More challenging to become manufacturing hub now: Gaurav Nayyar

India can continue to compete on the basis of existing technologies as long as it combines low wages with other supporting requirements to maintain its competitive edge, says Nayyar

A recent World Bank report, Trouble in the Making? The Future of Manufacturing-led Development, says new technology, including advanced robotics, industrial automation and 3D printing, are changing the landscape of global manufacturing. Gaurav Nayyar, one of the report’s authors, talks to Indivjal Dhasmana about the impact of these technologies on the Make in India programme. Edited excerpts from an interview:

The report says technology is now driving manufacturing. What lessons can Make in India learn from this?

If technologies like artificial intelligence, robotics and smart factories are reducing the importance of low labour costs in determining overall manufacturing costs, then there are two main lessons for India. One is that India can continue to compete on the basis of existing technologies as long as it combines low wages with other supporting requirements to maintain its competitive edge, whether this is ease of doing business or other regulatory requirements, or greater integration of services, with manufacturing. India can compete globally this way, at least for some time. Industries such as leather, apparel and footwear, where India has  the advantage, have not yet been much exposed to robotics. Secondly, this window of time can be utilised by India to prepare itself for more technology-driven manufacturing in the future. It is perhaps a matter of time that artificial intelligence and 3D printing become commercially viable. So, it requires development of skills, spread of technology and addressing issues like regulatory concerns over intellectual property.

What about electric vehicles? Will these require robotics?

In automobiles and electronics, robotics is already a global reality. Electric vehicles are a part of the automobile industry. Even India has started using robots in the production of cars. The same is true of other developing countries such as Brazil and Mexico. This is likely to be a segment where new technologies will be used rapidly. 

How do you see the job market after the new technologies become widespread?

There are many estimates of job losses due to these technologies. Some of the latest estimates say 10-12 per cent of jobs have been lost in advanced economies due to these technologies. These figures are much lower than earlier estimates of 50-60 per cent job losses. In developing countries job losses are even lower as there are currently not much capabilities to use these technologies. The moment you begin to use these technologies, some jobs will be directly lost. But, productivity increases and supporting jobs might offset these losses. Some of the routine jobs may be automated faster, so it again puts the focus on skill upgradation. It is possible that more jobs are created in services than in manufacturing as these technologies are embraced. 

Does it mean the focus on Make in India is misplaced?

I would not say that. Manufacturing was considered good for countries because it created jobs for unskilled workers and allowed productivity to rise over time. It is still true, just that it becomes more challenging than, say, 20 years ago to become a manufacturing powerhouse due to emerging technologies and changing globalisation patterns. So the emphasis on Make in India is not wrong, but one needs to look at the content as to what are you going to do in Make in India. We take this approach of 3Cs — competitiveness, capabilities, connectedness — to highlight policy priorities that will enable developing countries to compete globally in the changing manufacturing landscape. Progress in all these three areas will help Make in India become a reality. Though the slogan is Make in India, I think the meaning is the broader manufacturing process, which also includes services such as design, transportation and financial services.

How long will this window last?

Your guess is as good as mine, but I will give you one example to help you gauge the trend. Adidas has started manufacturing a line of footwear in smart factories in Germany. But it is a very niche kind of product for athletes as of now. Most of the shoes, that you and I wear, are still manufactured in Asia — in China, India and Vietnam. It is difficult to assume that these new technologies will take over, say, the apparel sector in three or four or five years. It is likely to be longer. But whether it will be 10 years or 12 years is hard to predict. It depends on how the costs of these technologies decline and how quickly these become commercially viable.

The report says investments will be redirected to economies that embrace new technologies in manufacturing. Does India lose out on this score?

Investments could currently go two ways. It could go to countries having advantage in wages, coupled with other costs, and good logistics. A part of investments will follow this traditional model for a while. But the thing that is changing is companies’ focus on the need to customise and the time taken to market products. Firms seem to be focusing on these two factors while locating their investments. On this count, India does not lose out, but is likely to benefit because of its large market. When you talk to multinationals, most of them say they will produce in India because it is close to the market and they will be able to respond to customers’ needs and take products to the market as quickly as possible. 

But what will happen when new technologies are widely used in manufacturing?

New technologies like 3D printing democratise production. What it does is to locate as many 3D printing plants across the world. But you need a lot of capabilities to use 3D printing. You need highly skilled engineers and very reliable electricity. You also need some more regulations on intellectual property rights and rules on how do you treat services. So India will lose out if it does not have the supporting requirements in place. India has the advantage of size, which will play in its favour. 

Labour  reforms have not been progressing well in India. How much will it affect manufacturing in the country?

In case India continues to focus on existing ways of producing goods and not on new technologies, it still must bring down overall costs. As wages become a less important factor, other factors become crucial such as labour regulations, electricity supply, ease of doing business and logistics. The urgency for these traditional reform measures is now increasing because the window of time is reducing due to the new technologies. 

How do you see the job market after these new technologies become widespread?

There are many estimates of job losses due to these technologies. Some of the latest estimates say 10-12 per cent of jobs have been lost in advanced economies due to these technologies. These figures are much lower than earlier estimates of 50-60 per cent job losses. In developing countries job losses are even lower as there are currently not much capabilities to use these technologies. The moment you begin to use these technologies, some jobs will be directly lost. But, productivity increases and supporting jobs might offset these losses. Some of the routine jobs may be automated faster, so it again puts the focus on skill upgradation. It is possible that more jobs are created in services than in manufacturing as these technologies are embraced. 

Does it mean the focus on Make in India is misplaced?

I would not say that. Manufacturing was considered good for countries because it created jobs for unskilled workers and allowed productivity to rise over time. It is still true, just that it becomes more challenging than, say, 20 years ago to become a manufacturing powerhouse due to emerging technologies and changing globalisation patterns. So the emphasis on Make in India is not wrong, but one needs to look at the content as to what are you going to do in Make in India. We take this approach of 3Cs — competitiveness, capabilities, connectedness — to highlight policy priorities that will enable developing countries to compete globally in the changing manufacturing landscape. 

Progress in all these three areas will help Make in India become a reality. Though the slogan is Make in India, I think the meaning is the broader manufacturing process, which also includes services such as design, transportation and financial services.