From Licence Raj to digital disruptions

N Madhavan | Updated on January 27, 2019

Liberalisation transformed the manufacturing industry; now it’s time for Industry 4.0


When Reliance Industries founder Dhirubhai Ambani famously said in a 1985 interview that he is “willing to salaam anyone” in the context of managing the environment (read, the government of India), he was reflecting on the conditions that existed for the industry during the License Raj. As many as 80 approvals were required from various government departments to start a business. Once an entrepreneur managed to do it, the government decided the technology he will use, the quantity he will produce, where he will sell and how much he can price his product.

The industry felt stifled and it had no incentive to be productive (after all, they priced on a cost-plus model) or develop products by investing in R&D or modern technology (with government allowing only a modest foreign exchange outgo, all that the industry could buy was discarded technology). With no competition, there was little focus on quality or customer. To make matters worse, the private sector was seen with suspicion while public sector units were encouraged.

“The policy overburden meant growth was marginal and exports — weighed down by an artificially propped-up rupee — were non-existent,” recalls R Seshasayee, former Managing Director of Ashok Leyland and presently Chairman, IndusInd Bank.

On July 24, 1991, the Licence Raj ended, and almost four decades later, the Indian industry has come a long way. Made-in-India is no more a bad word, and exports have grown consistently. The country has come to be recognised globally for lean manufacturing and jugaad (low-cost innovations) which has since given birth to reverse innovation — products and services designed for emerging markets finding use in developed economies. India is today home to many Fortune 500 companies, satiating the country’s strong domestic consumption as well as meeting their regional export needs.

But this transformation was not easy. The first steps were taken late in 1983, eight years before India opened up, when Maruti started manufacturing cars in India. “We wanted to make cars with the same quality and cost as the Japanese, and Suzuki agreed to help, provided we listened to them,” says RC Bhargava, chairman, Maruti Suzuki.

That ushered in the Japanese system of manufacturing, including TPM/TQM, in India. It did not stop with Maruti, but spread across its supply chain. “But for this the auto sector would not have been ready to face competition post-1991,” he adds. Today, Indian auto components and cars are exported worldwide, and accounts for a large share of the country’s exports.

Rough transformation

Nevertheless, liberalisation was painful. “We had to fight across three frontiers,” says Seshasayee. On the labour front, the hitherto virulent and confrontational trade unions had to be roped in as partners to improve productivity. Massive capital deployment had to be made to modernise plants and equipment. And finally, the industry had to look for modern technology, which came either through partnerships or collaborations. “Those who managed to do this survived, and others went down,” he adds.

In fact, the transformation post-liberalisation can be classified into four phases. In the first phase, between 1991 and 2000, manufacturing exploded with the entry of multinational companies. Some of them brought their suppliers with them. Indian companies, for their part, embraced quality and modern manufacturing practices to become competitive.

The second phase (2000-2008) saw Indian players — having fixed their shortcomings and fended off competition — expanding in a big way. The global financial crisis and its ripple effect in India ended phase-II and triggered the next phase (2009-15) — one of consolidation. Indian companies cut costs and de-leveraged their balance sheets.

The phase-IV, in play now, is one of digital transformation. How companies use digital tools in manufacturing as well as other aspects of business will determine who the winner or loser is. This has not been easy. “It is taking time for companies to redefine their process and standardise operations, which is critical for digital transformation. A cultural change is needed to work in a digital environment,” says Vinod Ramachandran, Head, Industrial Manufacturing and Automotive, KPMG India. He added: “Companies have underestimated their digital readiness.”

What’s ahead

The industry has a few more years to get the people, processes, supply chains and the extended supply chains digital-ready as the emergence of 5G network will remove bandwidth constraints, and factories will get automated. “Many old ways of working will completely change,” says Ramachandran.

Seshasayee sees this as an opportunity to embrace Industry 4.0. Heavily automated plants may create lower jobs, but will throw open a lot of service opportunities. “We missed the manufacturing bus (in its traditional form). We should think disruptively and embrace the fourth industrial revolution.”

Published on January 27, 2019

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