bgs project

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Table of Contents Acknowledgement...................................................... 1 INTRODUCTION......................................................... 4 MANUFACTURING INDUSTRY IN INDIA.....................................4 Current Scenario....................................................5 Performance & Problems..............................................6 Future of Indian manufacturing......................................6 REFORMING INDIA’S ARCHAIC LABOUR LAWS................................7 Need for Labour Law Reforms........................................24 Recommendations....................................................25 GREEN TECHNOLOGY..................................................... 7 Current Scenario:...................................................9 Challenges:.........................................................9 Relevance:..........................................................9 Recommendations:...................................................10 DEVELOPMENT OF HUMAN CAPITAL........................................12 Forecasting employment needs:......................................12 National Skill Development Mission:................................12 Development of Labor Intensive industries:.........................13 Creating Skill base:...............................................13 INFRASTRUCTURE...................................................... 12 Relevance..........................................................14 Present situations.................................................14 •G-Generation •T-Transmission •D-Distribution Conclusion & Recommendations....................................................16 TECHNOLOGY.......................................................... 19 Current scenario...................................................19 Challenges.........................................................20

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A report on the manufacturing industry in India

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BGS Group ProjectEnhancing Indias Manufacturing CompetitivenessTable of ContentsAcknowledgement1INTRODUCTION4MANUFACTURING INDUSTRY IN INDIA4Current Scenario5Performance & Problems6Future of Indian manufacturing6REFORMING INDIAS ARCHAIC LABOUR LAWS7Need for Labour Law Reforms24Recommendations25GREEN TECHNOLOGY7Current Scenario:9Challenges:9Relevance:9Recommendations:10DEVELOPMENT OF HUMAN CAPITAL12Forecasting employment needs:12National Skill Development Mission:12Development of Labor Intensive industries:13Creating Skill base:13INFRASTRUCTURE12Relevance14Present situations14G-Generation T-Transmission D-Distribution Conclusion & Recommendations16TECHNOLOGY19Current scenario19Challenges20Recommendations20CREDIT AVAILABILITY16Current Scenario17Recommendations17ISSUE OF SMEs27Relevance28Current Scenario28Conclusions & Recommendations29ENABLING PUBLIC SECTOR ENTERPRISES TO BE COMPETITIVEError! Bookmark not defined.Current ScenarioError! Bookmark not defined.RecommendationsError! Bookmark not defined.CONCLUSION32

INTRODUCTIONManufacturing can be defined as physical or chemical transformation of materials into products on a large scale using machinery or capital equipment. The products may be finished consumption good, semi-finished goods or capital goods. 1Manufacturing industry is divided into some well recognized categories such as chemical, food and beverages, electronics, engineering, energy, industrial design, metal-working, textiles and transportation among others.

MANUFACTURING INDUSTRY IN INDIAIndia has a rich history in the field of manufacturing. Manufacturing activities in India were present even at the time of the Harappan civilization, 5000-6000 years back. Weights and measures and copper smelting tools were some of the products found from that time.2 Historically, India was a leader in textile exports. There was a break from this diverse history at the time of the Industrial revolution. India was not a participant. It lagged behind. At the time of independence, India was primarily an agrarian economy. The second plan and the implementation of the Nehru-Mahalanobis strategy brought with it an emphasis on capital intensive industrialization headed by the public sector. A drive towards setting up of heavy industries was accompanied by export pessimism and an inward-looking strategy. These factors did not lead to a big push in the direction of economic growth but it helped India build a strong base for its industry. The economic reforms made a significant change. The manufacturing industry growth picked up. Liberalization and increased competitiveness led to consciousness of quality and efficiency. The mindset changed from one predominantly bureaucratic to one focused on cost effectiveness and customer satisfaction. Certain sectors such as the automobile sector saw drastic changes. Moreover, the IT boom of the 90s was also a major milestone. India became prominent on the global map. However, growth was restricted to a few select sectors and most manufacturing activities were at the bottom of the heap. Growth in the manufacturing sector in India has gone through a series of ups and downs since independence as shown in the table below.

Time PeriodAverage Annual Growth RatesDecadal Trend Growth RatesTrend Growth Rate

1952-545.37.2

5.7

1955-597.4

1960-649.35.7

1965-693.9

1970-742.84.4

1975-795.3

1980-844.87.6

1985-898.9

1990-945.17.1

1995-997.9

2000-015.3

2001-022.9

Profile of growth rates of Indian manufacturing sectorCurrent Scenario Growth picked up in the middle of this decade, took a hit due to the economic crisis in India and the world and is now in recovery mode. A survey by CII ASCON revealed that sectors such as fertilizers, pig iron, steel and moped recovered showing a moderate growth of up to 10% in production with others like vanaspati moving from moderate to high growth ranging from 10% to 20% in the fourth quarter of FY08. Sectors such as industrial gases, power transformers and electric two-wheelers have shown excellent production growth of over 20%. Sectors like cement, sponge iron, auto components, and auto industry including cars, two-wheelers and consumer durables continue to see moderate growth of up to 10%.[endnoteRef:1] [1: Referenceshttp://www.ibef.org/economy/manufacturing.aspx, dated- September 5 2009http://www.automationworld.com/webonly-3807, dated- September 1 2009http://www.allbusiness.com/labor-employment/labor-sector-performance/6257213-1.html, dated- September 3 2009http://www.allbusiness.com/manufacturing/computer-electronic-product-manufacturing/1182849-1.html, dated- September 3 2009http://www.indianexpress.com/news/pm-unveils-manpower-training-mission/210653/, dated- September 3 2009http://www.livemint.com/2008/02/04000156/Budget-821709-Rs31000-cr.html, dated- September 3 2009http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/82932.pdf, dated- September 3 2009http://www.deccanchronicle.com/business/poor-credit-availability-affects-msme-growth-161http://www.indianmba.com/Faculty_Column/FC819/fc819.html, dated- September 3 2009http://129.3.20.41/eps/mac/papers/0411/0411002.pdf, dated- September 2 2009http://www.fibre2fashion.com/news/images/newspdf/ficci_suggests_growth_package_for_manufacturing_sector_50602_38022.pdf?PDFPTOKEN=96cb530d9cf0fdee0df0ce63a56387162828be20|1252048516#PDFP, dated- September 3 2009http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?News_id=50602http://www.indiaonestop.com/FDI/FDI2.htm- dated- September 3 2009Infrastructure: "http://www.ibef.org/economy/infrastructure.aspx" dated- Sept 1 2009Official Govt. portal: "http://infrastructure.gov.in' dated- September 3 2009'We need more infrastructure spending: PC' Financial Express dated-Sept 7 2006A study on SMEs in Maharashtra: "http://www.dsir.gov.in/reports/mitcon/chap2.pdf" dated- September 4 2009"http://www.managementparadise.com/forums/premium-project-reports/4669-small-medium-enterprise-india-overcoming-policy-constraints-achieving-rap.html" dated- September 3 2009"Micro, Small and Medium Enterprises in India: Unfair Fare" By Keshab Das "Competitiveness of India's Manufacturing Sector: An Assessment of Related Issues" By L. Lakshmanan, S. Chinngaihlian and Raj Rajesh]

Some of the top manufacturing companies of India include Larsen and Toubro, Hindustan Lever Network, Bombay Dyeing, Aditya Birla Group, Haldia Petrochemicals, Ranbaxy, Apollo Tyres, Asian Paints and Jindal Steel among others.[endnoteRef:2] [2: ]

Performance & ProblemsThe performance of the Indian manufacturing industry has picked up in recent times. However, much needs to be done. Manufacturing contributes approximately 16% to the countrys GDP, less than half that of China.[endnoteRef:3] Studies indicate that productivity of the Indian manufacturing sector is one-fifth of that in USA and half of those in South Korea and Taiwan.[endnoteRef:4] There is a lack of multinational presence of Indias manufacturing activities to date. The share of manufacturing in exports further fell from81 percent in 1999-2000 to 63 percent in 2008-09 according to a survey by ASSOCHAM.[endnoteRef:5] [3: ] [4: ] [5: ]

Several problems constrain growth. The foremost are infrastructural bottlenecks such as lack of high quality ports and roads, inadequate skilled manpower, credit availability, restrictive labor laws, nascent research and development environment, lack of coherent quality standards among others. These issues need to be resolved and long term strategies adopted to ensure sustainable growth in manufacturing, creation of wealth and opening up of more employment opportunities. Future of Indian manufacturingThe rapid growth of the Indian economy is likely to make India the fifth largest consumer market in the world by 2025 from twelfth in 2005, according to a study by McKinsey Global Institute. Aggregate Indian consumer spending is likewise estimated to more than quadruple to approximately US$ 1.5 trillion by 2025, on the back of a ten-fold increase in middle class population and a three-fold jump in household income.[endnoteRef:6] [6: ]

To make sure India makes a mark in the global markets and emerges as the next manufacturing giant certain ideas and policy measures should be considered. They have been described in the next few sections.

Part- IGREEN TECHNOLOGYWay to go forward

GREEN TECHNOLOGY- Sustainable Development

Environmental technology or green technology is the application of the environmental science to conserve the natural environment and resources, and to curb the negative impacts of human involvement. Sustainable development is the core of environmental technologies. Economic sustainability means that the solutions need to be socially equitable and economically viable apart from being environmentally sound.

Sustainable Development

The three main facets of green technologies can be distinguished as [1]:

1. Targets, which are the basic focus areas. These are products, processes, marketing methods, organizations, and institutions. Green technology in products and processes tends to rely on technological development, while in marketing, organizations and institutions it relies more on non-technological changes.2. Mechanisms, which are how changes in the target areas are made. They can involve modification of practices, re-design of practices, alternatives to existing practices, or the creation of new practices.3. Impacts, which are how this affects environmental conditions

Current Scenario:At present, green technology has penetrated to a great extent into the developing nations and the market is growing at a nearly exponential rate. But the concept needs to be picked up in the developing nations [2]. According to the survey reports by PWC [3], 60 percent of the manufacturers are developing green products and services.

Current practices by companies include: Closed loop processes Recycling Green buildings using more sunlight and smart lightening systems Environmental remediation Removing pollutants from the effluents and products Renewable sources of energy

Challenges: Information: There is not much information available about the implementations and benefits of green technology Expensive: Most of the green technologies require large investments which act as a barrier to entry

Relevance:Green technology helps in conserving the environment. Also, it has the following benefits: Reduction in cost of the production process Create a positive image among customers which increases sales Product differentiation through use of recyclable material or closed loop production processes First mover advantage

Recommendations:

1. Creation of a framework that brings together domestic firms, venture capitalists, and technology holders in a forum to reduce information asymmetries and transaction costsThis framework would help in easy exchange of information among the major stake holders and reduce the entry costs to the use of green technologies.

2. Legislation to use renewable sources of energy: If the government enforces the use of green technologies (for example 15 kv of solar power per hectare of the company), it increases the use as well sale of the energy efficient equipment. This is being followed in Germany [5].

3. Benchmarking and setting standards- The work done by companies in the field of environment sustainability does not get recognized to a great extent because it cannot be quantified. If benchmarking of efficiency and emissions is done, it gives more visibility to companies as well as helps to set standards for other companies in the industry.

4. Capital support to companies for using green technologies: Generally, in the beginning, the cost of investment is very high which deters the companies from reforming their production processes. Thus, capital support through encouraging venture capitalists or giving incentives can encourage more organizations to rework their production processes and improve efficiency.

Part- IIImproving Factors of Production

Human Capital Development InfrastructureCredit AvailabilityTechnology

DEVELOPMENT OF HUMAN CAPITALSkilled and cost-effective manpower is an essential component of success in the manufacturing industry. Shortage of the same can prevent India from gaining a competitive edge in global markets. Measures to build a strong pool of workers equipped to meet the diverse needs of the upcoming sectors and new technologies in manufacturing must be taken. Development of human capital is a dynamic process and can have a gestation period of up to a generation.Forecasting employment needs:The first step must be to forecast the road that manufacturing will take. Which sectors would it expand into and which technologies would be important in the future. The question to ask would be how India can leverage its strengths and resources to achieve a competitive edge in these areas. Moreover, what weaknesses need to be dealt with and what kind of skills will be required. An estimate of the number of jobs to be created and the skill requirement for each job profile can help direct the course of a human development strategy. Some indicators of the future of manufacturing needs are available. The manufacturing sector is estimated to have a US$ 180-billion investment opportunity over the next five years, according to the Investment Commission of India.1 Meanwhile, the Indian manufacturing sector is estimated to command a market capitalization of $520 billion by 2014-15, as against $272 billion as of Sept. 30, 2007, said a study on the sector by the Confederation of Indian Industry and the Boston Consulting Group.3 Outsourcing of manufacturing jobs to India would result in the creation of 30 million jobs by 2015.4 Sectors that will experience tremendous growth include machine tools, automobile components, pharmaceuticals and the textile sector, which alone is expected to create between nine and 10 million new jobs over the next four years.5National Skill Development Mission:The Planning Commission set up a National Skill Development Mission (NSDM) in 2007 headed by the Prime Minister Dr. Manmohan Singh. The NSDM proposes to consist of four sub-missions industrial training, polytechnics, vocationalisation of secondary education, and another for the unorganized sector each catering to different streams of workforce entrants to train more than 10 million people every year.3 The government has projected that 70 million jobs will be created during the 11th Plan (2007-12) and proposes to spend Rs31, 000 crore during that period.6To effectively channelize resources, the future of the manufacturing industry must be looked into. The right kind of training must be imparted to match employment needs of the industry and the availability of skilled workforce. This would require extensive market research, study of trends in the manufacturing sector and consultation with industry experts. Development of Labor Intensive industries:Manufacturing industry in India currently employs only 11% of the workforce.7 The world over, manufacturing forms a major employer in most economies. In India however, it has lagged behind. In fact the share of manufacturing in India has been more or less stagnant or has even decreased in the last few decades. India being a labor rich economy must look to the manufacturing sector for its employment needs especially in light of the jobless growth in the growth driver services sector. Moreover, as the displaced workers from agriculture and related activities move to urban areas, the need for creating employment would only increase. Creating Skill base:

Industrial training programs, introduction of vocational training and other courses at Polytechnics and development of a large number of educational and training institutions should be prioritized. Moreover, to further develop a competitive edge in manufacture of cheap consumer goods such as alarm clocks, decorative items, etc currently the niche of Chinese manufacturing would require the availability of a large amount of cheap labor with basic school education and some level of skills. A push towards expanding literacy at all levels along with basic vocational training would be of immense help. Public-private initiatives in this direction would help speed up the process.INFRASTRUCTUREInfrastructure is most prominent area of concern to promote rapid economic development. Proper infrastructure will be needed to provide the platform for faster, consistent growth and for India to become a major world economic power. Development of world class infrastructure is must to enhance the competitiveness of the manufacturing sector in India. Most important sectors of infrastructure which need to be concentrated to improve manufacturing competitiveness are ports, roadways, railways and power.

RelevanceIndia is planning to achieve a growth rate of 8-9 % over next few years. Such a high growth rate is only possible if enough investment in infrastructure is undertaken. Growth in last few years has already made visible the lack of infrastructure in India. The effects of undeveloped infrastructure are evident in India's congested highways, airports and ports. In times of recession improvement in infrastructural framework gains all the more importance. Proper infrastructural facilities are also important in todays world of increasing globalization as the foreign investment in directly linked to such facilities existing in a country. Importance of development of infrastructure is evident from emphasis that Mr. P. Chidambaram gave when he said "To sustain 9 per cent GDP growth, investment in infrastructure should be increased from 4.6 per cent to around 8 percent of GDP over the Eleventh Plan period (2007/12)"

Present situationsThe government has realized importance of infrastructure in development of economy and several steps have been undertaken in the direction. A brief overview of present conditions and governmental initiatives in various infrastructural sectors important for the manufacturing units in India has been given below: Ports: India has 12 major ports and 187 minor ports along 7,517 km long Indian coastline Indian ports handle cargo of more than 519 million tonnes Cargo handled by Major Ports has increased by 9.5% p.a. over last 3 years. Government of India dominated maritime activity in the past. The National Maritime Development Programme is expected to bring a total investment of over Rs.50, 000 crore in the port infrastructure.Highways: For a country of India's size, an efficient road network is necessary both for national integration as well as for socio-economic development. The National Highways (NH), with a total length of 66,590 km, serves as the arterial network across the country. India has an extensive road network of 3.3 million Kms - the second largest in the world. Roads carry about 61% of the freight and 85% of the passenger traffic. According to the Planning Commission, investment in the roads sector during the Eleventh Plan is projected at US$ 93.11 billion.Railways: The Indian Railways took up the most ambitious ever annual plan for fiscal 2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent increase over the previous year. The rapid rise in international trade and domestic cargo has placed a great strain on some rail routes. Government has, therefore, decided to build dedicated freight corridors in high-density routes.Power: Majority of Generation, Transmission and Distribution capacities are with either public sector companies or with State Electricity Boards (SEBs). Private sector participation is increasing especially in Generation and Distribution.

Major players and presence in value chainCapacityGTD

Public Sector

NTPC23,749

National Hydro Electric Power Corporation3,615

Nuclear Power Corporation2,770

Domestic Private Sector

Tata Power2,203

RPG Group CESC1,005

Reliance Energy885

International Private Sector

China Light and Power (CLP)655

Marubeni Corporation330

G-Generation T-Transmission D-Distribution

Conclusion & RecommendationsAlthough a lot of steps have been undertaken by the government still their proper and timely implementation needs to be ensured. At the moment, differentiation amongst different elements of infrastructure and prioritizing of those projects that have the most far reaching fall out for the economy need to be done. A proper connectivity of ports to various industrial regions needs to be developed. This is possible by development of proper rail and road infrastructure. The rate of road development in recent years has to be maintained. Implementation of railway projects especially in areas involving large amount of goods movement should be taken up. Power costs need to be reduced from the current high of 8-10 cents/unit by a combination of lower AT & C losses, increased generation efficiencies and added low cost generating capacity. The SEB units are highly inefficient and hence they need to be streamlined in their operations trough a national monitoring agency. All these areas would require further liberalization under a strong, dependable, but enlightened regulatory regime. Private capital is the key here together with world-class standards of governance. Public private partnerships should be encouraged as a policy for infrastructure development. Moreover government should consider developing industrial hubs by providing all the necessary infrastructural support based on availability of resources. Development of SEZs is a step in right direction and such hubs need to be encouraged. However, if building a world-class infrastructure in India is truly to be a priority of the first order, there are two obvious conditions that must be met. One is overriding clarity of purpose. The other is courageous political leadership dedicated to accomplishing the mission. These two preconditions with efficient implementation is the key to development of world class infrastructure that would support the manufacturing sector in India.

CREDIT AVAILABILITYThe unavailability of credit facilities forces the small and medium scale industries to finance investment with internal finance, which is very difficult in case of SMEs. And hence they are forced to delay the investment till they have built up the required capital. As a result of poor credit availability, thousands of small and medium scale enterprises have shut down. The credit to SMEs declined from 26 per cent to 17 per cent from March 1997 to March 2007.For sustained economic growth and development of manufacturing competencies government policies are required which allow more participation and attract more and more foreign direct investments in India.

Current ScenarioToday, India provides highest returns on FDI than any other country in the world. India is ready for further growth in manufacturing, infrastructure, automobiles, auto components, food processing sectors, real estate development etc.High interest rate is one of the main reasons which has restricted the growth of manufacturing sectors and has not only led to increase in the cost of production for manufacturers but also a decline in the demands for their products. The higher interest rates have made the manufacturing firms to reduce their profit margins. A large number of manufacturing sectors, including both capital and labour intensive, have been adversely affected because of the increase in interest rates.

Recommendations1. Reduction in Interest Rates A large number of manufacturing sectors have been badly hit by the increase in interest rates. As a result it affected not only the demand for manufacturing items but also the expansion plans of many manufacturers. Sectors like automobiles have been badly hit, as two-wheeler sales has witnessed continuous declining trend in the last few months. 2. Maintain custom duty Custom duty on manufactured items should not be reduced so as to limit the imports of manufactured items especially from China which constituted approx. 10 % of our industrial goods GDP.

Sector-wise FDI Inflows ( From April 2000 to January 2009)

SECTOR AMOUNT OF FDI INFLOWSPERCENT OF TOTAL FDI INFLOWS (In terms of Rs)

In Rs MillionIn US$ Million

Services Sector787420.8118118.4022.39

Computer Software & hardware391109.748876.4311.12

Telecommunications275441.386215.557.83

Construction Activities213595.125029.016.07

Automobile146799.413310.234.17

Housing & Real estate217936.025118.856.20

Power137089.373129.663.90

Chemicals (Other than Fertilizers)87008.071964.062.47

Metallurgical industries109563.202612.853.11

Electrical Equipments57379.631324.921.63

Cement & Gypsum Products70781.191621.032.01

Petroleum & Natural Gas94417.172244.172.68

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India

3. Focus on selected manufacturing technologies & products Promote technology -based FDI partnerships between foreign and local enterprises especially in medium scale SMEs.

TECHNOLOGYSustained increase in the competitiveness is a representative of the economic strength and stability of the economy. Technology has a great impact on the economic growth and development of the country, which is a result of interaction between national and international bodies including governments, businesses, and academia. There is a need for generation, application, transfer and diffusion of technology to the developing countries for improving competitiveness of their manufacturing sectors. Technology also results in value addition in manufacturing. In 1990, India and China had almost the same GDP per capita. Since then China has experienced higher growth rates due to its growing manufacturing sector and as a result, today Chinas GDP per capita is more than 95% of Indias GDP per capita. Hence manufacturing sector plays an important role in economic growth and India needs to strengthen it in order to achieve higher growth rates.Indias manufacturing sectors growth depends on the investment policies and the economic reforms. However for the long term competitiveness of Indian manufacturing sector, improvement in production efficiency is required which in turn depends on the ability to develop, import and adapt new technologies apart from other factors. India through its continuous efforts has made significant developments in technology over the years and now has strong trained manpower and an innovative knowledge base.

Current scenarioA measure of competitiveness is the ability of manufacturers to respond quickly and effectively to the changing demands of the market.

SectorTechnology Capability

Food ProcessingBasic

Metal FormingBasic

SteelIntermediate

Machine ToolsBasic

PharmaceuticalsIntermediate

ChemicalBasic

ElectronicsBasic

AutomotiveIntermediate

ITAdvanced

TelecommunicationsAdvanced

PetrochemicalsIntermediate

Technological capabilities of Indian manufacturing sector can be classified as:1. Basic Level - ability to operate and maintain a new production plant based on imported technology2. Intermediate Level - ability to duplicate and adapt the design for an imported plant and technique elsewhere in the country3. Advanced Level - capability to undertake new designs and to develop new production systems and components.ChallengesThe main reason for Indian manufacturing sector not being competitive enough are:a) Significant presence of small-scale unregistered manufacturing units even in capital-intensive segments. b) Poor logistics & transport infrastructure across all sectorsc) High cost of Power 50% more expensive than in Chinad) High cost of capital - 10-12 % against international average of 6-8 %Recommendations1) Research AgenciesIndia has a network of scientific and academic institutions engaged in wide spectrum of research with 250 research laboratories and institutions; 1500 private industries with R&D centres and 264 universities.Favourable investment environment in terms of better infrastructure support, institutional finance, fiscal policies concentrating on growth of manufacturing sector. Manufacturing firms should concentrate on internal changes aimed at improving efficiency and reducing costs through: Upgrading manufacturing technology levels Enhanced emphasis on attracting and retaining talent Enhancing quality focus and customer orientation

2) Developing R&DThere is a need to develop our domestic R&D expertise and for that government support is required. The Government of India allocates a budget for scientific and technological (S&T) activity under an R&D fund. The 2008-09 budget supports a 20.5% increase in funding for the Ministry of Science and Technology, Rs 3630.00 crores Private sector has failed to make significant contribution to Indias R&D activities which are primarily driven by government. There is a poor industry-academia interaction which resulted in low orientation of India research and lack of technology inputs to industry.Although the spending on R&D has improved (2-3% of GNP), there is still a long way to go to catch up with the developed nations.3) Manufacturing InfrastructureFor ensuring consistent growth and sustained competencies, heavy investments are required in Indian manufacturing sector. This can be achieved through encouraging Public Private Partnership in establishing technology parks and developing R&D centres where manufacturing clusters are active.4) Develop & restructure technology infrastructure to support firms striving to improve their technological capabilities and competitiveness: Provide technology infrastructure to support industries that are striving to improve their technological capabilities and competitiveness. Create Centres of Excellence by consolidating institutions that are working in similar areas. Promote joint public-private sector R&D activities for better monitoring. Emphasis on international cooperation between R&D institutes and build linkages for technology development and transfer.

Part- IIIRole of GovernmentReforming Indias Labor Laws

REFORMING INDIAS ARCHAIC LABOUR LAWS

Labour law is the body of laws that covers the relationship between groups of employees, organized as unions, and employers. In India, the labour laws have been criticized to being pro-employee (by employers) in the organized sector and very rigid, thus adversely affecting operation of labour markets and performance of industry in general. However, this viewpoint is vehemently opposed by trade unions who believe that it is a strategy of firms to maximize their profits at the cost of their employees. Thus, any action to be taken must consider all stakeholders- employers, workers, trade unions and MNCs.Current ScenarioThere are a number of laws that are a source of contention between employers and trade unions. Some of them are: Factories Act, 1948This act limits the weekly working hours to 48 and daily working hours to only 8. Thus, it is inflexible to needs of industries with seasonal demand e.g. textiles industry. Industrial Disputes Act, 1947According to Chapter V-B, if the firms employing more than 100 employees have to retrench some workers, then they have to take permission from the Labour Commission. Also, according to Section 9 A of the act, employees have to be given a notice of 21 days before modifying wages, hours of work-rest intervals, leaves etc. This act is a constraint in efficient deployment of employees at short notice and hampers restructuring and technological upgradation.

Multiplicity of Labour Laws- The labour laws are highly fragmented and inconsistent. There are separate schedules for different workers and different definitions of the same. Thus, they create confusion and there is scope for misinterpretation etc.

Role of Trade Unions- Though the role of trade unions is to protect labour rights and be the face of the worker to the management, often it has misused its position to black mail owners and hinder the smooth functioning of business. The most potent weapon it uses it is strikes and lockouts. Though this trend has decreased over the years, still, the annual loss of worker days is second highest in the world.

Social Security Concerns- The present situation of social security is dismal in India. Currently, social security covers on 6% of work force (belonging to organized sector) and it ignores the remaining 94% in the unorganized sector. Hence, a small percentage in organized sector is in a privileged position having access to various privileges. Moreover, the workers in unorganized sector are not given any such benefits e.g. in apparel Exports Park in Gundlapochampally, women workers are exempt from labour laws. They work for three shifts at less than minimum wages. Such exploitation should not be encouraged.

Need for Labour Law Reforms1. Missing Middle-The skewed labour laws towards workers in organized sector have created a peculiar situation in the country. Either the workers are organized in small scale unorganized sector or large scale sector.

.2. High Labour Cost- As compared to other countries, anti- market labour laws have significantly increased the cost of production, making indigenous businesses uncompetitive in global context.

Figure: Manpower Average Cost for Textiles and Garment Industry, 20073. Difficulty in Entry/ Exiting a business- The rigid labour laws make entry/exiting a business difficult. To fire employees, you need approval of labour commission. Also, in order to change job profile there are many regulatory hurdles to pass.

Figure: Manpower Index of Competing Countries in 2008Clearly, all these discourage FDI investments in India. RecommendationsExtension of Working Hours: The government needs to amend the Factory Act, 1948 by extending the working hours limit from 48 to 60 hours per week and the daily working hours limit from 8 to 10 hours, subject to adequate compensation. This will allow industries to fulfill peak season demand and increase production in the short run.

Allow Adjustments in Workforce: The government should relax the provisions of Chapter V of Industrial Disputes Act by allowing up to 100 people outside its purview from present number of 100. The government can also employer to adjust workforce in case of restructuring (in line with ILO convention on Termination of Employment). Also, the government can modify Industrial Employment Act to ease job transfers and fixed term employment.

Permit Contract Labour: The government should consider amending the Contract Labour Act, example excluding certain industries e.g. textiles industry, provided they give employment for a fixed tenure of 150 days as well as other benefits like health, safety etc.

Formation of Uniform Labour Code- The government should unify all definitions that are present in court literature to form a uniform labour code. This will eliminate the possibility of confusion and incorrect interpretation.

Formation of a Social Security Net to cover Unorganized Sector- The government should work towards the formation of a social benefit schemes for both organized and unorganized sector. This will eliminate the possibility of exploitation in the unorganized sector. Moreover, the benefits available in the organized sector should be managed properly to benefit larger employee base.

Part-IVSector Specific ProblemsImproving SMEs ProductivityMaking Public Sector more competitive

ISSUE OF SMEsIn any developing economy, development of industries / industrial sectors is driven by the availability of natural resources and the socio-economic priorities of the nation. For a country like India, small and medium enterprises form a very important part of manufacturing sector. The spread of SMEs in India is over a number of industrial sectors such as Chemical, Pharmaceutical, Engineering, Food Processing, Foundry, Textiles and Electrical. From the start of era of economic planning in 1951, and subsequent policy changes small-scale industries and medium scale industries have been earmarked special role in Indian economy. Due protection was accorded to both sectors, and particularly for small-scale industries from 1951 to 1991, till the nation adopted a policy of liberalization and globalization.

RelevanceThere has been gradual change in face of the sectoral differentiation done by the government. The emphasis on small-scale industries (SSIs) for a long time was replaced by the small and medium enterprises (SMEs) and right now, micro, small and medium enterprises (MSMEs) have emerged prominently in the policy documents and pronouncements. Indias huge potential lies in the SMEs to expand employment opportunities further develop the industry and boost the exports. But, there is no broad-based market information network to coordinate and develop the SME sector. There is an urgent need to develop more industrial clusters to facilitate better information network among the SMEs. Unavailability of information on the reliability of potential buyers and sellers tends to increase transaction costs. There is significant scope for improving productivity levels in different manufacturing industries through cluster approach.

Current ScenarioSMEs in India have always represented the model of socio-economic policies of the government. Judicious use of foreign exchange for import of capital goods and inputs; labour intensive mode of production; employment generation; no concentration of diffusion of economic power in the hands of few (as in the case of big houses); discouraging monopolistic practices of production and marketing; and finally effective contribution to foreign exchange earning of the nation with low import-intensive operations has been long emphasized. Policy of de-concentration of industrial activities in few geographical centers has been coupled with development of SMEs. At present, about 114 commodities are reserved for exclusive manufacturing by the SSI sector. Production of some of these items requires modernization and technology upgradation to achieve economies of scale and de-reservation alone would help enhance competitiveness of these products. With the end of the era of protection and import substitution by government of India after forty years (1951 to 1991), when encouraged SMEs to develop indigenous technologies, ended these units found themselves amidst high competition. It is important to study the growth of the small and medium scale sector since the dawn of liberalization and globalization. Following table collates come of the important variables related to this sector for 17 years starting 1990-091.YearTotal SMEs Units (Millions)% changeEmployment (million)%ChangeProduction (Rs. At 93-94 price)%change

199091Units15.83--0.68--

199192(Million)16.64.860.7916.18

1992937.354.0717.485.30.9418.99

1993947.654.0718.264.460.995.32

1994957.964.0719.144.821.0910.1

1995968.284.0719.793.41.2211.93

1996978.624.0720.594.041.3510.66

1997988.974.0721.323.551.489.63

1998999.344.0722.063.471.597.43

199920009.724.0722.913.851.717.55

20000110.114.0723.914.361.847.6

20010210.524.0724.934.271.966.52

20020310.954.0726.024.372.117.65

20030411.344.0727.144.32.319.48

20040511.864.0728.264.132.5610.82

20050612.344.0729.494.352.8812.5

20060712.844.0731.255.973.2412.5

As part of enhancing the competitiveness of Indian small firms, the strategy has essentially been to raise the capital intensity of production. However, given the preponderance of smaller or tiny units in this sector, it is likely that a few relatively larger units have emerged competitive by being able to invest in expensive plant and machinery. And this is the reason that although the sector has increased gradually there has been no increase in employment figures. Credit is one of the most important constraint for small scale firms. Lack of transparency in operations and financial statements is one of the major reasons for this.Conclusions & RecommendationsAlthough the common belief that the small scale sector would gradually give way to capital intensive large scale sector, a labour-surplus and vast domestic-market based economy the MSEs continue to dominate the industrial sector. Recognition of their capability in generating large employment and smoothening regional disparities is spreading gradually.However government needs to bring about changes in the perspective of policymaking related to this sector. Many of the traditional small firms are in clusters, and a cluster oriented approach would be important for their success. Prioritization of credit availability should be an immediate concern. Removal of all restrictions on investment in labour-intensive small-scale industries needs to be done. Attempts should be made to bring in transparency in financial condition of firms in these sectors. Financial institutions could usefully develop strong venture capital arms to finance innovative small firms that have a good potential to emerge in the near future in many industries. Arrangements of power and water to small and medium scale industries should be ensured. There is a need for improving appropriate linkages with education, infrastructure, human and natural resources and environment for long-term sustainable development and facilitating value-addition and self-reliance approach towards manufacturing.

ENABLING COMPETITIVE PUBLIC SECTOR ENTERPRISES

The public Sector Enterprises (PSE) were set up in Independent India for the purpose of self reliance and fast growth of Indian economy. The major objectives of PSE, when they were set up were: Develop core sectors of economy Cater to strategically important sectors like Power, Steel, Coal, Defence, Telecommunications and Railways etc. Provide self sufficiency to the country in critical areas and help spring board the economyThe sector has been largely able to meet these objectives and was responsible for initiating the manufacturing movement in the country. However, since the 1991 policy reforms, there have been a dramatic shifts in the countrys economic policies and this also had a bearing on the policy towards public sector enterprises. Still, the public sector contributes to about 25% of Indias GDP greater than 10% (in 1960s). Hence, increasing its competitiveness has to be a major focus area of the government.

Current ScenarioThere are a number of important issues that have emerged in the current scenario: Dismal Operating Efficiencies- With economic liberalization, the public sector has faced intense competition from private sector in terms of quality manpower, market and resources. All this is supported by the fact that public sector is not able to compete with private sector due to low operating efficiencies. The reasons for this are notably, over manning, multi- regulatory authorities, low productivity of manpower etc.

Setting up Navratna PSEs- In order to encourage profit making PSEs and also give them more autonomy, the government has recently setup Navratnas and Mini Ratnas which are given power to take their own decisions and promise by the government of minimum interference. They are also free to form alliances, enter into joint ventures and form subsidiaries in India and abroad. Originally 9 in number, currently, it stands at 18. National Manufacturing Competitiveness Council- The government has setup various agencies to delve into the problems of PSEs such as National Manufacturing Competitiveness Council etc. This agency will streamline various guidelines and procedures with respect to procurement, marketing and sales, pricing decisions, manpower, compensation, technology transfer, outsourcing of support functions etc.

RecommendationsThe following recommendations can make Public Sector Enterprises more competitive: Autonomy- For a competitive Public Sector, devolution of autonomy and power to take its own decisions is a pre requisite. The company boards should be given more autonomy; however, it needs to be coupled with proper governance and accountability. Review Mechanisms- Currently, there are multiple regulations and regulatory authorities governing public sector enterprises. This creates a lot of regulatory hurdles and slows down decision making. Thus, rationalization and optimization of multiple regulations needs to be done on priority basis. Delegation of Power- The PSU boards in order to be competitive should be given power to form joint ventures, international alliances and incubate subsidiaries. This is very important in todays dynamic environment. Optimizing Labour cost and productivity-A major problem with public sector currently is dismal productivity of labour. In order to optimize both cost and productivity, a percentage of their income should be performance based and regular performance evaluation and appraisals should be done to improve employee morale.

CONCLUSIONThe resurgence of India's manufacturing sector has been quite magical. Not only are profits soaring, the sector is fast spreading its tentacles abroad as many Indian manufacturing firms inch close to becoming true blue multinationals. The future is potentially exciting for Indian manufacturing. While there has been progress on some reforms, much remains to be done. India is fast developing into a manufacturing hub for world corporations wanting to leverage the sector's proven skills in product design, re-configuration and customization with creativity, assured quality and value addition. The key points mentioned in the report revolve around the basic goal and that is to create the climate for India Inc to achieve global competitiveness and evolve into an international hub for manufactured products. We have talked about the priorities of Indian manufacturing firms, the programmes that they undertake to reach their objectives, and the outcome or the performance of these firms. The recommendations would help in formation of a robust manufacturing strategy in developing world class operations in the country. Emphasis would be required on the efficient implementation of the recommendations. This includes proper laws, guidelines and creating more awareness among the masses. This awareness is in terms of the knowledge about the new technologies and methods adopted by the organizations outside as well as within the country. Also, the awareness in terms of the responsibility towards the growth and development of the nation needs more impetus in future times. Human beings are the greatest asset of the nation and India being a nation with almost 50% of the youth population, much needs to be done in this field. The recommendations need to be adapted to the variations in the culture, work as well as the conditions of the regions so that they can be as effective as they appear as solutions. Moreover, we need to keep updating these solutions according to the market scenario and the response of the industries so that India becomes a leader one day in this field of work as well. The vicious circle of slow work , ineffective implementation and slow progress needs to be broken. Only then can we citizens see our nation as the most progressive nation in the future.

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