Why make in India is easier said than done As import duties have fallen across South and Southeast Asia, large global manufacturers have set up transnational supply chains in countries with better infrastructure, ports and more helpful bureauc Aman Sethi, Shivani Shinde & T E Narasimhan | New Delhi/Pune/Chennai September 6, 2014 Last Updated at 22:48 IST Add to My Page Related News The sound of metal-on-metal echoes through Bharat Forges plant on the outskirts of Pune, as giant machines fashion crankshafts, drilling connectors, axles and scores of products for trucks, cars and heavy industry across the globe. Till 1997, domestic commercial vehicles accounted for 60 per cent of our sales, says Executive Director Amit Kalyani, whose grandfather had set up the business. To balance domestic operations, we started to focus on exports to drive growth. We had no other option; the domestic market was very small for us. Today, 40 per cent of Bharat Forges workforce is stationed abroad, from where the company gets 70 per cent of its business, in terms of sales. The 87-acre Pune plant is only one of the companys facilities; two separate plants in Germany manufacture heavy components for locomotives and aluminum chasses for premium automobiles, while another in Sweden makes truck parts. In many ways, the company is the kind of enterprise Prime Minister Narendra Modi has spoken of in his declared push to boost manufacturing in India. Come make in India … Sell anywhere (but) make in India, Modi had said from the ramparts of the Red Fort in his Independence Day address to the nation, inviting Indian and foreign companies to make everything from automobiles to agro-value-addition…paper to plastics…satellites to submarines. But Indian manufacturers and analysts say sustained growth is more likely to stem from the rise of domestic manufacturing, rather than relying on international companies. Last quarter, the manufacturing sector expanded 3.5 per cent, after four consecutive quarters of contraction. As import duties have fallen across South and Southeast Asia, large global manufacturers have set up transnational supply chains in countries with better infrastructure and ports and more helpful bureaucracies. This has meant in India, global players shifted from manufacturing to assembly and, subsequently, to outright imports. Tamil Nadus Electronics Hardware Corridor on the outskirts of Chennai is one such example. In 1996, the hub invited Nokia, then a major cellular phone player, to set up a unit. It was not an easy task, said an official involved in the process. Nokia considered three countries, including India, and six locations within the country. The Tamil Nadu state government sent a team to China to study and replicate the manufacturing park model. The Nokia plant was well connected to Chennai, as well as the port, and trained manpower was made available. Nokia was followed by a host of electronics majors such as Motorola Mobility, Dell and Foxconn. Yet, most units are for assembly rather than manufacturing, said the official. At its peak, Nokia used to fly in a jumbo jet full of components each day. Its localisation was barely 15-18 per cent; but that was the highest among its peers. For 2012-13, hardware exports from the corridor were estimated at Rs 20,000 crore, according to government data. Since then, sales have slowed, with the state government expecting a 20-30 per cent drop in exports for 2013-14, owing to a global slowdown, Nokias persistent tax dispute, and the consequences of a slew of free trade agreements (FTAs) that impose lower duties on finished products compared to that on the components used to make them. Companies such as Bharat Forge say the FTAs are hurting business. FTAs have resulted in 40 per cent auto components being imported on nil or concessional duty, said Kalyani of Bharat Forge. FTAs create an inverted duty structure---components of a product are taxed at a higher rate than the finished product, making it cheaper to import a finished product rather than manufacturing or assembling it in India. Once a country signs an FTA, you cannot simply change it, says R Muralidharan, executive director (indirect tax), PricewaterhouseCoopers. The only thing is to make it easier for domestic manufacturers to get raw materials at comparable or lower duties. He adds a comprehensive review of customs duties across sectors is required to correct anomalies that have created an inverted duty structure for Indian manufacturers. Given the low duties on imports, international companies are unlikely to shut a functioning factory in Southeast Asia and set it up in India, says Anwar Shirpurwala, executive director of the Manufacturers Association of Information Technology. But we can prepare ourselves for the products of the future. He says Indian companies could take the lead in designing sensors and devices for the internet of things, through which home appliances are linked to the internet. You have to think about evolution, not imitation, said Shoji Shiba, a Japanese management expert and Padma Shri awardee who has followed Indian manufacturing since the 60s, when he worked in an Indian power station for six months. Indian companies need to invest in research & development, form a relationship with rural India, create their own products, move towards zero-defect manufacturing and then, think of export, he adds. Indian companies, he says, overemphasise infrastructure constraints. You cant wait for the government; it takes too long to build infrastructure…the initiative should come from those who want to work. In Bharat Forges case, for instance, the push came from an investment in technology and automation to move from low-tech, low-value products to high-quality products for international markets. But Shiba is clear there is no single solution. Japan had its way, China has its way, he says. Indian executives and government need to think---what is the Indian way? Sudhir Dhingra, chairman of Orient Craft, an apparel supplier to companies such as American Eagle, Ann Taylor and J Crew, thinks he has the answer. In India, we havent paid enough attention to labour-intensive businesses…A garment factory employs 4,000 people on one to two acres, more than any other business. We need three workers for every workstation. He adds he employs about 30,000 workers across 23 units to cut, iron, stitch, wash and check clothes, which are then packaged and shipped to international clients. His constraints are typical of the ones manufacturers in India face---poor roads, poor ports, erratic electricity, etc. It takes 14 days to ship from China to New York, he says. From India, it takes 31 days. One change, he feels, will rapidly transform Indias textile sector---an FTA with the European Union. Europe imposes 11 per cent duty on Indian-made garments, while Chinese suppliers pay only seven per cent. Signing the agreement will bring India on a par with Bangladesh, which pays no duty on its garment exports to Europe. But the deal will also slash duties on European car components, banking and insurance, and the wines and spirits sector, a provision opposed by Indian businesses. In its term in office so far, the National Democratic Alliance government has struggled to navigate the tricky waters of international trade. Last week, Minister of State for Commerce Nirmala Sitharaman stayed home when a 10-member Association of Southeast Asian Nations met in Myanmar to sign the second round of a trade agreement in goods and services, partly operational since 2010. The India-European FTA has been languishing. Dont give me any subsidy, dont give me any help; just sign it, ok? Dhingra says. European imports of Indian garments will triple. business-standard/article/economy-policy/why-make-in-india-is-easier-said-than-done-114090600732_1.html
Posted on: Tue, 30 Sep 2014 11:50:57 +0000
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