At a time when the absence of jobs is widely accepted as one of the biggest economic challenges for India, it is pertinent for us to see how the manufacturing sector has consistently performed well below its potential when it comes to job creation. In April, data from CMIE revealed that contrary to adding new jobs, India has lost half of its existing jobs in manufacturing over the last five years.
Further, job losses were seen in all manufacturing sub-sectors, except in the chemicals industry. With agriculture growing its share in total employment by 4% during the same period, it is clear our country has seen a reverse migration from industrial employment back to agriculture – a type of deindustrialization.
This ominous development is all the more worrying, for it arrives despite our nation’s persistent focus on growing the manufacturing sector with several policy measures undertaken and initiatives announced under ‘Make in India’ and ‘Atmanirbhar Bharat’ schemes.
A closer look at India’s manufacturing sector points towards two major reasons for this situation. One of the most striking aspects of India’s manufacturing sector is a conspicuous absence of the midsized manufacturing units.
We see our manufacturing heavily polarized: on one end, we have a relatively miniscule number of large-scale and world-class manufacturing units with annual revenues in excess of $ 100 million. On the other end, there are crores of extremely small units with revenues under $1million. The middle, consisting of units with annual turnover between $1-100 million, is missing.
Government’s own data corroborates this: of the roughly 6.4 crore MSMEs in India, close to 99.5% are classified as micro units (employing 1-10 people). Only 0.01% are designated as mid-sized.
Now, global experience tells us that it is the midsized units with turnover between $50-100 million that generate maximum volume of jobs. While the larger units typically end up pursuing high levels of factory automation; the micro units mostly employ only a handful of skilled workers as we see in the case of handicrafts, textiles, and several other industries. It is only the midsized units that employ a combination of educated, uneducated, skilled and unskilled workers – which generates mass employment.
Glance at any other industrialized nation and one can readily observe a significant proportion of manufacturing output coming from mid-sized units. From Germany and Japan in the early 20th century to Korea and Taiwan in the middle of the century, and later China in recent decades, these countries have built their manufacturing prowess through highly capable midsized units as much as large scale ones, and in the process generated millions of new jobs.
As a country, our collective goal therefore should be to catalyze the growth and subsequent transition of a much higher proportion of micro and small manufacturing units into mid-sized ones. Progress towards this goal depends as much on external stimuli – in the form of investments in public infrastructure as well as policy and regulatory interventions – as it does on capability-building for the owners-entrepreneurs who run these micro and small-scale units.
Let’s focus on caIpability building first. Research and conversations with owners of micro and small-scale units across industries frequently points out to the same set of growth constraints: lack of marketing and other managerial skills, poor awareness of world-class quality manufacturing standards, processes and systems, the relative absence of high-quality managerial talent availability in small cities and above all, a general disinclination to invest in high-quality human resources (notably, these units are otherwise capital intensive).
Even if these owner-entrepreneurs have the will to grow bigger, they need help in the form of training, mentoring and education to upgrade their business management skills; for the skills and capabilities needed to manage and run a $50 million business are very different from those needed to run a $1 million business.
Many leading B-schools in India already run dedicated programs to train and equip the owners of family-run businesses with new-age management skills. The challenge for us in India is to democratize this education by making it far more affordable and accessible to micro and small manufacturers spread throughout India.
EdTech can help. Given India’s growing comfort with digital or online learning, remote and online coaching by teachers and experts can be a powerful enabler of skill-building for millions of Indian small-scale manufacturers. I have elsewhere described how Indian manufacturers need basic awareness of global quality standards and need to implement superior quality control systems in their factories if they want to compete on a global stage. Digital learning can help address this gap.
Further, digital tools and edtech can also be a useful ally for upgrading the skills of locally available workforce – both for the shopfloor as well as in the supervisory roles. This is such an important prerequisite for manufacturing success that our policymakers need to prioritise setting up of world-class polytechnics, colleges and institutes around major industrial clusters that focus exclusively on occupational skills required in that industry.
For example, an auto ancillary industrial cluster needs workers skilled and well-versed with the unique needs of the automotive industry. Likewise, for a cluster focused on renewable energy products, one needs workers who understand the manufacturing of solar panels or windmills and can work in this sector. At present, several of these clusters are forced to look for people from distant cities and locations because they do not have adequate talent available locally.
It is also important to note here that this problem of human capital availability could easily have been foreseen at the time of setting up of these clusters, with necessary steps taken to mitigate it once the individual units are running and ready to recruit. Our inability to do so reveals a lack of systems thinking at the policy level, as well as our refusal to learn from the examples of other countries.
India has entered the global manufacturing competition at a late stage and there is plenty to learn from countries like Japan, Korea and China who have already worked their way through the entire manufacturing lifecycle. More importantly, we must not repeat the same mistakes that they made through their journey.
Here we must also consider the role that our governments need to play to catalyze job creation in manufacturing. Granted, our governments have taken a slew of well-meaning initiatives in recent years, but we still feel that a lot of long-due policy reforms have been unnecessarily stalled by political considerations. The principal requirement here is for the government to carry all stakeholders including the opposition together and build a national consensus for these reforms.
In conclusion, India’s policymakers over the years have put an exaggerated emphasis on large-scale manufacturing and in attracting big-ticket local investments from international manufacturers. It is now time for them to readjust their priorities, learn from the manufacturing lifecycle of other countries that have already undertaken the same journey, and build a holistic plan that enables the emergence of a whole new league of mid-sized manufacturing units that grow organically from our existing micro and small-scale units. Jobs will automatically follow.
Pore is the CEO of TheBuyHive.com, a tech-enabled global B2B sourcing platform.
Source: https://economictimes.indiatimes.com/small-biz/sme-sector/jobs-in-manufacturing-its-time-to-focus-on-the-middle/articleshow/86700290.cms
