It’s not often that India’s biggest business leaders turn up together to speak at the same forum and when they do, they usually have a crib list of what the government ought to do for them. But at last week’s launch of PM Narendra Modi’s ‘Make In India’ campaign, the 10 CEOs (including one Japanese and one American) who made speeches that ranged from the inane to the somewhat sensible sounded more like a gushing fan club, albeit a pretty valuable one — together the revenues of all the companies that were represented, including Reliance, the Tata group, the AV Birla group, ITC and ICICI Bank, tops $330 billion. India Inc. is bullish over Modi and his government, which they view (and hope) as being way more pro-business than the previous regime but the thing is that if the slick new ‘Make in India’ campaign is to become a success, it is Indian business and not just the government that will have to do much of the heavy lifting.
As many will point out, the ‘Make in India’ campaign doesn’t make any grandiose announcements. Instead it promises that the government will make it easier to do business in India. It promises to clear investment proposals faster; to make labour laws more flexible; to trust businesses enough to allow them to self-certify documents; and so on. In return Modi wants investors to not only look at India as a market but also take part in its development. All of these are laudable aims that few will take issue with but if Indian manufacturing is to truly get a boost much will depend on how Indian businesses respond.
Manufacturing contributes 17% of India’s GDP compared to 69% that comes from services and 14% from agriculture. And, of the 474 million Indians who are gainfully employed, only 100 million do manufacturing jobs compared to 232 million who work on farms and 142 million employed in the services businesses. In recent years, investment in manufacturing has been hindered by many factors — inflexible labour laws that hobble employers; an adversarial tax regime that has discouraged foreign investors; and a depressed market that has dampened global demand. It is true that the government can address some of these factors by doing away with the controversial retrospective tax on a telco or easing labour restrictions — measures that it has promised it will take. But there are other fundamentals that have to be addressed by businesses themselves.
For far too long Indian business has taken the short cut to profits. Unlike in China, which started as a cheap manufacturing base to emerge as the world’s factory and then carefully cultivated a culture of innovation, which has enabled it to remain competitive, India’s businesses have not. Across sectors, including the 25 that the ‘Make in India’ campaign lists, the story has been the same: Indian businesses, from engineering to automobiles, have either shopped abroad for technology or reverse-engineered what others have done, sometimes controversially, as in the case of pharmaceuticals. Even the biggest Indian businesses that have set up world-scale factories and manufacturing facilities have largely done so by shopping technology abroad. In the engineering business of car-making, the Tatas stand out as one group that attempted to develop a truly indigenous small car with somewhat mixed results.
Otherwise, Indian business has largely chosen to jettison attempts to innovate in manufacturing or develop a culture for doing so in favour of adopting what is known locally as ‘jugaad’, a simple workaround that gets the job done somehow rather than a serious effort to find solutions that stand the test of time.
The problem with technology shopping is that it can turn into a costly spiral because as technology advances and gets costlier to buy, those who make things using the tech-shopping avenue could become uncompetitive. That could defeat the purpose of making anything in India. Unless Indian manufacturers learn to innovate.