13 swallows...

The new Indian story, increasingly, is the re-birth of Indian manufacturing. International observers who earlier argued that India had missed the manufacturing bus are beginning to revise that view. Support for this welcome revisionism comes from the discovery that the Indian manufacturers who participated in consulting firm Deloitte's Global Benchmark Survey have profit and sales growth that is double the global average. This is testimony to the successful restructuring that India Inc. has achieved over the past decade and a half, and to the buoyancy of the Indian market in the last couple of years. Deloitte mentions that there are 13 Indian firms which have won the coveted Deming quality award (China, it's interesting to note, has none), and points out that there is a difference of about 2.2 percentage points in the operating profits of Deming versus non-Deming companies (which would explain why, as the saying goes, quality is free). In the case of SRF's tyre cord division, which won a Deming award earlier this year, the company's market share rose quite dramatically as quality standards rose and defects plummeted. This is also the reason why Indian-made cars like Maruti's Alto are being exported to Europe, and why Indian auto-component manufacturers boast about being a part of the major global auto brands. (Interestingly, though, Deloitte found there is no cost advantage to be seen in firms that have the much more common ISO quality tag, which scores of Indian firms have taken the trouble to get over the past decade and more.)

This is only a beginning. The Deloitte study applies to a handful of companies, those that felt confident enough to participate in such a global contest""and they are therefore not a representative group. And while it is true that other parameters also show that Indian firms are more profitable than, say, Chinese ones, it is to China that manufacturing investments have been headed. It also has to be kept in mind that India's high import duty protection is one reason why Indian firms have higher profitability, and that cannot be considered a good thing for the consumer or even for the firm, since tariff walls will continue to come down and competition must be faced.

The bottom line, as Deloitte is careful to stress, is that if India wishes to tackle its employment problem and get more people off agriculture (which is the only way to increase productivity and wages there), the solution has to come in part from a stimulated manufacturing sector. But while companies get more efficient and raise productivity, they have to function in the larger Indian business environment""which brings up the country's infrastructure problem, especially transport and power. The building of a modern highway network will certainly help productivity when suppliers can ship components to downstream units up to 1,000 km away within the same production day (instead of 350 km, as is the case now). This will facilitate just-in-time delivery, larger-scale production and more effective supply chain management. That's not enough, though. Chinese firms have a 15-20 per cent advantage over their Indian counterparts when it comes to energy costs. While some firms such as those in the Deming/Deloitte groupings manage to overcome these handicaps through meticulous effort, it is unreasonable to expect the vast majority to achieve such glory""in which case, the manufacturing story can never really expect to be a mainline one unless the infrastructure story too changes.