Manufacturing growth hit by rigid labour laws, poor infrastructure

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Janshyd N. Godrej, Chairman & Manging Director, Godrej & Boyce Mfg Co Ltd (file photo).
Janshyd N. Godrej, Chairman & Manging Director, Godrej & Boyce Mfg Co Ltd (file photo).

Rigid labour laws and creaking infrastructure are stifling manufacturing sector growth at a time when the global slowdown has created opportunities for Indian companies. Besides land availability issues and the delay in implementation of GST, the sector has been hit by inadequate power supply and transportation bottlenecks.

Speaking on the sidelines of 11th CII Manufacturing Summit, Jamshyd N. Godrej, Chairman and Managing Director, Godrej and Boyce, said leading corporate houses have come together to launch a pilot project on ways to improve industrial relations under the current policy framework.

“The unrest among employees in most cases is created by the prevalent grades such as temporary, permanent and contract system. The project will study what best can be done to treat all this class of employees equally. A flexible employment norm does not mean hire-and-fire,” he said.

Stressing the need for better urban infrastructure, he said one cannot expect an employee with poor housing and inadequate transportation to produce a world-class product. In the last three years, the performance of Indian manufacturing has been below the levels targeted under the National Manufacturing Policy.

Excluding October, the sector’s recent performance has been below par. From a trajectory of 8-9 per cent, manufacturing GDP growth has slowed to 2.5 per cent and almost flattened to 0.5 per cent in the first six months this fiscal.

“A low-cost focus alone will not be able to drive differentiation. India needs to also focus on developing other sustainable competitive advantages in order to create a footprint on the global manufacturing landscape,” he said.

The decreasing cost competitiveness of China is opening up a window of opportunity. Over the last two decades, labour rate arbitrage was the main driver for offshoring production to China and provided substantial cost savings of 20–40 per cent.

However, since 2009, wages there have inflated almost four times the rate of Indian wages. Add to this the relatively low productivity compared to the US standards and China’s competitiveness in low-cost labour is clearly eroding, said Godrej.

“The aspiration of India should not be to become a factory to the West, but a Germany of the East,” he said.

(This article was published on December 17, 2012)
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