A Dynamic India wants to build its digital infrastructure from the lowest to highest levels. The investment spend needed to start manufacturing is larger in India than in competitive countries. Some problems are common though many are unique to India.
For a Dynamic India to attract foreign direct investment (and the technology that comes with) will require more than access to a huge local market and government subsidy money. Like smartphones and vehicles the global landscape for manufacturing semiconductors, systems, and network equipment is highly competitive. This directly means too much investment needed -- is no investment.
To build globally competitive manufacturing of products in India will require different industrial development models than traditional economists promote. India has seen multiple industries where protectionism, 'favorite companies', and shutting out new ideas has resulted in India being ignored as "too many barriers". A Dynamic India has to find consistent ways past the barriers.
India presents specific constraints to production operations (with examples):
Logistics to bring all raw materials, manufacturing expendables, and components in; and ship out intermediate or finished goods (road/air/ship capacity and access)
Facilities supports (air, water, power, pollution management, sewage, food, housing, security, parts, recycling)
Construction and operations materials (building materials, expendables for building systems, fuels, repair parts, cleaning supplies, maintenance equipment)
Manufacturing consumables in addition to components (gasses, solvents, lubricants, process chemicals, process raw materials for coatings, packaging)
External specialized staff to perform #1-#4
… and more.
An important constraint is the distance from primary and backup sources of supply. India’s time to physically deliver materials, supplies, and manufactured elements not already produced in India creates its own cost disadvantages. Existing factory locations elsewhere in Asia, USA, or EU benefit from high frequency freight, passenger, and transportation supports. Underdeveloped Indian transit, transport, and inefficient import/export facilities can be worked-around while increasing costs.
Increased costs accrue from buffer stocks, work in process inventory, and elapsed process time. High interest, carrying, and investment costs increase the overhead financial costs of productive capacity located in India.
The initial phases of attracting a global manufacturing concern have assumed component supply chain suppliers will follow the larger global concern. A second assumption is for the supply chain facilities to produce more than is needed locally thus setting up added export revenues. Other process steps follow with more than:
Establishing product lines suited to Indian requirements (and regulations)
Proving economic cases where costs for the final components are favorable
Executing on operational capabilities and capacities within plan constraints
Artificially ‘dividing’ production into pieces may help migrate production and have some economic reasons. This ‘dividing’ rarely is as efficient, or in existing plans, for systems-level manufacturing. Subsystem level components – circuit boards, power batteries, connectors, and much more isn’t built locally – and so must be imported at additional costs for logistics, testing and integration, and manufacturing design. "Kitting" for electric vehicles, advanced medical devices, and energy systems will only provide partial relief to the barriers to starting manufacturing.
A Dynamic India over a longer term must invest in the areas where many types of product manufacturing can flourish - even if this conflicts with other political objectives.
This release is part Ekalore's ongoing series on manufacturing in a Dynamic India.
For more analysis and releases see http://www.ekalore.com/india-business
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