Enabling "Make in India"

“It was the worst of times, it was the best of times”  Charles Dickens

 "Smart Cities are those that are able to attract investments and experts & professionals. Good quality infrastructure, simple and transparent online business and public services processes that make it easy to practice one’s profession or to establish an enterprise and run it efficiently without any bureaucratic hassles are essential features of a citizen-centric and investor-friendly smart city."  Ministry of Urban Development, Government of India

India’s progress has been unique in many ways as it has developed a distinct growth model.  The economy transitioned to a knowledge economy driven by the services sector, leapfrogging the intermediate manufacturing driven stage seen in developed economies.      KV Kamath

“Make in India”-  is not merely a slogan, but a calculated program designed to enthuse and energize the MSME/ SME markets who are the champions of employment, export oriented growth, and innovation in India.   This essay is an attempt to analyse the broad “Make in India” initiative from the different angles-  Manufacturing as a sector,  the role of startups, innovation and enterprise,  and identify the key drivers, the opportunity, the positioning, the relationship with Smart Cities- the future urban ecopolis model and the parameters to oversight.

Industry and Manufacturing as growth drivers for India

For balanced economic growth, it is imperative to maintain symbiotic and strong connection between agriculture, manufacturing and services industries. 

Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the GDP- averaging about 16%.  While the country is among the largest producer, consumer and exporter of a lot of agricultural produce,  there has been a steady decrease in the total land area under cultivation. This has been attributed to the increasing urbanisation and expansion of cities into the hinterlands.  

Agricultural services attract huge FDI and investments, and there is a strong effort on the part of Government for its sustainable development.  The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sector’s growth.

Services, while providing a strong platform for human resources development, are a significant value-creation sector to manufacturing and agricultural industries.   The Services industry has grown, much like a pack of cards- stacking up software development, services outsourcing, business process outsourcing and thereon to knowledge outsourcing services- including R&D, design and others. 

In the global markets, acceleration started in the technology industry and as Moore's law came into effect, technology grew at exponential speed and growth in services kept pace. This was followed by an acceleration in financial services, telecom, retail and the rise of the retail customer. The change continued with transportation, travel, tourism, media, health services and the list goes on.  Technology adoption in financial services continues with the Jan Dhan Yojana announced by the Prime Minister.  All these developments significantly impacted the services sector in India-  as the best and most cost-effective centralised location for outsourced services to meet the differing market needs, the world over.

Some key reasons for this development include the availability of quality resources, lower costs/ barriers to entry into the business, easy scalability, faster returns and flexibility as well the spread and reach of the services platforms.    However, over the last couple of years, there is severe competition for India from the likes of Philippines, Vietnam, Malaysia and even Indonesia.   This therefore, in some form has impacted the growth rates in this segment.

A study of globally successful nations provides an insight into the balanced growth achieved via a combination of manufacturing, services and agricultural economies.  There is a global rebalancing of weight across the developed and developing economies.  China, with the currency challenges and wage inflation, is facing increased cost of production.  The US and Mexico are rushing to claim back their share of manufacturing with productivity and innovation driving adoption. 

The Indian Manufacturing sector is a classic example of great potential undermined by a multiple factors- from policy stagnation and myopic entrepreneurial views to ignorance and lack of persistence and discipline.  The changes over the last couple of years in the global markets is another opportunity that the Indian manufacturing sector will do well not to ignore.  

Industry and Manufacturing holds a key position in the Indian economy, accounting for nearly 16 per cent of real GDP in FY12 and employing about 12.0 per cent of India‟s labour force. Although this is much less than some of the core ASEAN economies like Thailand and Indonesia, it is still a fairly strong growth has been accompanied by a change in the nature of the sector – evolving from a public sector dominated set-up to a more private enterprise and now, innovation driven one with global ambitions. India is currently among the largest producers of textiles, chemical products, pharmaceuticals, basic metals, general machinery and equipment, and electrical machinery.  Together these account for 60% of India’s total manufacturing base, and more interestingly, rely primarily on domestic demand for a major part of their revenues.  Sub-sectors like machine tools, ball and roller bearings, textile machinery, and utility vehicles recorded either excellent (above 20 per cent) or high (10-20 per cent) growth, adding to value creation in manufacturing.   Our manufacturing exports have increased only marginally in the last 5 years, accounting for 1.7% of global merchandise exports, but domestic demands have been consistently growing in an increasing consumption and expansion market across India.

Over the past year, there is also a strong political awareness of the need for manufacturing to become one of the stronger pillars of growth.  To drive this, the Government has announced a series of inititiaves under the Make in India program to drive local manufacturing that can adequately serve global markets, while providing multiple advantages by augmenting the supply side, employment generation, driving growth and improving the trade balance.

It is therefore, imperative that both manufacturing and agricultural growth are driven to match up with the services sector growth through a sustained effort.  And, for India to reach these goals, it will have to blaze a new path- embrace nonlinear growth solutions—leveraging technological advancements and/ or business-model revolutions.  And, it is here that the startup entrepreneurship and MSME market space checks all the boxes in the development and growth driver space.  

Role of Enterprise and Entrepreneurship

Entrepreneurs are ‘change agents’ in the process of industrial and economic development of an economy. They play a premium mobile role in promoting industrial and economic development of an economy. Almost 95% of radical innovation, 6000+ value added products, 90% of total industrial enterprises and over 60% of employment the world over has from new and smaller firms.   With a now thriving startup ecosystem, it is just the perfect time and place for innovation, invention, and localised solutions that meet the varied needs of the Indian industry/ consumer.

With India's vast cultural diversity, geographical expanse and entrepreneurial spirit, Micro, Small and Medium Enterprises (MSMEs) have always played a vital role in the growth of India's economy.

Some of the key sectors that drive markets in the MSME sector include- technology, retail, automotive components, healthcare, education as well as eCommerce. 

In a very short time e-commerce companies have built scale, leveraging the trends of a growing consumer market, technological advancements and connectivity.  E-commerce has spawned investment and growth in extensive delivery networks, logistics and supply chain networks, payment models and mechanics and so on. 

The automobile industry is also a key contributor as the rise in sales of personal vehicles has created a incremental impact on support services required after sales and also the car accessories market. Transportation and logistics services are growing rapidly as demand for goods grew across the country. In much the same way, the impact of service industries is not limited to just the direct output or direct employment, but also the creation of ancillary services and employment generation.

Coupled with the demographic dividend and the expected jump to a higher trajectory for growth and per capita GDP, India has the right conditions for a virtuous cycle to sustain for many years. manufacturing and services both, ticking together, will drive growth and provide employment.

To create high barriers to entry, MSME and Startups must create IP.  This IP is best created through a combination of products and patents for software applications.  Manufacturing creates a multiplier effect and impact through a whole host of ancillary operations, services and employment generation, thus strengthening the broader economy and indudstry ecosystem.  As an example, any one automobile to be built and sold in the market, involves about 30 different organizations that need to come together-from raw material to retail market delivery logistics.  These critical elements provide a strong base for India based manufacturing and solutions for MSME/ Startup ecosystems to grow and thrive. 

Indian and International examples of entrepreneurship

Below are a few examples of startups that seized opportunities from the situation around them and created direct and significant value for themselves, their direct envrionment and then on the extended ecosystem.   These have a strong social-economic-commercial value- where they offer a direct benefit to the clients while keeping a focus on commercial profits to build a growing and sustainable business and long term economic value.

• In the state of Odisha, on India’s eastern coast, Joe Madiath, who has been bringing clean water, energy, and sanitation to impoverished villages for nearly 30 years. Madiath insists that each toilet constructed by villagers should have running water.
• In Madurai, a town in Tamil Nadu, hope is shining in the half-blind eyes of patients at Aravind Eye Care System, a specialised hospital chain inspired by the spiritual values of Sri Aurobindo. The hospital provides free eye care to thousands every year while earning a healthy profit.
• In the UK, an out of work Banker found his passion in a very innovative beehive business model and in manufacturing organic honey and spread a business across the UK and now expanding into rest of Europe.
• In Delhi NCR, an IIFT graduate is working to create jobs in a slum area called Kalyan Puri to train the poorest of the poor slum dwellers to generate employment and steady income opportunities so that these slum dwellers can move out of the slum into more respectable residences and pursue jobs with pride and self-respect. Currently exploring scaling this operation to cover many more of these dwellings.
• In Gujarat, a Japanese American IT professional threw up her high paying job at a top IT company and, now starting a manufacturing unit for Sanitary pads to help young, adolescent girl children stay back in school after attaining puberty.
• Two friends in Kenya came together to help their Mothers florist business generate micro credit facility using the telecom network in a highly creative fasion and impact the lives of millions of pre-paid card users in the African continent.

There are enough examples of professionals and amateurs across all age groups who are bitten by the start-up bug and have started their own businesses in the last two- three years.  So much so that entrepreneuring(r) has become a mainstream career option, as opposed to being an alternative for students who could not get jobs in campus placements- in India or abroad.

So, how do we make the economics of a startup/ MSME business work?  Critical to the success of a long term MSME/ Startup business is the creation of value- based on a barrier to entry, speed to market, and a wide and deep consumer base.  However, with an average team strength of 10 pax in each of the startups, it is well nigh impossible for the 1 or 2 CoFounders to think and execute big, and still have their oversight on all aspects of the business, unless they use a leveraged model for growth. 

For any new business segment to thrive it is imperative that there is a support ecosystem to provide a whole host of support services, connectivity and bridge the gap beween the solution creators and the consumers.   

In a leverage model, the startup/ MSME focuses their engeries on the core business of building a business, while they leverage the experience and expertise of other professionals to help them with all the support elements of a business.

It is therefore, critical for startups to have any or all of the following-

• A guide or mentor ecosystem that counsels the Founders to keep them on track and monitors their execution plans to deliver the value they have planned. Additionally this portfolio of mentors also provide market access for the startups via their network connections, engagements and promotion.
• A program framework that can train the startups on the different elements for building a large and successful business
• A support ecosystem of service providers including real-estate developers, lawyers, accountants, marketing and advertising support, compliance, audit and others
• An angel investor team that has a strong interest in long term engagements with the startups.
• An active VC ecosystem to support the subsequent funding for startups
• Government resources and policies that provide stable and favourable policies for startup businesses

The central piece of this is the Program agency that provides the basic connectivity between the different elements and players of this ecosystem.  The program agencies must typically provide a platform for the startup to learn the steps of designing and developing a product/ solution in a commercially feasible and socially favorable model.   The program provides a skill development, enablement and empowerment vehicle that trains the Founder/ Co-Founder to develop the right experience and acquire the right skills to be in the creative zone for businesses for the next decade.   

Some key reasons for encouraging entrepreneuring(r) in a growing economy:

• Entrepreneurs promote capital formation by mobilising the idle saving of the people. They encourage effective resource mobilization of capital and skill which might otherwise remain unutilized and idle

• Creating a thriving supply chain ecosystem- from raw material to manufacturing to delivery systems, warehousing and shipping models

• They create immediate and large-scale employment by establishing multiplier effect through the small- scale enterprises. They help reduce the unemployment problem in the country

• Support balanced regional development by establishing small-scale enterprises in rural, remote and less developed regions

• Facilitiate opportunites for a more equitable redistribution of wealth, income and even political power in the interest of the country

• Promote the export economy- an important ingredient to economic development

Conclusion:

An era of licenses, controls and restrictions  was the norm in the India of the 1950’s to early 1990’s.  Setting up any product or services units required multiple approvals, from different ministries at diferent levels- resulting in setting up time for the project to be far lesser time compared to the time taken to get the various clearances, approvals and licenses required.

The journey from these times has been long and eventful.   Over the last one year, with the Smart Cities projects, the Sampoorna Bharat Vikas programs, and many others, we are well poised to leapfrog into the next wave of growth and progress into a developed nation.  

Many challenges still remain- because the devil is in the execution and delivery.  As a start, it is important for us to drive easy access to capital- equity and debt- via government support and/ or through the private sector.   In addition, it is also critical to drive a roubust IP environment- including registration, processes, and related patents.

For a sustainable economic and socially balanced development, it is important for the MSME businesses to focus on quickly designing, building and deploying solutions that address the local markets and yet are flexible enough to cover the needs of a broader segment of people.   This implies that we must extend our coverage beyond e-commerce and trading. For inclusive growth, we need a complete coverage spectrum - from technology solutions on one side to grassroots projects- cottage and village industries, handicrafts, poultry, women and children empowerment, education, healthcare, local manufacturing, services and others.

Even Smart Cities program are not so much about the technologies they carry, as they are about the people that live in these cities.   It is not only about the variety of smart infrastructure that works seamlessly together to make maintenance, upgrading and deveopment of the city an easy task.  It is about the daily life of its residents-  their experiences, expectations and the serice deliveries that make living a more pleasant experience.  

The next 15 years expect to drive more urabnisation in developing economies like India.  Megapolises, Industrial Parks, huge concrete residential and commercial blocks of urban development beckon.  40% of India’s population is expected to live out of urban cities.  This, therefore, is the best and most via time for us to plan and drive the development of these cities such that the living experiences of the people can be better met and sustained-  driven by the MSME sector that focuses on make in India, by India, for India.

Innovation is a critical component in improving individual and institutional performance. Every now and then, organisations confront situations that warrant radical changes, which call for out-of-the-box thinking. Inspiration for innovation usually stems from a combination of three factors: an urgent and pressing need to bring about a change; how people perceive and pursue that change till the end; and a congenial environment to accomplish that change. Innovation is always driven by self-induced passion, pressure of compelling circumstances and undying perseverance for achievement. The assiduous application of technological improvement in transport and communication worldwide has created an unprecedented growth in global connectivity and transmission of information. Globalisation itself is a product of innovation.