An elephant called manufacturing

The Budget season is like the December music season for the captains of industry. They flit from one studio to another rendering expert opinion on how the Budget would affect growth in general and themselves in particular. They check every move of the finance minister against their wishlist and point out the mismatch very subtly.

In all the discussions, the central point which one cannot miss is that, help to them is crucial for the country to be propelled into the orbit of higher growth.

In this entire fanfare, an important fact is forgotten: the contribution of the manufacturing industry to GDP is only around 18 per cent. More importantly, it has remained so for nearly 30 years and even the singularity of 1991 did not create a blip in the figure.

In other words, if the GDP growth rate is 6 per cent, the contribution of the manufacturing industry is a meager 1 per cent. With a contribution of 21 per cent to GDP, finance and real estate are ahead of them.

So, when couple of us sell ancestral property in Adyar, Chennai, take a loan and buy another house, we contribute to GDP growth.

The fact that the percentage growth of our manufacturing industry is only equal to that of the GDP growth is a great concern. The slogan ‘Make in India’ is no doubt significant. But what is more important is: Do those in charge of manufacturing industries understand the reasons for such a low contribution to the overall GDP when compared to, say, South Korea, where manufacturing contribution is 35 per cent?

The reasons listed out by these experts are lack of electrical power, non-availability of land, poor labour laws, strict environmental control and non-availability of capital. Let us take a dive into this list.

The table summarises the power consumption and industrial output. It is very clear from the table that Indian industry is extremely inefficient in using power, maybe next to China. Compare India’s power ratio and output which is 880 GWh/(billion $ industrial output) with that of Japan and Germany at 250. That is, our efficiency of utilisation is one-third that of these countries.

Citing a government report, Sahu and Narayanan of the Indian Institute of Technology, Bombay, state: “Energy consumption per unit of production in the manufacturing of steel, aluminum, cement, paper, textile, etc. is much higher in India, even in comparison with other developing countries” ( Determinants of energy intensity in Indian manufacturing: An econometric analysis , ANDA, discussion paper No.44, GSID, Nagoya University, Japan 2010).Inefficiency cannot be covered by more inputs. Let us not forget that we are third in the world in electricity generation.

Is there a justification for the increase in decibel levels for more land for industry? Take the case of Japan with a very high density of population. Japan uses a mere 1.9 million hahectares for residential and industrial use. This is only 5 per cent of their land; forest cover in Japan is a whopping 67 per cent. Compare this with the 22 million ha of Indian non-agricultural land. That is, Japan uses less than 10 per cent of the non-agricultural land available in India to produce three times more industrial output! The inefficiency of Indian industry in land-use is glaring.

Industry wants to amend labour laws. In simple language, they want to hire and fire at will. They harp on the low Indian labour productivity. In a recent paper in the Economic and Political Weekly , Atul Sood and others ( Deregulating capital, regulating labour , June 28, 2014 ) point out that 77.5 per cent of workers in the organised manufacturing sector do not have a job contract.

Apart from other humanitarian considerations, this has a serious effect on productivity. Productivity is a function of capital equipment, working environment and worker training. Again, look at very revealing statistics by Forbes and Wield from Stanford University ( From Followers to Leaders , Routledge, 2002). The suggestions per worker per year in Japan are 3,235, with an acceptance level of 85 per cent. The corresponding figure in the US is 11, with an acceptance rate of 32 per cent. A leading Indian manufacturing plant reported 4 suggestions per worker per year. After all, suggestions are due to the understanding of the manufacturing process and an environment for interaction with the management.

Indian industry cannot cover itself with glory when it comes to training, and with huge contract labour, our industry is bound to be inferior with respect to labour productivity and quality. ndustry needs to look inwards rather than run to the government.

Environmental clearance has made headlines time and again. “Too much control,” shout our captains. A group from the universities of Chicago and Harvard (Greenstone et al., ‘Lower Pollution, longer lives’, EPW , February 21, 2015) highlighted a disturbing aspect of environmental pollution in this country. The WHO norm for allowable particulate matter (PM) is less than 10 micro-gram/m3. It is sad that 99 per cent of this country’s land mass does not qualify. The result of such pollution is diseases of the cardiovascular and respiratory system. Do the captains of industry, who have a big hand in pollution due to their inefficiencies, realise that mortality rate due to these diseases is 44 per cent, the highest in the world?

The table also shows the savings rate in select countries. It is a well-known fact that India has one of the highest savings rates in the world, which has gone up from 25 per cent 25 years ago to 33 per cent today. If industry cannot tap this for capital, the simple fact is that the people of this country have no faith in them.

Listening to the heads of industry recalls the proverbial elephant and the blind men. Our captains have touched everything except the body of the elephant, that is, the science, engineering and technology of manufacture — that which gives energy to every other part of the elephant. It is important that industry delivers now. Let it not cover up its own inefficiencies and sob every day for sops. It owes a good performance to the aam aadmi . It is his resources they are utilising.

The writer is a professor in the department of engineering design, IIT Madras. The views are personal