Manufacturing will be tomorrow's star

The Indian economy is not used to getting too much good news, though there has been more than the usual quota in the last decade.

The really good news so far can be clubbed under five heads: first an end to food shortages, then market-oriented reforms, more recently the export boom in software and pharmaceuticals, and most recently low inflation.

I would suggest that a fifth is round the corner. For we are seeing the beginning of a dramatic change in manufacturing that will create a slew of world-conquering companies with roots deep in the old economy.

All those who have been despairing about the state of Indian manufacturing, should therefore stop fretting. For Indian manufacturing is about to claim its place in the sun.

Since it's still early days, all I can offer are stray examples that suggest a broader trend. Kalyani Forge has slashed costs by 30 per cent over the last five years, and has achieved major breakthroughs in exports this year.

Baba Kalyani says he will cut costs by another 30 per cent in the next five years, and probably treble sales in that period, with profit margins that rival software (30 per cent of sales).

SRF too has cut tyre cord manufacturing costs by some 30 per cent in the last five years, and now has plans to buy out a Chinese manufacturer—on the presumption that they can teach the Chinese a thing or two about tyre cord.

Reliance has a whole floor of an expensive office building in Shanghai's Pudong, and is selling Rs 1,000 crore (Rs 10 billion) of petrochemicals in China. Companies like Bajaj Auto and Larsen & Toubro will probably double exports next year.

TVS Motor has achieved a turnaround and now intends to expand into the East Asian market. Companies no one has heard of are rivalling Sundram Fastners in the fastener export business.

Firms like Moser Baer will go from strength to strength, while Tata Steel has become the second lowest cost producer of steel. Tata Engineering has slashed costs per truck by more than its own managers imagined could be possible.

Ballarpur Industries was advised by an expensive consultant to get out of the paper business, but is now confident of its competitiveness.

Bhadrachalam Paperboard, meanwhile, has also invested in expanded capacity and now wants to export to precisely those markets that once threatened to swamp the Indian market with paperboard.

I hope my point has been made. Indian manufacturing is not what it used to be. The hard times of the last five or six years have clearly tested the mettle of a lot of Indian companies.

While we can still find industrial graveyards dotting the country, especially its eastern half, there is no shortage of companies which have slashed costs, improved productivity, learnt to value quality, mastered technology, and invested in marketing.

And the best among these companies are now ready to take wing. This year's flattering export growth is not a reflection of software (which does not get captured in the figures on commodity exports), and the growth is not an accident. What it reflects is the change in Indian manufacturing.

Of course, the Indian environment continues to impose its constraints. Power costs too much, inland transport is slow and expensive, the labour laws haven't changed.

But there is no shortage of companies today that find that India offers advantages that many countries cannot match.

And some of the environmental issues have got addressed: credit now costs less than before; the ports are more efficient; the roads are getting better; duties have become more rational; labour's attitude has changed; government clearances come through faster; foreign exchange is not a constraint.

Add to this, some of the raw material endowments and the quality and intelligence of Indian engineers and workmen (and how little they cost), and dozens of companies have discovered that they have a winning formula.

If more companies manage the transition to global efficiency, then what seems to you like my over-the-top optimism today will become accepted fact in next to no time.

Software has been through that process in five years; it is now the turn of old style manufacturing.

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