In the second Forbes India CEO Dialogues, India's top business leaders discuss the challenges and possible solutions for the manufacturing sector
The pace of manufacturing activity in India has been subdued in recent years despite the new policy introduced by the previous UPA government. The Narendra Modi-led administration has, however, spurred industrial output which, as announced last month, jumped to a 19-month-high in May; factory activity, as per HSBC Manufacturing Purchasing Managers’ Index, is at its highest level since February 2013.
This uptick also comes at a time when China is grappling with shortage of labour and rising wages. But will India’s higher-than-expected manufacturing data sustain? To that end, what does the government and the states need to do to improve labour-related laws and the ease of doing business?
Forbes India–in the second session of the Forbes India CEO Dialogues: The Leadership Agenda–invited top business leaders to discuss ‘The Manufacturing Challenge’ faced by the country. Adi Godrej, chairman of the Godrej Group, Harsh Goenka, chairman of RPG Enterprises, Ashok Wadhwa, group CEO of Ambit Holdings, and Sunil Kaushal, regional CEO (India and South Asia) of Standard Chartered Bank, identified the solutions and long-term reforms necessary to boost manufacturing activity and help kick-start growth.
Excerpts from the discussion, moderated by R Jagannathan, Network18’s web and publishing editor-in-chief:
R Jagannathan: India has been a no-show in manufacturing for quite some time. Now that there is a new government and a hope that things could change, Mr Godrej, do you sense a qualitative change in approach?
Adi Godrej: The new government has enunciated that growth needs to improve. The earlier government had announced a manufacturing policy and said it wanted the share of manufacturing in GDP to go up to 25 percent by 2020. Clearly, there is tremendous scope but, currently, there are several constraints. This government will take the steps required; let’s hope that the implementation is good.
Jagannathan: Mr Goenka, was there anything in the budget that indicated that the government is thinking manufacturing?
Harsh Goenka: The biggest bottleneck in Indian industry has been infrastructure, its quality and the cost. Our roads, railways and highways are in a pathetic condition. The good thing that the Modi government has done is create focus on new infrastructure and remove the bottlenecks for power projects which were stuck due to coal linkages and environmental issues. The most significant aspect of the budget was the [plan for] 100 smart cities; it will change the configuration of the country, address the rural-urban migration issue and quality of life; also, employment and manufacturing in those areas can become cost-competitive.
Jagannathan: Mr Wadhwa, if you were advising someone to set up a project, will you tell them to come to India or go to China?
Jagannathan: Mr Goenka, do you get a sense that in the last 10-15 years, Indian manufacturing has followed out. Large segments of the industry have become traders or re-badgers. Do you see this reversing?
Kaushal: The budget move is a plus. India needs to invest $ 1.2 trillion in infrastructure in the 12th Five-Year Plan. We have to ease financing for infrastructure. The long term bonds coupled with the 5:25 structure will be very powerful. (A 5:25 structure allows a bank to give a 25-year loan to a developer for a project, with the option to rewrite the terms of the loan or transfer it to another bank after five years.). I don’t expect an immediate upturn as a backlog of projects needs to be cleared. In terms of real action, we are 9-12 months away.
Jagannathan: What are the top three things in which you want to see changes in the next two years?
(This story appears in the 05 September, 2014 issue of Forbes India. To visit our Archives, click here.)