India ranks fourth in the 2013 global manufacturing competitiveness index compiled by the consultancy Deloitte, even as the country’s growth rate has been pulled down in recent quarters by sharply falling manufacturing performance. This is a truly odd combination; how to reconcile the two? The short answer is that the recent fall from grace has been captured by India’s rank sliding from second in 2010 to the current fourth. Yet the executives surveyed expect India to pick itself up and return to its second position in five years’ time. Perhaps part of the reason is that top-level global executives have a very different outlook from those who are sweating it out in the trenches of India’s struggling manufacturing sector. India’s advantage, according to Deloitte, is not just in the abundance of low-cost skills, but in its considerable pool of scientific manpower enabling talent-driven innovation, the key driver of future manufacturing prowess. The developed world is on a long-term low-growth path; China has established an unbeatable superiority in mass manufacturing; and India is somewhere in between and has to devise a unique path based on its advantage in services to overcome its traditional deficiency in manufacturing. There is perhaps little purpose, for example, to pushing chip manufacturing, which needs huge investment, resources and state support; but there’s more scope for chip designing and testing, where value addition is higher.
If manufacturing can progress only through talent-driven innovation and the days of importing entire plants are gone, then India needs to build the right ecosystems. In recent years the support for innovation in India has made great gains with more and more activity in venture capital and angel investing. But basic support for manufacturing – power supply, proper roads and local administrative clearances – is still poor. The winning combination is illustrated by medical equipment manufacturing start-up Skanray, whose success story was reported in this newspaper on Monday. Its products, mostly exported, are world-class but cost half as much as those of its global competitors. It was critically helped in its infancy by a state agency and an angel of a district magistrate. India has to get its basic infrastructure right and reduce the cost and hassle of doing business. The country also has to make the labour market more flexible so that it can move in tandem with some provisioning of social security. These are all eminently doable — if in the long run. In the short run, whatever the optimism with which the world’s manufacturing executives view India, it is difficult to see India’s depressed manufacturing pick itself up.