Indian businesses understand the criticality of becoming global brands
Published by : Industrial Automation
Aashish Chandorkar, Vice President, Capgemini Invent India.
What are the gains made during the last six years of Make in India policy initiatives?
Make in India was launched on September 25 in 2014 to promote India as a manufacturing investment destination. The ask was clear – for a $3-trillion economy, manufacturing contributed less than a fifth to the national gross domestic product (GDP). So, an awakening of national consciousness around manufacturing was critical. A named program with a distinctive ‘lion made with gears’ logo attempted to address the urgency of the situation. The program has helped in three ways.
Firstly, it has put the spotlight on downstream reforms needed for various factors of production. Consolidation of labour codes is in progress – the Parliament has passed the code on wages and the three others should be taken up soon. Land reforms have been carried out in several states. The Commerce Ministry has created a land bank portal for easy identification of relevant land parcels for the industry in economic zones.
Secondly, a sectoral approach has been taken to make manufacturing more attractive in India. India had mobile factories in 2014 but now there are more than 120 factories. Big players like Foxconn, Wistron, Pegatron and Samsung are looking to invest big in India leveraging the production linked incentives.
Thirdly, using the ease of doing business as a central pivot to making manufacturing attractive, States have been put in a gamified competition of sorts to change their laws. This is the best of federalism where the centre and the states work towards a common national cause.
The advantages India offers are well known, but that has still not boosted manufacturing activity to a significant extent. So what has changed now?
While the government intent on Make in India is clear, the multi-tier democracy has made it somewhat difficult to realise the full benefits. Projects need approvals at various levels and States are changing their procedures with different speeds. With several agencies possessing the ability to stall projects but no overarching agency to ensure that things move smooth, the manufacturing activity hasn’t progressed as much as expected.
Having said that, decades of limiting processes take time to change. Intent itself is very important in governance because changing the intent has the biggest inertia. Policies and procedures can always change due to a combination of politics and circumstances. That churn is currently on. Some States are ahead of others in land as well as labour changes. Most States recognise the need to do away with the inspection system – the main bone of contention for most companies. The central government itself changed the corporate tax regime in September 2019, allowing a very competitive tax bracket for new manufacturing activity. The dividend distribution tax was abolished in the most recent budget, which helped subsidiaries of foreign firms as well as investment vehicles operating in India.
One of the biggest issues is availability of land, apart from regulatory hurdles – is the government doing enough?
Contrary to the popular theory, there is very little that the central government can do on easing out the land hurdle. Land availability is controlled by the States and by local bodies. Much of the rent seeking happens at local level, which central and sometimes even the state laws cannot resolve fully.
But recently welcome changes are being seen. Karnataka for instance has made land use fungible without industries having to go through the ‘non-agricultural’ conversion process. Some other states are also mulling over these changes. Many states now have industrial land banks, though the allotment of land in these industrial parks should be less taxing. Capgemini’s offer on India as a Production Destination focuses on precisely this aspect of clients’ requirement. Within this umbrella offer aimed to help clients set up new operations in India, we help our clients explore the right location based on land availability and also other important aspects like workforce fitment and availability and local rules and regulations. The central government initiative to create visibility of land availability through a central portal is a welcome step.
How does Capgemini help channelise investments in the manufacturing sector in India?
Capgemini has a market offering on ‘India as a production destination’. We advise our clients on India market entry strategy covering facets of regulation, market sizing and business process expertise, and of course technology implementation.
Several of our global clients operate in India and routinely look to expand local operations. Many global clients are seeking first-time entry to India. We focus on bridging the gap between these clients and their India-specific demands. We are uniquely placed to achieve this given our strong Europe and North American presence, understanding of cultural elements from more than forty countries and bringing together these soft success factors for Indian operations. Capgemini has been working with an auto and equipment manufacturing client helping their Indian business with digital transformation relevant to local business. These projects have also helped the client establish India as a key supply base within their own organisation.
Our business and technology expertise in global supply chain planning and implementation is a special area of interest for our clients. We are well placed to leverage the new wave of global supply chain realignment and the spotlight on India. Recently, we worked with a leading single brand retail firm, which also has backward integration on the manufacturing side for home improvement business. Capgemini designed the entire supply chain technology needed to succeed in India including market specific customisations. For this client, Capgemini also created a virtual storefront which helped them rapidly expand their geographic footprint.
While the US is keen on engaging with India for diversification of supply chain post Covid, there are conditions attached. What is the way forward?
At a macro level, a United States and India trade deal is a given. But due to the American political cycle, a breakthrough may not come in until next year. Having said that, the USA and India are natural allies as two big democratic countries. It is only to be expected that the American firms will want to leverage India more going forward as global geopolitics rebalances. An advantage here for the US is that many large American firms already operate in India. The number of people of Indian origin living in the US equal about 1% of the total population. There is an existing and seamless understanding of working styles, routines and objectives. So once the trade elements fall in place, we should expect more American investments in India. In fact, purely in a financial investments sense, this process is already on. The technology giants like Google and Facebook have alone committed about US $10 billion each for the Indian market.
The way forward will be to resolve specific concerns which are hindering a trade deal. Agriculture is perhaps the area with the deepest divisions. It is also possible that the two countries agree to a limited deal first and then look at completing the entire process later.
What are the steps domestic players in India have to initiate in order to attract investments?
Indian domestic manufacturing firms will have to look at transformation on two vectors. Firstly, they will have to adopt productivity enhancement as a core objective of the business. For historical reasons, Indian firms tend to be sub-scale. The investments in automation and calibrated approach to capital expenditure don’t always help Indian firms rapidly increase productivity gains. Of course, we also have the exact opposite contrast too in many sectors and firms. But in general, better return on equity through productivity boost is critical for Indian firms to compete against the well-oiled global machinery.
Second, Indian firms should become more ambitious and take on global firms in their own markets. The traditional Indian business values of frugality and discipline can act as a foil to lack of branding and market know-how. Unless Indian firms become big and expand global market share in their respective industries, their ability to innovate will also continue to be limited. Through our work in the Indian market, we observe that both the aspects are already being addressed. Indian businesses understand the criticality of becoming global brands. Our businesses are more open to external investments more than ever before and they have taken the right governance, organisation and technology measures to position themselves as partners for global investors as well as clients alike.
The pandemic has certainly made companies realise the need for digitalisation, but is it translating into changes on the ground?
The studies done by Capgemini Research Institute, ranked as world’s foremost consulting research organisation for many years by Source Global, demonstrate that Indian businesses are embracing digitalisation at the same or even faster pace than their global peers. According to a recent study by Capgemini, ‘Fast Forward to the Future’ 1 Covid-19 crisis has acted as a catalyst for transformation in organisations and 50% of Indian respondents said they have already accelerated existing or launched new transformation initiatives. While the process of change was already on, the pandemic has undoubtedly expedited it. While start-ups and technology had already disintermediated the value chains for several businesses, digitalisation is now disintermediating location itself as a driver of business. This gives a huge opportunity for Indian firms to grow out of their traditional spheres of influence.
Indian firms are already realising this. We see increased investments happening in business automation at the lower value add of the spectrum and cloud, native mobile business models as well as heavy data analytics at the upper end of the technology leverage. Indian market was always ready for digitalisation. Almost two third of Indian population is in the working age cohort of 18 to 65 years. The average age is well below 30 years and most individuals are very comfortable with technology usage. Mobile is the way of life in India – the majority of all new Internet adoption already happen on mobile. We anticipate a bright future for technology bringing about fundamental changes not just to Indian businesses, but also the social life.
Prior to joining Capgemini, Aashish managed the Technology vertical consulting practice at Cognizant Business Consulting. He worked with leading global banks like Standar Chartered, Citibank, and Credit Suisse earlier. Aashish is a regular speaker in industry forums and very visible in India media. He regularly writes on topics of industry interests like emerging trends, policy issues and sector strategies. He is called upon by various firms on their ideation forums to talk about how issues relating to transformation, digital adoption and challenges faced by large firms in adopting technology. Aashish holds an MBA from IIM Calcutta and a Bachelor of Engineering degree from Indore University.