Industry

Objective

• Double the current growth rate of the manufac- turing sector by 2022.

• Promote in a planned manner the adoption of the latest technology advancements, referred to as Industry 4.0, that will have a defining role in shaping the manufacturing sector in 2022.

Current Situation

India is the fifth largest manufacturer in the world with a gross value added (GVA) of INR 21,531.47 billion in 2017-18 (2nd advance estimate for 2017-18 at 2011-12 prices). The sector registered a compound annual growth rate (CAGR) of around 7.7 per cent between 2012-13 and 2017-18.

The government has taken several initiatives to promote manufacturing. Among these are the Make in India Action Plan aimed at increasing the manufacturing sector’s contribution to 25 per cent of GDP by 2020,2 the Start-up India initia- tive to promote entrepreneurship and nurture innovation, and the Micro Units Development and Refinance Agency (MUDRA) and Stand-up India to facilitate access to credit. It has also un- dertaken massive recapitalisation of public sector banks3 to ease availability of credit to micro, small and medium enterprises (MSMEs). Besides, it has undertaken major infrastructure projects, such as the setting up of industrial corridors, to boost manufacturing.

The Department of Industrial Policy & Promotion (DIPP) has been engaging with states/UTs to enhance the ease of doing business. Following concerted efforts of the government, the World Bank ranked India 100th among 190 countries in the Ease of Doing Business (EODB) in 2018. This was a jump of 34 positions since 2014. While these indices are useful for comparison, actual improvement in EODB will come only with greater coordination between the centre and states.

The foreign direct investment (FDI) regime has been substantially liberalized, significantly improving India’s rank in terms of annual FDI inflows from 14 in 2010 to 9 in 2017. However, India receives only 25 per cent of the FDI that China gets and only 10 per cent of what the USA receives. FDI inflows into the manufacturing sector reached about 35 per cent of total FDI.

Manufacturing as a percentage of the gross domestic product has remained at about 16 per cent. Improvement are evident in recent quarters, where manufacturing growth at 6.9 per cent and 8.1 per cent in Q2 and Q3 2017-18 (year-on-year as compared to 2016-17) outpaced GDP growth. Figure 4.1 shows the trend in manufacturing as a percentage of GVA from 2011-12 until 2017-18.

Constraints

The main constraints on achieving the objectives set for India’s industry in 2022-23 are the following:

• Regulatory uncertainty:

  Regulatory risks and policy uncertainty in the past have dented investor confidence.

• Investment:

  There has been a cyclical slow- down in fresh investment since 2011-12.

• Technology adoption:

  The adoption of new technologies like artificial intelligence, data analytics, machine-to-machine communications, robotics and related technologies, collectively called Industry 4.0, are a bigger challenge for SMEs than for organized large-scale manufacturing. Data security, reliability of data and stability in communication/transmission also pose challenges to technology adoption.

• Exports and insufficient domestic demand:

  There has been no export driven industrial growth. Domestic demand alone may not be ad- equate for sustained, high value manufacturing.

• Challenges to doing business:

Despite recent mprovements in our global EODB rank, it continues to be a drag on the system. This is also true of investment conditions in the states. Getting construction permits, enforcing con- tracts, paying taxes, starting a business and trading across borders continue to constrain doing business.

Way Forward

Demand generation, augmentation of industrial infrastructure and promotion of MSMEs

• The government can play a crucial role in creating domestic manufacturing capabilities by leveraging proposed public procurement and projects. Mega public projects such as Sagar- mala, Bharatmala, industrial corridors, and the Pradhan Mantri Awas Yojana (PMAY) can stimu- late domestic manufacturing activities provided the projects are suitably structured and demand is aggregated strategically. This should be accompanied by simplification of the regulatory process. The Madhepura Electric Locomotive Project, a joint venture between the Indian Railways and the French multinational Alstom, provides a good example of how mega projects can be leveraged to boost domestic production. The project enabled effective transfer of tech- nology and the availability of state-of-the-art locomotives for the railways. The Madhepura model is replicable in the defence, aerospace, railways and shipping sectors.

• Set up a portal to monitor projects beyond a given threshold so that any roadblocks are identified and addressed on a real time basis. State governments should be encouraged or incentivized to contribute data to this portal. NITI Aayog’s Development Monitoring and Eval- uation Office (DMEO) can help set up the portal. An inter-ministerial body with representatives of state governments and project promoters (as special invitees) may be constituted.

• Efforts should be made to develop self-sufficient clusters of manufacturing competence, with Cluster Administrative Authorities empowered to provide single window clearances to en- trepreneurs and investors. Industrial corridors should address the lack of infrastructure and logistics. Logistics will need to be supplemented with warehousing and other elements of the manufacturing supply chain.

• NITI Aayog could work with states to prepare manufacturing clusters and develop export strategies based on their sector competitive- ness and resource strengths. A cluster should have supporting industries and infrastructure. It should also develop a local brand and distribu- tion channel through an e-commerce platform. A Cluster Administration Office should be given the responsibility to award factory permissions and compliances.

• For India to become the world’s workshop, we should encourage further FDI in manufacturing, particularly when it is supported with buybacks and export orders.

• Streamline discretionary powers vested at different levels of governance by adopting digitized processes and making all approvals electronic in a transparent, time bound manner. Disruptive technology, while leading to job losses in traditional areas, also presents new job opportunities. A greater connect between government-industry-academia is required to identify the changing requirements in manufac- turing and prepare an employable workforce. In the context of employability of engineers, there is a need for thorough review of standards of engineering education and its linkages with industry.

• E-commerce can be the driver of overall eco- nomic growth over the next decade through its impact on generating demand, expanding manufacturing, employment generation and greater transparency. A Committee, chaired by CEO, NITI Aayog examined issues related to the e-commerce industry5. It made recom- mendations for the sector’s growth including increasing internet access, digitizing payments, further improving transportation infrastructure, logistics and distributed warehousing support. These may be examined for implementation at the earliest.

• Harmonize Indian quality standards with global standards in many sectors. Lack of harmoniza- tion has affected Indian exports and prevented the leveraging of trade agreements adequately. For e.g., the medical device industry would benefit greatly from conformity to standards that are essential for new products to be acceptable to doctors and patients abroad. The issues of regulations and standards setting are also intertwined. The following initiative is required in this regard:

  • Task the Bureau of Indian Standards and Quality Council of India with assessing the improvements in standards and productivity required to achieve global standards.

MSME Issues

• Setting up of mega parks and manufac- turing clusters in labour intensive sectors with common facilities to reduce costs and improve quality. It is also recommended that state governments should set up plug and play parks (flatted factories) to ensure international productivity standards.

• Workers of industrial units in the new mega parks should have decent accommodation within reasonable proximity of the work place.

• An expert committee should examine sector-specific pain points and make its recommendations within three months.

• The Department of Public Enterprises (DPE) should ensure registration of all public sector units (PSUs) on the Trade Receivables Discounting System (TREDS) portal.

• Initiate a small business research programme in some select ministries for encouraging R&D in MSMEs.

Industry 4.0

• Launch a major initiative to push industry to adopt Industry 4.0. Industry 4.0 is characterized by increasing digitization and interconnection of products, value chains and business models. It will significantly impact sectors like automobile, pharmaceuticals, chemicals and financial ser- vices and will result in operational efficiencies, cost control and revenue growth. Experts feel that emerging markets like India could benefit tremendously from the adoption of Industry 4.0 practices.

• In his 2018 Budget Speech, the Finance Minister mandated NITI Aayog to initiate a national programme directing India’s efforts on Artificial Intelligence6. On a similar note, NITI Aayog could organize a discussion on “Industry 4.0,” inviting leading manufacturing companies from various sectors including automobile/auto components, electrical and electronics, chemicals, cement/steel, etc., along with concerned ministries to discuss plans for adopting Industry 4.0.

• The Indian Institute of Science, a few select In- dian Institutes of Technology (IITs), National In- stitutes of Technology (NITs) and other premier engineering colleges should create specialized training programmes on ‘Smart Manufacturing’ to address the shortage of high-tech human resources.

• The Department of Heavy Industry (DHI) should develop the Central Manufacturing Technology Institute (CMTI), Bangalore, as a Centre of Excellence for pursuing R&D in Industry 4.0 technologies and systems. The Department of Science & Technology should spearhead industry-academia R&D projects on cyber physical systems.

• The development of industries that produce the key building blocks forming the basis of Industry 4.0 could be incentivized. Incentives could be focused on MSMEs that manufacture products including sensors, actuators, drives, synchronous motors, communication systems, computer displays, and auxiliary electromechan- ical systems. Similarly, industries adopting In- dustry 4.0 standards could be provided support for a fixed period of time.

• Reliability, stability and integrity of smart man- ufacturing systems can be increased by creating Indian standards for the systems and sub-sys- tems for adoption by manufacturers.

Ease of doing Businsess

• Introduce a “single window” system in all states that provides a single point of contact between investor and government and facilitates all required licences and approvals. It should be based on stakeholder consultation.

• For efficient approval/inspection process, devel- op a system of accountability for major stake- holders like inspection bodies, testing labs, etc.

• For geographical planning and ease of environmental clearances, adopt the system of using Geographic Information System (GIS) based maps at all levels to create pre-approved land banks for manufacturing facilities. This is already being practiced in some states. In such designated land banks, standards can be clearly laid down in advance relating to (i) environmental requirements (ii) building bye- laws, and (iii) safety and other norms.

• Replicate in other states the Gujarat Pollution Control Board (GPCB) Environmental Audit Scheme based on third party certification.

• To strengthen third party certification systems, develop suitable accreditation agencies.

• Ensure the seamless integration of the Shram Suvidha portal and state agencies’ portals.