India’s second chance at creating manufacturing jobs

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Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.

In 1878, Jamsetji Tata returned to Mumbai after running a successful cotton mill in Nagpur. A year ago, he’d been to the English town of Lancashire to study the cotton industry. Back in Mumbai, inspired by the Swadeshi movement, he set up a cotton mill. The mill was not profitable for long. Against several odds, the entrepreneurial Tatas turned it around and even exported cotton to China.

Jamsetji soon began thinking of ways to help industrialise India, and in turn, set up coal and iron plants. After a visit to America to study the steel industry, he set up a steel plant in Jamshedpur, Jharkhand. He passed the baton to his son Dorabji Tata. And then JRD Tata took over and then Ratan Tata. Over the years, the Tata Group entered several new businesses including software services.

Hundreds of thousands of jobs were created. But somewhere along the line, India missed the manufacturing wave and China became the factory of the world. The middle kingdom, on a reformist path since the late 70s, created millions of factory jobs and lifted hundreds of millions out of poverty in the past decade. India on the other hand, became a country of high skilled software services providers.

With almost a million Indians becoming of employable age every month, the country now needs to create low skilled jobs by the millions as well. As Andy Mukherjee pointed out in his column two months ago, India chose not ‘to produce the things that could have absorbed its working-age population of 1 billion into factory jobs.’

In this context, India may yet have a second chance with electronics manufacturing leading the way. Many good things are happening in the sector. Take, for instance, the potential entry of $113 billion Tata Group into the mobile phone manufacturing business. Reportedly, Reliance Industries is also working with local manufacturers to ramp up production in India. In fact, over the last five years, more than 200 mobile manufacturing units have been set up in India, producing 330 million phones worth over $30 billion, according to the government.

Credit where it is due: we have Xiaomi, a Chinese company, to thank for becoming the first mobile manufacturer to take the government’s Make in India call seriously. Xiaomi’s success in the market along with its efforts to make products in India has encouraged global manufacturers and component makers such as Foxconn to invest more in India. Xiaomi has created over 50,000 jobs. This may not seem like a big number in manufacturing. But it’s a start.

Even though only lower value components are currently made in India, an ecosystem is taking shape. The entry of Indian industrial powerhouses like the Tata Group will likely play a key role in moving the ecosystem towards higher-value components and eventually a diverse set of products.

To be sure, not everything that goes into a mobile phone is made in India. Companies import several components from countries like Taiwan and China and assemble the phones here to be able to claim benefits under the production linked incentive scheme rolled out by the government. The more components that are locally sourced, the more companies benefit.

In the past few months, as tensions between India and China have grown, calls to buy swadeshi products have become louder. This also coincides with global companies wanting to look for alternative destinations to manufacture products and de-risk their business. India, with its large working population, can be that destination. This could be a second chance to revive Indian manufacturing and create jobs.