Industrial Automation Magazine India

Protectionist environment is detrimental to the long-term growth interests

Published on : Friday 03-04-2020

Niju Vijayan, Executive Director, Avanteum Advisors LLP.

How do you assess the current state of Indian industry in terms of modernisation?
Modernisation of industry is an ever-evolving paradigm and in the context of India, it started a little late. Given that the liberalisation of economy started only in the early 90s, India is witnessing only its 3rd decade in this transformational journey. The complexity of a federal nation state, large population, less than desirable HDI, democratic polity – all results in an interplay which slows down the march towards the desired goal. At the same time, the preceding two decades at the global level have been driven by technology like before. The advent of digital technology has been harbinger of subsequent transformation in many industries. The technology emergence in the industrial arena has been an opportunity and a challenge for India. Discrete industry segments like Automotive and components were quick off the block in modernising itself, driven by global supply chain linkages and manufacturing philosophies of global organisations. It must also be noted that conventional industry segments and those with deep legacy of presence in India like Steel, Cement, Textiles, Chemicals, Paper, etc., moved slow to embrace technology.

What could be the reasons for the slow pace of modernisation of industry in general despite the availability of technology?
Adoption of technology should not be viewed as a uni-dimensional dependence factor. Many factors determine this adoption:

1. Legacy of the industry segment: Change is slow on account of existing size and dominance of industry, where law of physics takes precedence for some time
2. Competitive environment of the industry: Customer demand and competitive offering force organisations to seek support of technology
3. Resources available with companies: Larger companies are early adopters while smaller organisations wait for the tipping point to adopt change
4. Global supply chain linkages: Being linked to the global suppliers or buyers exposes organisations to opportunities and benefits of espousing technology.
5. Regulatory environment: Whether its environment or safety or welfare, they force organisations to seek solutions with technology
6. Market opportunity and new investment: Where there is demand, there is always a will to invest in technology and new offerings.
7. Lack of widespread innovation: Except for the upward trend witnessed in the past 5 years, Indian industry has been plagued by low innovation zeal.

The automotive industry is a good example but the success is not replicated in, say textiles, where exports are not in line with the potential?
Protectionist environment, although pays dividend in the short term, is detrimental to the long-term growth interests of any industry. Entry and tariff barriers lead to complacency in domestic industry and technology investment is the biggest casualty of such a trend. This trend was evident in the textiles industry when multiple technology stimulus packages had to be introduced to sustain the competitiveness at global level. The emergence of digital technologies has democratised technology availability for the industry unlike ever in the past. The model of low capital investment and pay per use models took the opportunities down to the medium and smaller organisations. Technology and processes are synonymous with quality and the latter is a hygiene factor in exports. The over reliance on domestic market also restricted the manufacturers appetite to embark on a journey of continuous technology adoption. At best it was considered a strategy to hedge against limited domestic market uncertainties.

At the moment the renewable energy segment in India is growing, but so is the demand. What should be the ideal energy mix?
Renewable energy comprises of Solar, Wind, Hydro, Biomass, Tidal and Geothermal sources. While hydroelectric power was touted as the panacea for India’s burgeoning energy demand but environmental impact, especially in the fragile eco region of NE arrested its growth. Solar with its obvious advantages in a tropical country like India with an average of 300 sunny days, is apparently the way forward for energy security.

The revised plan of 100GW from Solar and 60GW from Wind are ambitious targets but the government is positively pushing ahead with this plan. In the long term, as the sustainable goals targets become tighter, the reliance on renewable energy will only witness a dominance. Wind’s growth prospects will depend on the cost of equipment and the long term PPA and the cost of competing renewable sources. There is renewed interest in the biomass source and this is likely to become an integral part of agriculture as integrated farming practices become a reality.

What more can the government do to boost manufacturing in India with the vision for a USD 5 trillion economy by 2025?
The grand vision of USD 5 Trillion economy for India by 2025 is an imperative too. The youngest population in the world needs economic opportunities and employment to prosper. The near doubling target of economic size can be achieved by unconventional methods alone and widespread technology adoption is the inorganic solution. Digital technologies of AI/ ML, IoT, VR/ AR, Analytics, Robotics are some of them, primed to act as the propellant for this trajectory.

While technology infusion is expected to spur greater innovation in the Indian industry, the collateral advantage expected from this movement is the immense export opportunity. For the economy to achieve the USD 5 Trillion milestone, Made-in-India for the world, i.e., exports should contribute at least 25% to this potential size. The manufacturing sector demand path breaking reforms with liberal policies underpinning the growth. For manufacturing competitiveness to grow, imports are inevitable, nevertheless tempered with support for the local industry. Targeted incentives for production, quality and technology enhancement will pave for a multiplier effect in the manufacturing industry. The fundamental approach towards design, manufacturing and service will need to undergo a change to reflect the changing realities brought about by technology. The latest Production Linked Incentive (PLI) scheme by the government for electronics is an excellent approach for replication across industries.

Is sustainable development a difficult goal to achieve for a growing economy like India? India has the twin challenge of marching down its development path and chart a sustainable growth path for itself. India for centuries have been following sustainable practices, but this has been sacrificed to some extent in the last few decades as the demand for faster development took precedence.

A diverse country like India has no option but to adopt a sustainable development path for itself. This is possible since India is geographically diverse and is well endowed with natural resources. This calls for an approach which moves its industries away from current concentrated zones to under-developed geographies after creation of adequate infrastructure. This will not only provide growth support to industries but also help secondary and tertiary sector growth in under-addressed areas. Moreover, leveraging technology to optimise resources will be a big tool in ensuring that India remains a sustainable economy on the world stage.

(The views expressed in interviews are personal, not necessarily of the organisations represented)
Niju Vijayan is the Executive Director with Avanteum Advisors LLP. He has 20+ years of experience advising clients formulate strategies and actions in rapidly disrupting markets and industries. He has expertise in the areas of manufacturing and electronics. During his long career, he has advised, global corporations, home grown business houses, SMEs and government on a variety of business issues.

#April 2020 Magazine Cover Story

Transforming the Industry. Experts debate the factors that are holding back the Indian industry in quest of modernisation, and improved productivity. Digital Transformation is the buzzword for industry in the wake of the Fourth Industrial Revolution or Industry 4.0. Like much of India with various States at different stages of development, the Indian industry too is not a uniform entity in terms of modernisation and technology. The automotive industry is perhaps the most automated and leading on the digital transformation front as well, but many other segments, especially the MSME component that forms the largest chunk, are still at various stages of modernisation. To read the full cover story Please click here