An Indian vision should have Indian value systems. India is the spiritual capital of the world. There is a lot that we can offer to the world.
INTERVIEW DATE: May 30, 2020
Where Were We: That this crisis was wreaking havoc in every sphere of life was becoming evident. India had recorded more than 174,500 cases and 5,000 deaths. The manufacturing sector PMI for April 2020 had comin at 27.4, showing a deep contraction, for the first time ever to this extent. This battle was far from over. In fact, to millions around the world, it had become more tumultuous.
It is said that during times of crisis, one should aim at things; good things beyond the gloom and the desperation of the present. Therefore we thought of speaking about what we in India could learn from the history of industrialization.
We were privileged to have two thinkers and speakers who made this a highly thought-provoking discussion. They were, Magesh Srinivasan, , VUCA Leader, and Writer ; and Deepak Anand, Research Director, JETRO. Presenting, edited, abridged interview.
GLIMPSES
Magesh Srinivasan
- Manufacturing jobs provide a lot of stability as people typically join as trainees with them either on the shopfloor or as management graduates and then they have the opportunity to work all the way up to the leadership level.
- An Indian vision should have Indian value systems. India is the spiritual capital of the world. There is a lot that we can offer to the world.
- Three decades of economic liberalization is relatively a short period of time if you look at industrial revolutions across the world. All these revolutions (globally) comprised incremental contributions by individuals, by pioneers within their own constraints.
- A comprehensive vision for the industrial sector needs to spell out how we go from ‘sand to the brand’. The ‘sand to brand’ approach simply means that we need to make semiconductor IC chips (SMIC) right from the stage of using silica — which India has in abundance — to designing, making and marketing of SMIC.
- For manufacturing enterprises, the Covid crisis needs to be a catalyst to bring out their ingenuity and innovativeness in ensuring that they keep their people safe, and at the same time, take measures to improve productivity.
Deepak Anand
- The Japanese are a very strong-willed people. That is because their country has always had to face and overcome natural calamities such as earthquakes and volcanic eruptions.
- The reality in India’s case is that we have primarily developed as a service-based economy. The services sector accounts for 57 percent of the GDP. Our economy is largely agrarian, with more than half of India’s workforce dependent on it for livelihood, even though the sector itself contributes only 17-18 percent to the GDP.
- Japan is a great example in how it started focusing on innovation-driven manufacturing primarily led by mobility and electronics. And thus in about four decades they increased the industrial sector’s share in GDP to 30 percent, and became a top global manufacturing hub.
- Today, when we look at countries like Vietnam or Indonesia which have a fast-growing manufacturing sector, we see that they first built up the basic infrastructure including the land, then they went ahead with promotion to the Japanese, South Korean and European companies.
THE INTERVIEW
Please tell us more about your work.
Magesh Srinivasan [MS]: I started my career with Bosch in 1998 which I joined via campus placement. Bosch has been providing technologies to industries for more than a century. Working with Bosch meant that fresh entrants like us got the opportunity to get a world-class global management training. That helped us not only in our career but also in contributing to society in many ways. Other equally valuable work experiences I’ve had with companies like Black and Decker, Sony Corporation, HCL Technologies and then back with the automotive industry with Blaupunkt, which is a global manufacturing enterprise. My learning has been that manufacturing jobs provide a lot of stability as people typically join as trainees with them either on the shopfloor or as management graduates and then they have the opportunity to work all the way up to the leadership level. And they can have a career here in India or abroad.
Deepak Anand [DA]: I work for an organization called JETRO [Japan External Trade Organization]. We primarily work for promoting the investment of Japanese companies into Indian industries and also helping Indian companies to get into the Japanese market.
What are the major drivers of an industrial revolution?
MS: Let me first share a historical perspective of industrialization.
Before the industrial revolution, which began in the mid-18th century, we needed to do physical labor to make or move things. The discovery of steam power started the industrial revolution that enabled a highly efficient way of manufacturing and logistics. In the latter part of the 18th century and the early 19th century, the advent of electricity started Industrial Revolution 2.0.
By the mid-20th century, the world had developed machines that could be programmed using PLC logic which paved the way for automation. That increased efficiencies by multiples; this was Industrial Revolution 3.0.
And before the turn of the century, when the then U.S. president Bill Clinton signed the commercialization of the public internet, it became available for manufacturing. That heralded the age of Industry 4.0. That’s the journey of industrialization.
DA: To set the context, let me share with you the history of Japan’s industrialization. In the eighteenth century, as industrialization happened in the European countries, they started expanding their reach into Asia. Japan at the time was a traditional agrarian economy. European expansionism made Japan realize that it had to build a modern army to withstand the colonial forces. That brought about Meiji Restoration, a political movement in Japan starting in 1868, which ended the Shogunate.
In order to build a modern army, they have to start making the defense equipment made with the help of local suppliers. That’s how the first Industrial Revolution happened in Japan.
The Japanese are a very strong-willed people. That is because their country has always had to face and overcome natural calamities such as earthquakes and volcanic eruptions.
After suffering a setback in World War II, they started to rebuild their country. Japanese policymakers realized that they cannot become stronger in agriculture because Japan is largely a mountainous country. Therefore they focused on manufacturing. Initially they focused on two primary technologies: mobility and communication. In due course of time Japan established itself as a global hub for manufacturing.
MS: For any organization or any endeavor [like Make in India] to be successful the first step is to have a comprehensive long-term vision. This vision has to be based on sound, universal values. It should include everybody from every strata of society and aim at value creation. An Indian vision should have Indian value systems. India is the spiritual capital of the world. There is a lot that we can offer to the world. In the last 73 years, as a Democratic Republic we have been trying to find our place in the world. The economic liberalization of India only started in 1991. Now three decades of economic liberalization is relatively a short period of time if you look at industrial revolutions across the world. All these revolutions (globally) comprised incremental contributions by individuals, by pioneers within their own constraints. These pioneers fought the challenges of their time in order to create what we enjoy today, the inventions, innovations and conveniences that we most often take for granted today.
I think India did astoundingly well, immediately after independence in launching the Green Revolution and thereafter launching the White Revolution. The rigor and the fervor with which the young nation took on change was phenomenal. Keep in mind that everything in India was depleted [by the time the British left].
But now that we are 1.3 billion people we need to make sure that India sustains its progress for which it’s extremely important to have a vision for industrialization. The vision needs to have a long term time horizon, going up to 50 or 100 years. That time horizon means that the vision has to be comprehensive. And it should use the learnings from the history of industrialized nations like the Germans, Japanese, the UK and the US. It needs to be led by strategic thinkers and doers at every level in the public administration and the corporate world.
Together we need to create a public-private partnership in formulating this vision as well as implementing it. We need to collaborate, work together and make sure things are moving forward rather than oscillating between improvement and slacking, which is what we’ve seen in the last few decades since independence.
DA: We have to bring everything into perspective. The reality in India’s case is that we have primarily developed as a service-based economy. The services sector accounts for 57 percent of the GDP. Our economy is largely agrarian, with more than half of India’s workforce dependent on it for livelihood, even though the sector itself contributes only 17-18 percent to the GDP.
A major challenge is that the landholding share of each farming family has been reducing since independence. Therefore the aim must be to increase the productivity in agriculture.
The other challenge is to make the service sector more sustainable. Service sector mainly comprises [in gross value add] the IT sector which mostly depends on the demand from the US and European markets. In the long term, we need to make sure that there is sustainable demand for the IT sector, both from local and global markets.
A close study of these two sectors will reveal that they do not offer much scope for fast growth and expansion. We have almost reached a stage of stagnation in these sectors. Our manufacturing sector, on the other hand, holds immense potential for fast growth. Japan is a great example in how it started focusing on innovation-driven manufacturing primarily led by mobility and electronics. And thus in about four decades they increased the industrial sector’s share in GDP to 30 percent, and became a top global manufacturing hub. As an outcome, Japan is a country that has among the lowest employment rates in the world. This also improved the quality of life for Japanese citizens. Their living-standard indicators are among the best in the world, whether it is in health, education or employment.
We have to work in that direction in terms of policy. We have all the resources required to make India a global manufacturing hub, whether it is natural resources, the weather, or high-skilled manpower.
At the time of the opening up of the economy in the 1990s, India projected itself as a service-based economy. I think that was a bit misplaced from a policy-making point of view. It was only in 2012, when the Indian government formulated a national manufacturing policy was when we became focused on this sector.
But the problem is that even after 2012, when we envision that by 2022 our share of manufacturing in Indian GDP would be 25 percent, we still stand at 15 or 16 percent [in 2020]. So obviously there is a problem somewhere. And that was not an issue in countries like Taiwan, South Korea and Japan obviously. That is a problem area we need to address at the policy level.
To share with you an example, it was planned that in India, to promote domestic manufacturing, 13 locations across the country will be developed as national investment and manufacturing zones (NIMZ). The concept was that these zones will primarily cater to domestic demand. The minimum area earmarked for the development of one NIMZ was 5,000 hectare. The problem started because since this was the precondition, not even a single NIMZ has been completely developed because of land acquisition and other issues.
Then we [the govt] also came up with a policy called Electronic Manufacturing Cluster (EMC) scheme [EMC was formulated to support the creation of world-class infrastructure for attracting investments in the Electronics Systems Design and Manufacturing (ESDM) Sector. It was notified on 22nd October 2012. – Editor]. The aim was to boost the local production of electronic components and products. Along with that a policy was introduced by the government to incentivize the production of semiconductor units, which is an essential part of developing an electronics industry.
The implementation got delayed because of land acquisition issues, and even the approach was wrong. Today, when we look at countries like Vietnam or Indonesia which have a fast-growing manufacturing sector, we see that they first built up the basic infrastructure including the land, then they went ahead with promotion to the Japanese, South Korean and European companies. On the other hand, in India we do it when the basic infrastructure itself is not ready. This is one of the biggest concerns from the point of view of Japanese industries.
India has a huge potential to grow as an economy. We have a young demographic and a large domestic market. The business sentiment at home is low and we have to think out of the box. Let us create infrastructure and then invite companies to have them invest in our country.
Doing all these measures, if we are able to increase the share of manufacturing to GDP even by one percent, we will be able to create 10 million jobs.
The other global perspective is that India needs to do more on the innovation and R&D front. That is the reason that even though there are many global manufacturers in India, they prefer to not have R&D and design centres here.
I think we have to reverse these trends. We need to make it an R&D-based manufacturing base rather than limiting it to CKD and assembly plants. These areas are where a lot needs to be done by the Indian industry and the government.
MS: [Furthermore], a comprehensive vision for the industrial sector needs to spell out how we go from ‘sand to the brand’. The ‘sand to brand’ approach simply means that we need to make semiconductor IC chips (SMIC) right from the stage of using silica — which India has in abundance — to designing, making and marketing of SMIC. In the future, we can use graphene as well for developing semiconductors and intelligence-embedded systems on chips. With a strong presence in the SMIC value chain, India will also be able to create world-class electronic products.
This is the kind of resolve industrialized nations like Japan, UK, USA, and Germany took and this is what we must do for India as Indians. It requires a dedicated, lifetime commitment.
How can Indian manufacturing emerge stronger from this crisis?
MS: This could be an opportunity to reset the way things have been done. For one, this crisis has made the world realize that nothing lasts forever. The second lesson is that, unless and until we collaborate, the chances of survival are minimal. If you want to survive and thrive in this world, which in my opinion is a VUCA (Volatile, Uncertain, Complex, and Ambiguous) world, you have to be able to collaborate and work with the strengths of each other.
We can see a lot of wonderful examples that have emerged from corporate India, from selfless individuals who helped people to startups that worked together in the pandemic. That sense of contribution and community participation needs to be continued into the post-pandemic world.
For manufacturing enterprises, the Covid crisis needs to be a catalyst to bring out their ingenuity and innovativeness in ensuring that they keep their people safe, and at the same time, take measures to improve productivity.
This situation has also provided a level-playing field to all the manufacturers in the world, who have to fight against a universal constraint and that constraint is Covid-19.
Speaking of the status of manufacturing in India, I always find it intriguing that some parts of the country are far ahead of others in industrial activity. What could be the reasons for this differential?
DA: As far as southern states like Karnataka and Tamil nadu are concerned, they are industrially developed because they have had a head start. To consider Bangalore’s example, the Maharajas of Mysore were really progressive. Karnataka has been lucky to have leaders like Bharat Ratna M. Visvesvaraya ji (1860-1962) who gave a clarion call that, ‘industrialize or perish’. He understood at that point of time that industrialization is key to economic sustainability. In addition, the southern states also have had the presence of natural ports.
If you go to predominantly agrarian states like Orissa, Bihar, UP, and MP, they missed this developmental opportunity. Now post-Covid, the first priority should be the development of local industries and modernization of agriculture — because a lot of labourers migrated back to those states and they should be able to get work opportunities, whether it is in the industries or or the farms.
The other priority for the government needs to be to revive demand — incentivize the industry as well as the consumer.
MS: Despite the Green Revolution, we have a big gap in the degree of mechanization in agriculture in India. While we plan to have a hundred smart cities we should also plan to have 100 smart farms. Mechanization in farming can lead to an increase in productivity, better, modern warehousing and cold-chain infrastructure.
However, presently we are still dealing with very basic things like providing electricity in the villages. So there is a big gap right there. Therefore, contribution is required from private players. In my vision, if every Indian millionaire, whether a citizen or non-resident, adopts one village, that could raise the living standards in rural India and lift millions out of poverty.
India’s labour migration is a natural process of cross-pollination of cultures and movement of people across regions, but in terms of standards of living, let’s clearly understand why do people move away from their place of familiarity to a strange, new place, working under very severe, unsafe and poor hygienic conditions at a very low wage. The answer could range from wage disparity between rural and urban India to the availability of work in the cities. The pandemic has suddenly made everyone realize the contribution of the migrant workforce to the industries. Until everything came to a standstill, nobody really bothered about it. Now the industries must provide a minimum standard of living and working conditions for them to come back and be a part of the value creation process in factories and offices. This is symptomatic of the fact that we continue to exploit people based on their weaknesses. This is not the way in which any country can develop into a very balanced and progressive economy. We have to be extremely careful when we talk about migrant labor because a lot of this migrant labor today is exploited in many ways. That is the reason that we have to talk about how to develop our rural areas, our villages, our natural ecosystems from where people migrate. We need to address this if we want to move forward as an industrialized economy.
DA: I will talk more from JETRO’s perspective. There are many queries coming in from all business segments that, post-Covid how the Japanese companies will behave: whether they will shift out of China or invest more in India and suchlike. Just to address such queries, moving out from China is not going to happen and India also cannot be a low-cost mass production hub like China developed. At this stage that is not possible because demand is all-time low. So India should always look at the R&D-driven manufacturing capabilities. They should try to promote such capabilities in due course of time and for that we have requested certain sets of requirements to the government to bring in more Japanese investments. We did a survey of the Japanese companies present in India and fortunately almost all the companies responded that they are not deviating from whatever investment plans they have for India. That is a good news that I want to share with our viewers that Japanese companies will keep on investing in India because we are India’s natural partners. And the partnership will be a win-win. So even though the market sentiment is at an all-time low, we will see an upsurge in Japanese investments in coming years starting from this year itself.
INDUSTRY SAMURAI: EXECUTIVE PROFILES
Magesh Srinivasan,
Mr. Srinivasan is VP – VUCA Leader, Thinker and Writer.
He leads digital customer solutions in India at www.assettrackr.com, www.safekar.in & www.wabco-auto.com
He leads digital customer solutions in India at www.assettrackr.com, www.safekar.in & www.wabco-auto.com
He is an expert in mobilizing vehicle intelligence, creating vision, strategy and human capital for next generation smart mobility B2B2C use cases.
He has been a speaker and moderator of panel discussions on Connected Car & Artificial Intelligence at global events such as Daimler EDM CAE Forum, Volvo CIO workshop, Telematics Wire, CII Automotive industry 4.0, AIR Summit, Geospatial Summit, ICT Academy and GLADIS 2018 in Shanghai.
Deepak Anand
Mr. Anand is Research Director, JETRO. JETRO, or the Japan External Trade Organization, is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO’s core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small to medium size Japanese firms maximize their global export potential.
