Subir Roy: Automate, or remain a cottage industry

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The industrial upsurge, accompanied by a strong export effort, indicates that the Indian economy may be undergoing a structural change.

From being globally competitive in knowledge-based areas like software and services and pharmaceuticals, a creeping competitiveness is emerging in mainstream manufacturing.

This is still fairly nascent but visible nevertheless""most evident in auto components, ferrous and non-ferrous metals like iron and steel and aluminium (their costs are rapidly approximating global benchmarks) and is probably round the corner in textiles (fabrics and garments beyond the traditional advantage in yarn).

It is being asked: Can India make it in manufacturing too? The answer is simple: Yes, provided Indian firms change their attitudes, the way they organise themselves and the technology they use.

A few large and not so large firms are already globally competitive. Among the larger ones are Tata Steel, Reliance Industries, Larsen and Toubro, and Bhel; among the not so large ones are Sundaram Fasteners, Sundaram Brake Lining and Bharat Forge. So the rephrased question is: How can this be made more broadbased?

The good news is twofold. Indian firms are changing their attitudes. From being lobbyists for high tariffs, they are busy either exporting or declaring that they can face international competition on home turf, which will get more intense as tariffs in manufacturing come down further, as they are bound to.

Firms are also increasingly adopting internal processes like TPM (total productive maintenance), TQM (total quality management) and Six Sigma, which change entire attitudes to quality control, defects, waste and consequently costs.

These disciplines enable you to get the best out of technology. But what about the technology itself? The second good news is that the best global technology is mostly there today for the asking. While proprietary processes are naturally not available, how you control, monitor and run your processes is.

Industrial automation technology, which is increasingly being considered the sine qua non for achieving global competitiveness in manufacturing, is available today at India's doorsteps.

Earlier this year, nine global players in manufacturing automation with a firm presence in India like ABB, Yokogawa, Siemens, Honeywell, and L&T formed the Automation Industry Association (India) (AIAI) to make Indian industry aware of the need to automate manufacturing processes in order to survive in global competition.

This was not so till a couple of decades ago. Recalls a veteran in the instrumentation business: "In the sixties western companies wouldn't sell us even instrumentation technology and so Instrumentation Ltd turned to the Soviets. They not only gave us the technology but also trained our engineers. This went on till the late seventies. Then came Bailey, which tied up with Keltron and Bells Control. Instrumentation Ltd was able to supply control systems for such mega projects like the Bokaro steel plant and power plants. Bhel went one better; it absorbed the instrumentation and control technology and took it further."

But today the wheel has turned. The automation technology providers need global markets to survive. The developed countries are not putting up that many new manufacturing plants; in fact plants are being relocated in countries like Malaysia, Thailand and now India and developing country expertise has also grown.

US policy makers would not want to have egg on their face once again the way they did when they denied India a Cray supercomputer, only to have India make them itself.

The change in the attitude of Indian business has been more sweeping, particularly since 1991. Earlier, when the domestic Indian market was small and import substitution rather than exports was the main thrust, there were low upfront investment and low yields, resulting in a low-level equilibrium.

Ravi Uppal, president of AIAI, finds that "today many large companies and some medium sized ones realise that good conversion through best in class operating efficiency holds the key to global competitiveness. Entrepreneurs in China and India increasingly want the best in process automation and controls."

"In the initial stages, the adoption of industrial automation is bound to be slow but in this sphere India is about to take off," says Arcot V Rajabahadur, director for South and South East Asia of the ARC Advisory Group, the consultancy working closely with AIAI.

How much of industrial automation has come to India? On a scale of ten to one, if the developed countries score ten, China scores six and India 3""3.5. China simply can't do without manufacturing automation as large exports of manufactures in terms of volume, impossible without automation, form a cornerstone of its economic strategy.

Here it is necessary to set aside an old debate: whether automation takes away jobs or not. The automation industry will naturally say that automation does not replace labour but improves productivity. You need people for creative jobs, not repetitive ones. But the issue is not so simple.

Any business has to constantly weigh between the cost of skills and capital. One company that has done it effectively in India is GE. The fraction horsepower motors that its Faridabad plant produces are globally top-class, exported to China for fitting into refrigerators there.

GE carefully weighed how much of automation to go in for and arrived at a balance so that some of the quality control achievable through automated processes is achieved in India through the shop floor adoption of Six Sigma disciplines.

This issue has been largely decided today through the de facto agreement that firms have to decide for themselves how much of automation they want. In discrete manufacturing (where things are made in pieces) you can produce up to a point without automation.

On the other hand, in continuous processes, a level of automation is mandatory. But there is a realisation that technology has moved too far ahead. You can use manual lathes but a CNC machining centre is light years ahead.

There is indeed a niche for cottage industries but globally competitive large plants have to aspire to the Six Sigma norm""bring down their defects rate to five parts per million.

Not only do you need machines to do it, the machines have to be microprocessor-based, linked with each other as part of a system that monitors what is happening in the plant and able to adjust in real time its operations to both respond to manufacturing parameters and customer requirements.

This linking of manufacturing and the business requirements of the enterprise represent the state of the art in manufacturing automation, like the Reliance outlet being able to feed right into its refinery to say how much of which distillate to produce.