The rich industrialised world is set to displace China as the global manufacturing hub, by introducing altogether new technologies. India stands a chance here.
If one were to look at economic development from scratch, to high levels of sophistication in the modes of production, one could conclude that the very nature of manufacturing has changed.
The transformation is generally from an agrarian and raw material base to resource-based industrialisation, to technology-dominated and guided manufacturing, to an innovation and knowledge-driven economy — and then the economy transcends to the post-industrial stage, where the services sector tends to be the main driving force.
Where are we on this scale of transition? An objective analysis of our economic and industrial structure will reveal that there are several weaknesses and lacks of linkages in our system.
First, agriculture and manufacturing sectors are equal and low-level contributors (15 per cent each) to our GDP. Second, the manufacturing sector continues to remain largely resource-driven, rather than R&D and innovation-driven, which is quite unlike the situation in the East and South-East Asian fast-industrialising economies.
Third, there is insufficient growth of supporting and growth-boosting industries, such as infrastructure and basic goods.
Given this, and this is the fourth dimension of our anomalous economy, growth is driven by the services economy, while the manufacturing sector, which has registered only 6.7 per cent growth during 1991-2010, is going further downhill. Even so, nearly half of the services economy is unorganised.
To sound a note of caution, growth in services will soon reach its limit, if the real economy is not growing fast enough. Further, this is likely to perpetuate inflationary pressure, and set limits to growth.
The need to resuscitate the real sectors, particularly the manufacturing sector, and go in for greater technology-orientation of our real sectors, cannot be overemphasised. For the industrial economy, we need to effect a rapid transition from a resource-based orientation to technology and innovation-orientation. For this, we have the necessary inputs in our population and institutions.
Except for China, the services sector has been in the driving seat of economies worldwide, with its average share of 60 per cent in the global GDP. But that does not, and cannot, mean the end of the age of manufacturing, as some, including those in our country, had started to believe.
On the contrary, riding on technological development in the R&D centres of major global corporates, a quiet revolution in manufacturing is under way.
The erstwhile industrial economies, which were fast losing competitiveness under the wave of low-cost mass production techniques from China, are now finding newer and more competitive ways to produce, with the help of digital technologies that are re-shaping the shop floors in the virtual world.
It is quite possible that these economies, with the help of massive R&D spend of their corporations, will regain manufacturing supremacy and usher in a new manufacturing revolution. What is on the horizon then is the emergence of a new manufacturing era. I refer, in this context, to a recent special report on manufacturing and innovation in The Economist (April 21, 2012): “Old-school engineers worked with lathes, drills, stamping presses and moulding machines. These still exist, but EuroMold (a German trade fair) exhibits no oily machinery tended by men in overalls. Hall after hall is full of squeaky-clean American, Asian and European machine tools, all highly automated. Most of their operators, men and women, sit in front of computer screens. Nowhere will you find a hammer”.
And at the most recent EuroMold fair, last November, another group of machines was on display: “three-dimensional (3D) printers. Instead of bashing, bending and cutting material the way it always has been, 3D printers build things by depositing material, layer by layer. That is why the process is more properly described as additive manufacturing.”
This aptly sums up the shape of future manufacturing. This is not to suggest that the old system will disappear. It will exist, but its sheen may be lost.
The competitive advantage of the labour-intensive, low-wage benefit may be lost to ‘layer by layer additive manufacturing’ that is in the making, and this shift in competitive advantage will, once again, favour the rich industrialised nations.
Now, for us in India, a couple of questions emerge. Where shall we be in the coming new age of manufacturing? Shall we miss the bus, as always?
Do we have the wherewithal and capabilities to effectively participate in the new era? Much of the answer is within the realm of policy and attitude towards manufacturing, where we do not have a very convincing outlook, our new manufacturing policy notwithstanding. We are allowing our manufacturing sector to lapse into insignificance.
HOPE FOR INDIA
On the last question, however, I am quite positive. In the not-so-distant past, our young people have amply demonstrated their soft power, not just in the field of software and information technology, but also in R&D, innovation in manufacturing, as well as in management. I have three reasons for optimism.
First, the new-age industrialisation would require smarter software, where our young people can rise to the occasion. Second, factories of the future will empower small and medium-sized firms that will be less dependent on government and resources, and with the necessary efforts we can produce many such entrepreneurs.
Third, there shall be a key role for our educational and research institutions, where again the government will have a minor role, and private corporates can fill the existing voids, if any.
(The author is President, JK Organisation email@example.com)