Decline in the Indian Manufacturing Industry: A Grim Reality

 #530

I am back home last (Saturday) evening. Bombay was thankfully sunny and dry yesterday after 5 days + Flight in recent memory in Bombay departure, pushed back a good 5 min early. So luck it is. ( I wonder if Dad's blessing for I have to do his soul rituals Monday!!!)

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The Indian manufacturing sector, once touted as the backbone of the nation's economy, is now facing a significant decline. Several factors contribute to this alarming trend, highlighting systemic issues that need urgent attention. Here are some key reasons behind the stagnation and decline of manufacturing in India:

1. Stagnant GDP Contribution: The manufacturing sector's contribution to the GDP has remained stagnant at around 15%. Despite subsidies for infrastructure, the government has not provided direct support to manufacturing. Recent withdrawal of special incentive programs has caught many companies off guard, further discouraging investment and growth in this sector.

2. Lack of Innovation and Technological Advancement: Indian manufacturing companies have not engaged in serious innovation or adopted new technologies. The fear of import dumping from Western countries and China, coupled with an inability to compete on price, has stifled progress. This lack of innovation has left the sector lagging behind in global competitiveness.

3. Shrinking Talent Pool: The talent pool for the manufacturing industry is shrinking at an alarming rate. Fresh graduates, even those with degrees in basic engineering, prefer careers in the service sector, financial ventures, or data analytics. This shift indicates a lack of interest and perceived opportunities in manufacturing, further depleting the skilled workforce needed to drive the industry forward. Also compensation in manufacturing falls in the lowest quantile making it less attractive.

4. Outdated Technology and Workplace Practices: Many manufacturing companies have not kept up with technological advances in machinery, tools, software, and workplace improvements. Fearful that investing in skill development might lead employees to leave, companies have neglected workforce development. This shortsighted approach ignores the potential benefits of a skilled and motivated workforce.

5. High Employee Disengagement: Manufacturing has the highest percentage of disengaged employees in India, with 50% out of the total 88% disengaged workforce coming from this sector. This disengagement leads to lower productivity, higher turnover, and a general lack of enthusiasm for manufacturing jobs.

6. Outdated Trade Unions and Labour Reforms: Trade unions and labour reforms in India have not kept pace with the rapid changes in the global market. The governing laws are archaic, often contradictory, and challenging to implement. This mismatch creates a rigid environment that hampers the flexibility and adaptability needed for modern manufacturing. It is shocking that they operate 6 days a week (Outside Metros which have practically 0 manufacturing) which seriously hits work life balance more so in these days of nuclear family,and couple both working. 

7. Resistance to Automation and Operational Systems: Many manufacturing companies have not embraced automation or advanced operational systems for quality, safety, productivity, inventory management, delivery, and cost optimization. Reliance on people-intensive activities without leveraging technology has led to inefficiencies and subpar performance.

8. Infrastructure Deficiencies: Infrastructure at manufacturing sites, especially in remote areas, remains inadequate. Poor transportation links and lack of basic amenities at facilities hinder efficient operations and deter potential investments. You will struggle to get a good Internet connection, or signal say 50 miles from a Big metro! 

9. The Pitfalls of DEI, ESG, and Excessive Audits in Manufacturing

   In recent years, concepts like Diversity, Equity, and Inclusion (DEI), as well as Environmental, Social, and Governance (ESG) criteria, have gained prominence across various industries. While these initiatives are well-intentioned and essential for holistic organizational development, their implementation in the manufacturing sector has often been counterproductive. Many manufacturing companies find themselves overwhelmed by the myriad of DEI and ESG mandates, audits, and compliance checks. Unfortunately, the necessary resources and support to effectively integrate these practices are frequently lacking. This has led to a diversion of focus from core manufacturing activities to compliance paperwork and audits. Instead of enhancing quality and productivity, the burden of these additional requirements often hampers operational efficiency and detracts from delivering high-quality output. Without adequate support, these initiatives become more of a bureaucratic hurdle than a catalyst for positive change, ultimately stifling innovation and growth in the manufacturing sector.

The Path Forward: Urgent Need for Intervention

The decline of the Indian manufacturing industry is a stark reality that requires immediate and concerted efforts from both the government and the industry. Here are some potential steps to reverse this trend:

1. Government Support: The government needs to provide direct incentives and support to the manufacturing sector. Policies should be geared towards encouraging innovation, technological adoption, and skill development.

2. Embracing Innovation: Companies must invest in research and development, adopt new technologies, and innovate to remain competitive in the global market.

3. Developing a Skilled Workforce: Focus on creating a skilled workforce through training and development programs. Companies should invest in their employees' growth, ensuring they have the necessary skills to adapt to technological advancements.

4. Reforming Labour Laws: Labour laws need to be modernized to reflect current market realities. Reforms should aim to create a flexible and supportive environment for both employers and employees.

5. Automation and Operational Excellence: Embrace automation and implement advanced operational systems to improve efficiency, productivity, and quality. Investing in technology can significantly enhance performance and competitiveness.

6. Improving Infrastructure: Invest in improving infrastructure at manufacturing sites and in surrounding areas. Enhancing transportation links, facilities, and basic amenities will make these locations more attractive for investment and operational efficiency.

7. Promoting Manufacturing as a Career: Create initiatives to promote manufacturing as a viable and attractive career option for young graduates. Highlight the opportunities for growth, innovation, and contribution to the national economy.

Data Reality Check.

• Stagnant GDP Contribution: The manufacturing sector's contribution to India's GDP has been relatively low and stagnant over the past few years. In 2020, manufacturing contributed around 14-15% to the GDP, a figure that has not seen significant growth despite various initiatives.

• Innovation and Technological Advancement: Numerous reports and studies indicate that Indian manufacturing lags in innovation and technology adoption compared to global standards. A 2018 report by the National Institute for Transforming India (NITI Aayog) emphasized the need for innovation to boost the manufacturing sector.

• Shrinking Talent Pool: The preference for careers in the service sector over manufacturing is well-documented. Many engineering graduates in India pursue further studies in fields like finance and data analytics, seeking better career prospects and higher salaries.

• Employee Disengagement: Surveys and studies by organizations like Gallup have consistently shown high levels of employee disengagement in India, particularly in manufacturing.

• Labour Reforms: India's labour laws are often criticized for being outdated and inflexible. Efforts have been made to reform these laws, but implementation and consistency remain challenges. 

• Infrastructure Deficiencies: Inadequate infrastructure is a well-known issue that hampers the efficiency and growth of manufacturing industries, especially in remote areas.

Without these critical interventions, the Indian manufacturing sector risks becoming obsolete, unable to make a meaningful contribution to the economy. The time to act is now, to ensure that manufacturing in India not only survives but thrives in the future. 

Karthik

28th July 2024

930am