why #innovation, not #jugaad, is key to #makeinindia. need to figure out core competencies, focus on a few sectors

October 9, 2014

a slightly edited version of the following appeared on firstbiz on sep 29, 2014 at http://firstbiz.firstpost.com/economy/modis-make-india-can-woo-us-investors-frugal-innovation-jugaad-102334.html

What should be the target sectors for “Make in India”?

Rajeev Srinivasan wonders which are the most appropriate sectors for making in india

The new initiative “Make in India” appears to be a coherent approach to increasing the quantity and quality of manufacturing operations in India, which would also employ large numbers. The timing of the announcement was fortuitous, because it came on the heels of the Mangalyaan triumph, which clearly gives a boost to the idea of India as an engineering and science titan.

In addition there was also the context of Xi Jinping’s visit to India and Narendra Modi’s visit to the US, which book-ended the “Make in India” announcement. If indeed India is going to be a power in manufacturing, it may well be time to revisit the idea of a ‘triad’. To paraphrase Keniichi Ohmae, former head of McKinsey Japan, who articulated the triad idea in the first place, it may make sense to collaborate on future manufactured goods as follows:

  • Product definition, finance and marketing: US
  • Engineering value add, IPR and software: India
  • Manufacturing and hardware: China

This division of labor would fit in well with the theory of comparative advantage as articulated by David Ricardo a few centuries ago. Each country does what it does best, and then they trade with each other. That is intuitively the most cost-efficient and sensible way to do things, assuming trade and transport costs are relatively low.

Thus, a clearly defined and focused “make” is likely to be more successful in India than a broad-based manufacturing thrust. I suggest that we focus on “frugal engineering” and “frugal innovation”, where there are case studies. The fortuitous coincidence of the Mangalyaan success, as well as earlier triumphs such as the Tata Nano (from an engineering sense, not the marketing failure), and Arvind Eye Care’s impressive ability to offer eye surgery at 1/100th of world prices, are examples of engineering value addition, or frugal engineering.

This has to be distinguished from jugaad, the use of ingenuity to overcome obstacles. Since the Indian system of a ‘hybrid model’ after independence appears designed to thwart anyone foolish enough to attempt entrepreneurship, jugaad has become a way of life. Unfortunately, jugaad is not replicable, not scalable, not industrial-strength, and has no quality metrics. In fact jugaad is the enemy of true innovation. What India can offer is frugal innovation.

This is what India can offer to differentiate itself from, say, China. The latter has built up insurmountable leads in logistics and supply chains, and perhaps even in technology (acquired by force as a condition for doing business there or simply stolen). Their infrastructure is years ahead of India’s, and flexible labor laws make it much easier to ramp up or ramp down production. In other words, India cannot and should not even attempt to follow China’s path in manufacturing directly, but focus on segments where it can win.

I say this even though some analysts have pointed out the surprising fact that India seems to be tracking China with a 13-year differential (after all China did begin to open up its economy 13 years earlier: 1978 vs. 1991). Here is a tweet to that effect:

ian bremmer ‏@ianbremmer  Sep 16

India‘s growth looks surprisingly like China‘s, only 13 years behind. pic.twitter.com/w4d1SPbe2E

The simple fact of the matter is that there is no room for two Chinas in manufacturing: India *has* to do something different, something it has competitive advantage in. And what might that be? Historically, India has had a core competence in a few areas:

  • IPR development

o   Eg. Madhava’s infinite series for trigonometric functions, Bhaskara’s algebra, Panini’s grammar

  • Small-scale high-engineering content goods

o   Eg. wootz, a nano-carbon steel, which was in high demand for making swords

  • Agriculture

o   Eg. high yielding rice variants and heat-resistant livestock

  • Traditional Knowledge Systems

o   Eg. ayurveda

Therefore these are some areas where India can offer differentiation from a manufacturing giant like China. So the point is that “Make in India” needs to prioritize. There are 25 priority sectors identified by the government, but they are a mixture of areas of competitive advantage and areas in which India needs to grow:

  1. Automobiles
  2. Automobile components
  3. Aviation
  4. Biotechnology
  5. Chemicals
  6. Construction
  7. Defense Manufacturing
  8. Electrical Machinery
  9. Electronic Systems
  10. Food Processing
  11. IT and BPM
  12. Leather
  13. Media and Entertainment
  14. Mining
  15. Oil and Gas
  16. Pharmaceuticals
  17. Ports
  18. Railways
  19. Renewable Energy
  20. Roads and Highways
  21. Space
  22. Textiles and Garments
  23. Thermal Power
  24. Tourism and Hospitality
  25. Wellness

Clearly there are several sectors (eg. space, leather in which India already has an advantage; others India wishes to attract investors in. One major task is skill development, at several levels:

  • Technicians for mass manufacturing

o   The German model  of technical/vocation schools is a good one

  • Engineers and Business Managers

o   Incubation and Acceleration facilities, venture funding, entrepreneurship training

  • R&D research scientists and IPR generation

o   We need to build high quality research universities

Unfortunately, the level of skills available in India is poor. For a businessman seeking to invest in India, as the PM said, the concerns include the safety of his capital, the ability to produce products, and the ability to find a large market to sell to. The first can be handled by government policy, and the third is evident with the ‘demographic dividend.’ The important gap may well be the skill development area. Without the right human resources, investors may not come.

Finally, there is the question as to whether India can replicate China’s manufacturing-led growth at all. For one thing, the rise of 3D printing and similar technologies may reduce the lure of contract manufacturing in large volumes. Will this lead to 100 million jobs, anyway? And what about the intense environmental degradation, ground-water contamination, air pollution, heavy metals, and other such that now blight many parts of China? Do we want our land the same way?

To conclude, while the general environment for business should certainly be improved, and priority sectors identified, there are some low-hanging fruit where India has competitive advantage, or it has significant positive feedback loops for country. Here is my short list of where we should ask others to “make in India”:

  • Software, as there is some critical mass of skills
  • Medical devices , as frugally engineered devices can help in public health and epidemiology
  • Traditional Knowledge Systems including Ayurveda, which are key to wellness and where we have enormous stores of under-utilized IPR.

1100 words, 28 September 2014

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