Is India Loosening Its Bureaucracy?

Jan. 16, 2012
Will India's National Manufacturing policy boost sector's percentage of GDP?

When India announced on its new National Manufactuirng Policy in October the main objective was to create 100 million jobs. As people are migrating from the countryside to the city, the government needs to find jobs and manufacturing is a likely place.

While noting that the plan is quite ambitious, M.S. Krishnan, Faculty Director, India Initiatives at the Ross School of Business at the University of Michigan, says the main reason for the policy is to reduce bureaucracy. "It is difficult to both open and close manufacturing plants in India," explains Krishnan. "This creates a lot of friction."

This friction is getting in the way of necessary growth for India via the manufacturing sector. Krishnan points out that in India manufacturing is only 16% of GDP which is below other nations such as China which is around 34% and South Korea where manufacturing is close to 25%.

"Loosening the bureaucracy will create opportunities for other companies to look at India," explains Krishnan.

One particular aspect that hinders business is the labor laws which are quite strict and makes it both difficult to hire and fire personnel, Krishnan points out. Additionally there are infrastructure issues. Transport infrastructure is not adequare and much of the country suffers from electricity black-outs and water supply problems. Part of this new policy is to create special manufacturing enterprise zones to address these issues.

In fact the government plans to increase infrastructure spending to 8.4% of GDP in F2012 from 7.5% in F2009, according to an article in the Irish Finance News. Power, roads and telecommunications will all see increased spending.

Krishnan is optimistic and explains that there are pockets of manufacturing excellence in India, such as in the auto sector. While these changes will take time, he feels that the "intentions and aspirations are good."

Further Krishnan notes that India, along with China, will be a major contributor to global growth in the next 20 years. "All global companies must look at their strategies and capacity in order to be part of this growth," said Krishnan

The question businesses need to ask themselves is how to "create capabilities so that they can cater to the market price that India will demand. And how to do this in a manner that maintains quality levels and is sustainable."

To view the specifics of the National Manufacturing Policy click here.

Note: M.S. Krishnan is also co-author with C.K. Prahalad of "The New Age of Innovation: Driving Cocreated Value Through Global Networks."

About the Author

Adrienne Selko | Senior Editor

Focus: Workforce, Talent 

Follow Me on Twitter: @ASelkoIW

Bio: Adrienne Selko has written about many topics over the 17 years she has been with the publication and currently focuses on workforce development strategies. Previously Adrienne was in corporate communications at a medical manufacturing company as well as a large regional bank. She is the author of Do I Have to Wear Garlic Around My Neck? which made the Cleveland Plain Dealer's best sellers list. She is also a senior editor at Material Handling & Logistics and EHS Today

Editorial mission statement: Manufacturing is the enviable position of creating products, processes and policies that solve the world’s problems. When the industry stepped up to manufacture what was necessary to combat the pandemic, it revealed its true nature. My goal is to showcase the sector’s ability to address a broad range of workforce issues including technology, training, diversity & inclusion, with a goal of enticing future generations to join this amazing sector.

Why I find manufacturing interesting: On my first day working for a company that made medical equipment such as MRIs, I toured the plant floor. On every wall was a photo of a person, mostly children. I asked my supervisor why this was the case and he said that the work we do at this company has saved these people’s lives. “We never forget how important our work is and everyone’s contribution to that.” From that moment on I was hooked on manufacturing.

I have talked with many people in this field who have transformed their own career development to assist others. For example, companies are hiring those with disabilities, those previously incarcerated and other talent pools that have been underutilized. I have talked with leaders who have brought out the best in their workforce, as well as employees doing their best work while doing good for the world. 

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