Need for Champions in Indian manufacturing
India is one of the world’s fastest growing major economies. Manufacturing is a key pillar for economic growth as it provides a significant multiplier to the economy both in terms of output and employment. Manufacturing is thus rightfully at the heart of the Hon’ble Prime Minister’s vision for Make in India which envisages boosting India’s manufacturing growth and taking the sector’s contribution to GDP to 25% by 2025 to generate millions of new jobs.
It is now time to take this campaign to the next level and identify specific products for dedicated promotion in sectors where India has the chance to emerge as a global champion, ranking among the top 1-2 slots in the world. India’s global leadership in certain products will add heft to its international footprint and raise share of its exports in the world from the current 1.8 per cent.
With this background, the CII Manufacturing Council has been working on an initiative to identify champion manufacturing industries that have the potential to achieve global leadership, and also significantly contribute to job creation in the Indian manufacturing sector. The analysis is presented in the CII report ‘Champion Manufacturing Industries 2025’, brought out in January 2017.
To begin with, the CII study identified a list of manufacturing sectors that could contribute significantly to manufacturing GDP. These included 9 sectors of Aerospace and Defense, Auto and Auto Components, Cement, Chemicals, Engineering, ESDM, Pharmaceuticals, Steel and Textiles.
CII further identified 156 industries within these 9 broad sectors and conducted an analysis of the commercial and strategic attractiveness for each of these industries. Based on these criteria, a comparative analysis was done to identify 28 Champion Industries. These include Aircraft Components, Auto Electricals and Electronics, Automotive batteries, Cement, Agro Chemicals, Machine Tools, Construction Chemicals, Mobile phones, and others.
Given this framework, CII came up with key strategies and policy interventions at the overall manufacturing, sector and industry level, which would trigger industry action and translate into the creation of Champion Manufacturing Industries. This in turn will result in significant output growth and employment creation as well as an increased share of global manufacturing exports.
The broad recommendations relating to all the sectors are captured in four sections: Policy, Cost, Manpower and Technology.
CII initiatives and outcomes
CII shared the study with Hon’ble Prime Minister in June 2017 and also with senior government officials including Cabinet Secretary, CEO, NITI Aayog and the PM-appointed Group of Secretaries on Commerce & Industry on several occasions. The report has also been presented to Secretary, Department of Industrial Policy and Promotion (DIPP); Finance Secretary; Commerce Secretary; Secretary, Ministry of Steel; Secretary, Ministry of Electronics and Information Technology (MEITY); Secretary, Department of Heavy Industry; Secretary, Ministry of Textiles; Secretary, Department of Chemicals & Petrochemicals; Secretary, Ministry of MSME; and Secretary, Ministry of Labour & Employment.
Government in February announced that the concept of Champions would be used as a basis for Make in India 2.0.
Many recent announcements by Government are on the basis of the Champion recommendations.
- The new General Financial Regulations (GFR) to ease Government procurement makes provisions for life cycle cost of ownership, removal of prior track record, and domestic purchase preference.
- Similarly, the new policy on Steel has broadly endorsed CII suggestions such as creating a transparent and uniform country-wide mechanism for sale of iron ore, steel purchase preference policy, encouraging production of specialized steels in automobiles, electrical and defence sectors, and mandatory BIS certification for all steel products to maintain their quality.
- For electronics manufacturing, the Government announced maintaining an advantage for domestic manufacturing of mobile phones via customs duty differential, and a phased manufacturing programme to promote manufacturing of cellular mobile handsets, goods subassemblies and parts.
- An active focus on setting up multi-modal transportation networks is also aligned to Champions report.
CII was also successful in seeding certain recommendations / ideas in the new industrial policy:
- Focus on building scale in manufacturing and brand India,
- Providing a clear long term policy path, policy certainty and co-ordinated policy regimes,
- Standardizing product specifications across all procuring entities to aggregate volumes,
- Tax and non-tax incentives for investments /employment / R&D,
- Mission to harmonize Indian standards for champion sectors; and
- Augmenting testing facilities.
The Champions report makes further key recommendations to achieve global scale in identified sectors:
To strengthen the ecosystem for these industries, policy actions for special and differential treatment extending to about ten years need to be developed. Lowering the corporate tax rate to an internationally competitive 18%, encouraging multilateral funding, setting-up of an umbrella USTR-cum-USITC* type body to strengthen trade negotiating capacity, encouraging FDI for setting up R&D labs with financial incentives, and prioritizing Ease of Doing Business (EODB) for Champion sectors, among others.
Cost competitiveness is derived from the overall transport, power and finance infrastructure, as well as from the productivity of the entire supply chain. Indian firms often face cost escalations on account of poor logistics and power access
Cost related recommendations include providing time-bound compensation of disabilities on account of finance, power, and logistics costs through WTO-compatible production subsidies based on value addition. Leveraging the Industrial Corridors Network as the backbone for manufacturing companies and creating Plug-and-Play parks would also cut costs.
Setting up of a multi-modal logistics network would extend to implementation of inland waterway policy, creation of dedicated railway freight corridors, fast-tracking national roadways, and ensuring hinterland connectivity in a ports plan. This network would also be responsible for the implementation of electronic tolling through RFIDs (radio frequency identification).
In the field of power, it is recommended that industries are allowed net metering so that they can set up solar plants in remote locations and can engage in electricity trading. Another important strategy would be the provision of internationally competitive and easily accessible priority sector funding for the identified sectors.
The final piece of the strategic policy levers would be creating the right manpower for the identified sectors. A pool of tailored talent would greatly boost the Champion Industries, according to the CII report. Each of the sectors should have specific skill councils, which would provide focussed training and skilling programmes. A key policy would be extension of Fixed Term Employment to all manufacturing sectors. Extension of 2% CSR provision for funding research chairs in recognized institutes and the provision of doctoral fellowship scholarships funded by industry will help develop top quality resources for the Champion Industries.
Technology will be a key factor in driving global scale for the selected goods, and the endeavor should be to not only bring in current global best technology but also to drive new technology creation and innovation for sustained global excellence. Constant innovation to stay ahead of evolving technologies will define growth of the 28 sectors. Some of the core strategies and recommendations in terms of technology include creating Champions of ‘the New’ i.e. adopting at least one Champion Industry via Atal Incubation Centres. Disbursal of funds for public research could be channelled to the 28 champion industries.
Other recommendations include Indian representation in international standard setting processes and bodies, a special fund generated from R&D cess supporting global partnerships for technology acquisitions, private sector investment for R&D with public institutions on a 50:50 basis, and several R&D incentives. The R&D incentives could extend to encouraging private sector R&D, boosting translation of research outputs to commercial production, allowing accelerated tax deduction on Intellectual Property and capital investments in labs, consideration of IP as collateral for financing industry, etc.
These strategies and recommendations are expected to facilitate significant industry action by addressing sustainability, safety, and running costs and encouraging life-cycle cost of ownership oriented design and manufacturing processes. Transition to “Green” and “Clean”, conformation to global standards and quality, greater acceptability to external trade opportunities, and greater value addition as well as increasing employability of the workforce are industry actions that would boost competitiveness of companies in these sectors.
This is an opportune time for India to strongly encourage these 28 industries that have the potential to be #1 or # 2 globally and create 100 million jobs in the next decade. CII has come up with sector specific recommendations for each sector that would maximize their probability of success. Close partnership between the government and the industry along with time-bound implementation of strategies would ensure India’s transformation as a true manufacturing champion.
*USTR – United States Trade Representative; USITC – United States International Trade Commission