“Increase R&D Investment & Encourage FDI’’ [June 2012]

June 19, 2012 11:47 am

Manu Gulati, Chief Executive Officer, Migatronic India suggests more investment in R&D and encouraging FDI in manufacturing to revive the manufacturing sector
NMP revives the manufacturing sectorThough the fundamentals of the Indian manufacturing sector are strong, issues like high interest rates, inflation, delays in implementing economic reforms, infrastructure development and the effects of coalition politics have had a negative impact on the sentiments of the manufacturing sector in India. The growth rate in the manufacturing sector has dipped from a robust 13-15 per cent to a less than acceptable 5 – 6 per cent. The investment in the country with regard to the manufacturing sector is not very encouraging. However with the announcement of the National Manufacturing Policy (NMP), the government has initiated steps to revive the sagging manufacturing sector that include creation of additional jobs, incentivisation of Public Private Partnership, increased spending on infrastructure projects, rationalising the regulatory environment, HR initiatives on attracting and retaining skilled manpower, emphasis on R&D and technology development.
Manu Gulati, Chief Executive Officer of Migatronic India comments, “The objectives of NMP are going to be the growth drivers for the domestic manufacturing sector and the NMP augurs well for the future as far as the manufacturing sector is concerned”.
Growth BarriersThe Indian industry has the right ingredients in achieving manufacturing excellence but what is ailing the manufacturing sector is the apathy of the establishment in tackling some basic issues – creating an attractive investment climate, policy reforms, poor infrastructure, inadequate spending on R&D and technology development, attracting and retaining quality manpower in the domestic manufacturing sector. The government has to initiate steps to promote the lagging secondary sector vis-à-vis the high growth tertiary sector. A growth in the secondary sector will have a spin off effect on the already robust services sector.
The Dollar vs Rupee FactorWelding is an allied industry to the core engineering sector; therefore the performance of welding manufacturing sector is directly proportional to the development in engineering sector. Speaking about the recent development in welding industry, Mr. Gulati said, “Any downturn in the core engineering sector is bound to have an impact on our performance. Aggravating the low growth rates in the manufacturing sector is the weakening of the Rupee against the USD and Euro resulting in a substantial increase in our input cost. The competitive nature of the welding industry does not allow us to pass on the entire increase to the customers”. However, he believes, “The company’s strategy of expanding product portfolio, degree of localisation and offering value added services has kept us abreast of any negative impact on our business”.
Encourage Investment in ManufacturingDeveloping economies are generally dominated by manufacturing sector, while tertiary sector (services) is the predominant feature of developed economies. In case of India, there is a mismatch, India being a developing country is characterised by tertiary sector growth thereby skipping the phase of manufacturing growth. “The reasons for the current scenario are high bank rates, high duties, poor or no policy reforms, poor infrastructure, little or no spending on R&D activities and huge influx of engineers into the more glamorous IT industry thereby leading to a misallocation of skills and lack of skilled people in the core engineering sector”, Mr. Gulati points out. “The investment for an IT or BPO company is not so big as compared to a manufacturing plant resulting in the tertiary sector taking a huge pie of the GDP. The need of the hour is more investment in R&D and encouraging FDI in manufacturing”.
Manufacturing Sector beyond 12th Five Year PlanThe 12th Five Year Plan is expected to create employment through developing India’s manufacturing sector and move the nation higher up the value chain. The planning commission aims to have industry and manufacturing related activities grow by 11 per cent over the next 5 years, compared to the 8 per cent over the previous 11th Five Year Plan. It also aims to undertake structural and regulatory reforms to facilitate investment. “Some of the initiatives expected are increase in the share of manufacturing sector to India’s GDP, creating more jobs, tackling the issue of lack of talent and non availability of quality manpower of requisite skill in the domestic manufacturing sector through incentivisation, development of technology and increased spending on R & D”, said Mr. Gulati.
The Domino EffectManufacturing sector contributes about 15 per cent of India’s GDP and 50 per cent to the country’s exports. The manufacturing sector employed 58 million people (about 12 per cent of the workforce) in 2008. By the end of 2012, it is estimated that manufacturing will employ a further 12 million out of nearly 90 million additional people who will enter the workforce. Moreover every job created in manufacturing has a 2 multiplier effect by creating 2-3 jobs in the services sector. Government initiatives are aimed at increasing the share of the manufacturing sector to 25 per cent of the GDP by 2022 thereby creating additional 100 million jobs. However, Mr. Gulati observes, “To make 100 million jobs by 2022 a reality steps have to be taken in the right directions – reducing interest rates, deregulating oil prices, disinvestment, tax reforms, clearing major infrastructure projects, encouraging FDI”. In a country like India, where employment generation is one of the key issues, manufacturing sector is critical to achieve inclusiveness in growth.
The National Manufacturing Policy (NMP) announced by the Government of India is a step in the right direction in promoting the manufacturing sector and creating employment opportunities. The share of manufacturing in India’s GDP has stagnated at 15-16 per cent as compared to other Asian economies which are much higher at 25 to 34 per cent. The NMP aims to tackle the issues of inadequate infrastructure, complex regulatory environment and inadequate availability of skilled manpower which have stunted the manufacturing growth in India. The NMP stipulates an additional 100 million jobs by the year 2022. The policy is based on the principle of industrial growth in partnership with the state governments and provides incentives for infrastructure development on a Public Private Partnership (PPP).
Migatronic offers Denmark’s technology in IndiaMigatronic India is wholly owned subsidiary of Migatronic A/s Denmark. The company is in the business of welding equipment, welding automation and accessories. The parent company was established in the year 1970 essentially to cater to the European markets. With time, the company felt the need to make a foray into developing markets like India, China, Brazil, Russia etc. As a result, the Indian subsidiary was established in 2001. “The role of Migatronic India was to bring to India the entire product range of Migatronic Denmark and a strategic decision was also taken to produce some of the models in India for which it has created a manufacturing facility in Chennai”, Mr. Gulati informed.