Making Indian Manufacturing Competitive

By an interesting coincidence, I spent two successive days last week attending events related to manufacturing competitiveness. The first was a panel discussion organised by CII Malwa Zone to coincide with the launch of the Prime Minister of India’s new “Make for India” campaign, and the second was a day-long seminar designed by the Institute for Competitiveness (IfC) that culminated in the award of the Porter Prize.

Get the Basics Right

I am a strong believer in getting the basics right if you want manufacturing to take off. Some of these basics are captured in the World Bank’s “Ease of Doing Business” survey that covers permissions and sanctions required to get going and run an enterprise. This is an index on which we don’t do well (current rank in the 130s).

The basics I am referring to here are availability of land/factory premises, electricity, water, key raw materials and labour, of a minimum quality at a reasonable cost. Michael Porter underlined the importance of these factor conditions in his “diamond” framework for the Competitive Advantage of Nations.

Manufacturing and Logistics

Competitive manufacturing requires timely receipt of inputs, and for the goods produced to reach dealers and customers on time in good condition. While IT-based services can work in islands because the output is beamed to customers through satellite links, manufacturing is a logistics-based activity that depends on end-to-end efficiency. Individual companies are nodes in international production networks and can’t afford to be inefficient in either in-bound or out-bound logistics.

But, according to a recent article I read by Lal and Vishwanath, the freight rates between the core and periphery of an Indian city can be as many as 5 times what they are in the US! Traffic congestion and poor roads make progress within cities slow – a recent report suggested that the average vehicle speed in Bangalore is 9 kmph – leading to high fuel consumption, limited trips per day, and a longer time to recover the capital cost of a transport vehicle.

Politicians and Bureaucrats don’t understand

Politicians and bureaucrats tend to take a sanguine view of the importance of many of these basics. I have heard them say things like “if the power supply is not reliable, why don’t you use a generator?” without understanding that installing your own generator pushes up capital costs, and the cost of generated power (particularly in small scale) is multiple times the cost of power generated and distributed through a well-functioning grid. Many manufacturing units work on thin margins and can’t afford these additional costs.

It was therefore refreshing to hear the Prime Minister agree in his “Make for India” speech that it is the government’s responsibility to provide the core infrastructure required by the manufacturing enterprise. He also observed that companies choose a location not based on the incentives available but based on the basic facilities provided!

Kevin Stolarick of the India Institute for Competitiveness, University of Toronto, put this well when he emphasised during the IfC that we should focus on competitiveness at the local level. He pointed out that national competitiveness depends on local competitiveness, and hence our priority should be to make Delhi, Ahmedabad or Mumbai competitive rather than looking at BRICS.

In his keynote at the Porter Prize event in the IfC, Michael Porter underlined this when he observed that regions are the most important economic unit for competitiveness. He went one step further by pointing out that efficiently functioning clusters provide the “lift-off” factor that takes one region ahead of another.

Indian Companies have the Capabilities

Indian companies have shown that they are capable of optimising efficiency of the factors directly under their control. During his talk at the IfC, Shashi Ruia of the Essar group pointed out that in their world-class refineries in Jamnagar, companies like Reliance and Essar are able to achieve globally efficient throughput. Though the technologies used in these refineries have been sourced from global vendors like Dupont, 90% of the fabrication and detailed engineering has been done by Indians in India, so we clearly have the ability to be competitive.

Inspections and Regulatory Compliance

There are sharply polarised views on inspections and ensuring regulatory compliance. While the Prime Minister set the tone for this in his “Make for India” talk by calling for greater trust in each other and recalling his government’s decision to do away with attestation of document copies by gazetted officers and instead move to self-certification, I found it interesting that one of the industry participants in an IfC panel believed that government inspection is required. His only wish was to reduce the number of regulatory agencies (“why can’t the boiler inspector and the factory inspector be the same?”).

Skills and Training

The issue of skills and training came up in many of the panels of the IfC. The facts are well known – India needs to generate 10-15 million jobs every year if it wants to ensure that the demographic dividend does not turn into a demographic disaster. These jobs can’t be generated by the service sector alone and we need a robust manufacturing sector that can provide such opportunities. But, we currently don’t equip our youth with the right skills to make productive contributions to manufacturing.

Skill development was initiated by the previous government, and has now been upgraded into a separate department by the new government. So far, the skill development mission has succeeded in skilling about 400,000 people a year. Most of this is done in the PPP mode – see my earlier post on a successful initiative launched by PARFI.

But, skilling is not only a supply side issue. Companies need to be willing to recruit skilled manpower at higher cost rather than unskilled labour. Many companies have been unwilling to do so in the past. We need to publicise the example of companies such as Bharat Forge that became globally competitive  by adopting better manufacturing technology (in this case, greater automation) and shifting to a better educated and skilled workforce.

However, effective skilling is not only about training methods, certification and scale. Social issues have also to be addressed if we want our skilling efforts to deliver results. In many parts of the country, absenteeism is a serious issue with workers missing out on work as much as 20% of the time due to poor health, family emergencies and social and religious commitments.

And, it’s not clear that our youth will opt for vocational courses even if they are available and offer a path to a good job. The aspiration for a white collar job is high and has been reinforced by the success of the software and BPO industries. Kevin Stolarick put this well when he called the success of services a curse.

Another issue relevant to the skills and employment debate is the need to get the capital – technology – labour mix right according to the requirement of the industry. Speakers at the IfC pointed out that China seems to have got this right by investing in the most labour-intensive industries (like making toys) at the village level.

Conclusion

Earlier governments did realise the importance of manufacturing but never put their muscle behind it. I am glad that for the first time we have a government that is starting a nationwide campaign to promote manufacturing, and that this campaign is being driven from the top. But, we shouldn’t under-estimate the complexity of this challenge, and we therefore need a detailed blueprint if we are to succeed.

[The views expressed here are the personal views of the author.]

Defying the Odds: Invigorating Accounts of Dalit Entrepreneurship

Since independence, India has had a strong commitment to social justice, particularly towards making sure that the centuries of acute discrimination against those at the bottom of the caste hierarchy come to an end. Besides making untouchability illegal, reservation of seats in institutions of higher education and government jobs has been the cornerstone of the government’s policy in ensuring the social and economic advancement of the scheduled castes and tribes.

With the advent of liberalization, the locus of economic activity has shifted to the private sector. At the same time, concerns about government spending have led to curbs on government employment. Naturally, this has led to questions about the effectiveness of reservation policies in such a scenario. As a result, politicians started asking for reservation in the private sector as well.

There is no reliable data as to the representation of disadvantaged castes in private sector employment. But it is amply clear that dalits are under-represented at the higher levels of Indian industry. They are under-represented in many other vocations as well – see, for example, Siddharth Varadarajan’s article on caste in the media.

Some Important Questions

But, liberalization has provided opportunities as well. Have dalits been able to take advantage of the improved climate for business by starting their own enterprises? Or, does caste come in the way of entrepreneurship too? After all, capital, skills and education are all important ingredients for entrepreneurship, so it is reasonable to expect that restricted access to these ingredients might impede entrepreneurship.

When I heard that there is a new book on dalit entrepreneurship, I was keen to read it in the hope that it would answer some of these questions as well as give us a picture of what is coming in the way of entrepreneurship by people from disadvantaged backgrounds.

The Book

Defying the Odds: The Rise of Dalit Entrepreneurs (Random House India, 2014) by Devesh Kapur, D. Shyam Babu and Chandra Bhan Prasad is a must read for anyone with an interest in the present and future of Indian society. I read it carefully the first time, and went through it a second time to take notes. [The picture below shows Devesh Kapur, one of the authors.]

This book tells the stories of 21 successful dalit entrepreneurs spanning the north, west and south of India. I don’t know why the east is left out, but that’s possibly because the headquarters of the main dalit industry association (DICCI) is in the west, in Pune.

Broad Patterns

Most of these dalit entrepreneurs have come from large families with several siblings. Almost without an exception, their parents recognized the importance of education, but lacking the resources to educate all their children, focused on one or two. These dalit entrepreneurs were largely part of these chosen few.

None of these dalit entrepreneurs have had it easy. Most started from extreme poverty. Loss of one or more parent early in life was common. They have gone through cycles of their own, almost losing all their resources and then starting again. Their success is due to their perseverance, their ability to pick themselves up and go forward again.

[The picture below shows one of the protagonists - Milind Kamble - with one of the authors - Chandra Bhan Prasad.]

Though many of them were born in rural locales, most of them succeeded as entrepreneurs in urban centres. Mumbai, Nagpur, Pune, Jaipur, Noida, Delhi, Lucknow and Hyderabad are some of the places where their enterprises succeeded. This only reinforces BR Ambedkar’s memorable comment: “What is a village but a sink of localism, a den of narrow-mindedness, and communalism?” Cities offer not only the advantages of agglomeration and specialization, but also the benefits of relative anonymity.

Though dalit entrepreneurship may be seen as an alternative to government employment, that’s probably too simplistic. A government job, particularly as an officer, comes through from many of the life stories, as a preferred mode of enhancing one’s status and economic condition. Though there are only three cases reported in this book where someone left a government or public sector job to start an enterprise, reservation plays an indirect role in many of the stories – a brother or spouse has a government job that provides economic stability; reservation in academia provides access to a diploma or degree either to the protagonist or a sibling; or the elusive quest for the civil services acts as a spur for higher educational qualifications even though the quest is ultimately unsuccessful.

No person becomes successful on his own, and none of these 21 entrepreneurs (20 male and one female) were an exception to this. While the unsurprising sources of support are family (father, mother, wife, husband, brother, sister), it was refreshing to read about many higher caste men who supported them with capital, shelter or mentorship. Many of the successful entrepreneurs in this book had non-dalit partners at some time or the other.

The most impactful non-dalit supporter was a school teacher who inspired one of the entrepreneurs, Murali Mohan, when he was young. Not only did he prevent Murali Mohan from dropping out of school by providing accommodation at his home, he persuaded Murali’s father to educate him in Bangalore and insisted that he pursue science. With an MSc in Biotechnology and a diploma from the Central Food Technology Research Institute in Mysore, Murali an exporter of gherkins, is one of the best educated in this group of entrepreneurs.

Though several women feature in this book by either educating their children or supporting their husbands, only one woman dalit entrepreneur is profiled. I guess one should not be surprised that it’s difficult to overcome the twin disabilities of caste and gender.

Sectoral Coverage

The range of industries represented by the entrepreneurs in this book is wide. Dealing in scrap, hospitals, garment exports, oil trading, pest control, repairing oil rigs, polymer trading, cable laying, gherkin exports, logistics, packaged foods and steel rolling are some of the businesses started by these entrepreneurs. Real estate and construction figure in multiple stories, and seem to be an important means of wealth creation.

The overall trend towards outsourcing has opened up opportunities for many of these entrepreneurs, allowing them to be either the one providing the outsourced service, or using outsourcing as a means of lowering the capital required to enter a business. I thought that modern technology industries such as software and BPO should be relatively free of caste biases and was hence surprised to find no story from these industries in this book. Of course, that may just be an artifact of the sample the authors had access to (largely from the DICCI database, it appears).

The formal financial system – banks, other finance companies, private equity, etc. – is conspicuous by its absence from this book. This may be because the book is focused more on the entrepreneurs than their financing strategies, but I find it strange that these financial institutions don’t figure at all. This certainly merits further investigation.

A Policy Takeaway

For me, the biggest policy takeaway from this book is the importance of education. If only the parents of the entrepreneurs profiled here could have educated more of their children, we might see more entrepreneurs. This book demonstrates that entrepreneurial drive has nothing to do with caste, and we are missing out on creating many more successful entrepreneurs if we don’t provide an easily accessible basic education to all. 

Profiling Gram Oorja and PARFI: Two Exciting Social Enterprises

In recent years, it has been heartening to see a good number of well-qualified and “successful” men and women from “middle class India” take on the challenge of national development. The social enterprise bug has bitten these professionals and they have taken on, in their own way, some of the country’s biggest challenges.

Innovation, scale and sustainability are their keywords. Their arenas of work encompass education, health, renewable energy and livelihoods.

This phenomenon is not entirely new, of course. One of the most well-known such social enterprises, Aravind Eyecare, was founded about 30 years ago. But the achievements of Aravind founder Dr. G. Venkataswamy, and, more recently, people like Dr. Devi Shetty of Narayana Hrudayala, Harish Hande of Selco and Madan Padaki of Head Held High have triggered a widespread interest in taking on these tough challenges.

In the last month, I had occasion to meet two passionate individuals who have taken the plunge into making a difference through social enterprise. Both their experiences were insightful, so I thought I could share these here.

Gram Oorja

I haven’t figured out why, but Pune seems to be a hub of interesting work on energy. I wrote earlier about the Pune Power Model, an industry initiative to avoid load-shedding that emanated from this city. Prayaas, one of India’s leading think tanks focused on energy is also based there. Gram Oorja (“Rural Energy”) is the latest in this series of distinguished energy initiatives from this city.

As I write this post, there is much excitement in the media about the launch of iPhone6. But, the world of exciting new electronic gadgets is far removed from the energy challenges of India. About a quarter of India lacks access to electricity. The actual number may be much more – I remember my friend Vidyanand Jha telling me that many villages in Bihar were electrified years ago, but there is no supply through the grid today as they have been disconnected due to prolonged failure of their residents to clear their dues.

While the State is unable to find sustainable ways of supplying power to rural consumers, decentralized solutions have emerged. Some of these are straightforward entrepreneurial initiatives – someone sets up a genset and supplies power to homes nearby. Others have an ingredient of alternate energy solutions – Husk Power Systems has a model of small power systems that run on biomass and has franchised these in some parts of Bihar.

Gram Oorja has demonstrated that a solar-based, decentralized model can also work, but under certain conditions. Their current focus is on rural communities who do not have access to grid power because they live in remote places that are not connected to the grid because laying transmission lines would be too expensive. For these villages, a solution like solar energy is ideal because once it is set up, it requires little maintenance.

Anshuman Lath, an IIM Bangalore alumnus, is one of the founders of Gram Oorja. During a recent talk at IIM Indore, he shared with us the interesting social model under which one such solar system works in Darewadi.

The system is managed by the villagers themselves. Village youth have been trained to take care of essential functions. The village council has to take tough decisions like disconnecting those who fail to pay. So far, the council has shown its willingness to stand up to even influential local users. Finally, basic economics forced one such local user to pay his dues and return  to the local grid – he had a marriage in his family and accessing the local power microgrid for the function was much cheaper than hiring a generator for the event from 30-40 km away!

Apparently, before the advent of this solar system, villagers used to send their mobile phones with anyone who was visiting the nearest town (a whole day’s journey, including a long walk from the village to the nearest bus stop) to get them charged. A shop in town provided this service for Rs. 5 per mobile (I hope I got the number right) which if you look at the power involved was 100 times the cost of accessing the same amount of power at home!

Anshuman explained that solar power is still too expensive to recover the capital cost from users. The Gram Oorja project I described above needs to recover only the cost of the local distribution infrastructure and running costs, as the solar panels were donated by Bosch as part of a demonstration project.

Pan IIT Alumni Reach for India (PARFI)

PARFI is an initiative that has grown out of the Pan IIT Alumni Association. I have never attended a Pan IIT meet, but Pan IIT conferences have attracted excellent speakers at the different venues where they have been held.

Somehow, Pan IIT itself always came across to me as an elitist, self-congratulatory movement, an effort by IITians to show their clout. Not surprisingly, the association itself has been at the centre of some controversy with accusations that one group of alumni has tried to corner the leadership ignoring democratic processes.

So, I was pleasantly surprised when I recently had occasion to hear about PARFI. The origin of this organization is a plea from ex-president Abdul Kalam to Pan IIT to do something concrete for the country.

PARFI is focused on creating livelihoods. Its model is simple (always a good sign, indicates it’s likely to be scalable!). They set up rural gurukuls across India to train youth for industrial jobs (drivers, welding, construction, etc.). Each gurukul has an anchor industrial client who promises to place the students in its enterprise, so placement is not a problem. The same enterprise also provides instructors for the gurukul.

The students are drop-outs from poor families, sourced through NGO partners. They are trained in a residential gurukul mode under the eye of retired servicemen. This is essential to inculcate discipline and soft skills in the trainees. PARFI’s programme underlines the fact that skilling and livelihoods is much more than just training and certification. It’s also about socialization into regular work habits and attitude. Interestingly, PARFI has found that the work ethic varies quite a bit across regions, with young men from tribal origin in Jharkhand being some of the most diligent.

The training is short, and typically lasts about 30-45 days. Students get loans through a microfinance mechanism and the loans are recovered through EMis after the student starts working.

Avinash Jupudi, an IITB and IIMC alum who manages clients and partners for PARFI, visited us at IIM Indore some time ago. It was great to hear about PARFI from him.   

Conclusion

I was really enthused to meet both Anshuman and Avinash. They are both smart, committed, and above all, very grounded. The future of social entrepreneurship will be bright if we can have more such youngsters entering the fray.

The Role of Academic Institutions in Supporting Thought Leadership

India can be the home of thought leaders across disciplines. We have some impressive role models – Professor J. Ramachandran from IIM Bangalore whom I wrote about two weeks ago, and people like Anil Gupta, Ramachandra Guha, Raghunath Mashelkar, A. Paulraj and Manindra Agarwal whom I wrote about last week.

In my last post, I outlined a possible agenda for the individual scholar who aspires to have impact. The five elements of this agenda are: (1) View yourself as more than a teacher; (2) Have a clear focus and strategic intent; (3) benchmark against the best; (4) strive for continuous improvement; and (5) manage your time judiciously.

But is following this agenda with individual determination and perseverance enough? Most of us work in academic institutions. These institutions have their own missions, and set their own priorities and rules of the game. Unfortunately, many institutions in India don’t provide the environment needed to support thought leadership. Excessive teaching loads, absence of funding for research, restrictive leave and travel rules, the absence of a climate to discuss ideas, and control-oriented leadership are some of the inadequacies of the Indian system.

But, let’s assume that there are some institutions today that aspire to do better, that want to provide an environment conducive for scholarship. What should be their agenda, and how should they be managed?

Building Supportive Institutions

There are some core foundational elements which any organization needs to provide for its members to do well. These include treating individuals with dignity, transparency (or, at the minimum, consistency) in organizational processes and decision-making, and basic hygiene factors like good physical working conditions and regular and fair compensation. From what I hear from friends who work in institutions across the length and breadth of India, these basics are themselves scarce.

But the good news is that we have a new generation of academic leaders in both the public and private sectors who have realized the potential of our country and want to change things. Here is what I think they should focus on, once they have the basics listed above in place.

Design for a Balanced Workload

People need time and space to come up with original ideas. Research is not something that can be fitted into the gaps between classes. It needs fairly uncluttered time. So, clearly, careful design of faculty workload is critical to create the right environment for thought leadership.

What’s the ideal workload? Most good US universities require faculty to teach 4 courses a year. Somewhere in the region of 120-150 hours of teaching would seem to be ideal. Equally important is the distribution of that teaching load. Many productive faculty find it helpful to do all their teaching over two semesters or terms so that they have the remaining time to focus on their research and writing.

Institutions need to hire enough faculty to allow for a workload that balances teaching and research.

Faculty who are early in their career face enough challenges in trying to establish themselves as scholars. Institutions certainly need to avoid burdening them with administrative responsibilities at this stage.

Push and Pull for Excellence

Indian institutions have traditionally been weak on motivating high levels of performance. Thanks to accreditation requirements and stakeholder pressure, this is beginning to change. Setting high expectations that require faculty to stretch should help to move towards excellence.

However, some cautions are in order. During a recent discussion with some other IIM directors, it quickly became clear that overly-elaborate points systems that measure (and often monetize) everything may be counter-productive.

Another caution is to stretch gradually and not to the extent that people feel tempted or compelled to resort to inappropriate means to achieve expectations. India already has the dubious distinction of being one of the major centres of academic fraud, and we don’t want to make this reputation worse than it already is!

Personally, I would favour an individual goal-setting process where each faculty has an individual plan for what s/he seeks to achieve. Each year’s plan should be an improvement on the previous year’s plan. The plan should necessarily have a high content of research and writing, though the exact mix could vary from one individual to another.

While institutional expectations and the goal-setting process provide the pull for excellence, given where we are today a strong push is required as well. That’s where faculty development has a significant role to play.

Make Faculty Development a Strategic Priority

Many of our leading institutions have what is called a “Faculty Development & Evaluation Committee” (FDEC). Intriguingly, these committees often focus only on evaluation and the “D” is deafeningly silent.

Indian higher education is on an expansion trajectory. Given the limited mobility from industry, most of the faculty positions will be filled by young men and women straight from doctoral programmes. While a small percentage of these PhDs will come from foreign universities, the bulk will come from Indian institutions.

These young PhDs from India are bright and capable. But if they are to become high-performing scholars, they will need to be mentored and supported. In addition to careful goal-setting, they will benefit from frequent and constructive developmental reviews and feedback. And, institutions need to create a portfolio of initiatives to support their development.

We are trying to put together such a portfolio at IIM Indore. Its early days, but we have some of the ingredients in place. See the chart below….

But, faculty development is not only about money and incentives. It’s about mentorship and intellectual support. Helping young faculty find the right mentors is one of my major challenges today.

It often surprises me how little time heads of institutions spend on speaking to their faculty one-on-one in a developmental frame. Considering that most people who come to leading academic institutions as faculty do so because of some internal trigger or motivation, I would have thought that all the leadership needs to do is find out how it can help each individual attain her potential. But, in my 18 years as a faculty member, I can’t recall any occasion when a director asked me that question or had a meaningful discussion with me about my career and aspirations.

Invest in a Strong Doctoral Programme

This is one of the best investments you can make if you want to build scholarship in your school. Not only do doctoral students keep abreast of the latest developments in the field and current methodologies, they provide an ongoing source of ideas and discussion triggers. They also provide excellent collaborators for faculty. But, it’s amazing how many institutions in India see doctoral programmes as a burden rather than a strong catalyst for scholarship.

Institutional Platforms for Thought Leadership

Forming Special interest groups (SIGs) around inter-disciplinary themes can be a useful way of getting people to work together in potentially impactful areas. This is an initiative we have just started at IIM Indore, and we’ll hopefully have more to report in times ahead.

How do you choose the themes? Look for areas which are relevant to the mission of your institution, that are relatively under-studied, and that are of importance to some important stakeholder(s). Beyond that, having a critical mass of interested individuals would help drive the SIGs forward.

Other important platforms are powerful databases and specially-designed or collected datasets.

Conclusion

India has a good set of competent young faculty in its leading institutions. I hope the leaders of at least some of these institutions will create the conditions needed to help these faculty flower and bloom as thought leaders.

[The views expressed here are the personal views of the author.]