
  8. Bio-medical Equipment
  9. Select Metallurgical Sectors
  10.       (Computers, Microchips, Optoelectronics etc are left out though they equally important).
MECHANISMS

To expect these actions to be completely market driven is unrealistic and may invite a serious instability in our economy in about 5 to 10 years, as explained earlier.

Government has to fund these considerably and not insist on 50% - 50% contribution in all cases.

It is necessary to have a single Apex Body of professionals drawn from different fields and also having operational experience in or close association with Manufacturing Industry & Business, to direct these efforts, with vision and programme management skills.

The apex body will require a group of young professionals to programme - manage the sectors and individual projects. Such a professional programme monitoring is crucial to success. It will be good if one of the existing Knowledge Intermediation Institutions like TIFAC is seconded to this Apex Body.

The main tasks to be done in the next five years are :

  1. Take up a quick gap survey on the ten individual areas listed above (say within 3 to 6 months) and draw a short-term / medium term plan of action along with Indian Industry & business a few areas of R&D, Technology acquisition, IPR purchase etc in order to mount specific projects and to create new Innovation Chains in Manufacturing Sector in India with large value India addition (as explained above).
  2. The products may be new machines or new upgradation or new plug in modules or new software for automation or new tools etc.
  3. All projects will have Industry participation and also draw researchers from IIT's, Universities and small innovative entrepreneurs. All R&D projects will pass beyond generic phase to be tested in actual production conditions.
  4. There will also be special low interest VC type funding for new start ups and entrepreneurs.
  5. Educational Institutions will be incentivised to create new courses in such manufacturing practices with India made innovations and also to create a research base, and
  6. Other promotive and policy support activities in furtherance of the above tasks.

Y S Rajan
6.3.2007