1970-01-01 02:00:00
rlp
Aug 8th 2015
INDIA is not the place most people would expect to find precision engineering.
Yet Guillaume Capato is on the shop floor of the Mahindra Aerospace factory, an
hour s drive from Bangalore, explaining the complexity of an aluminium halter,
used to reinforce the fuselage on a jet aircraft. Formed from a single piece of
metal into a U-shape using a press, each side is of a different size and shape
and drilled with holes of varying dimensions so that the part will precisely
match all the other bolt holes around it. The halter is accurate to an exacting
degree: it only makes sense to add weight to an aircraft s structure if it also
adds strength. That principle is lost in India, where the weight of regulation
has sapped the strength of manufacturing.
Mahindra Aerospace is the sort of modern, jobs-rich enterprise that Narendra
Modi, India s prime minister, probably had in mind when he launched his Make
in India drive a year ago. Components produced here must meet the strict
standards of the global aircraft industry. In June the firm, an offshoot of a
family business better known for rugged SUVs, won a landmark order from Airbus.
Mr Capato, who worked at the European planemaker for 14 years, helped set up
the factory two years ago. It is full of spiffy kit from giant ovens for
heat-treating metals to fluorescent light chambers to help check for scratches
(a tiny nick means a part is junked). Each bit of equipment requires a matching
skill. Mr Modi wants more of this and has criss-crossed the world pitching the
idea of manufacturing in India. It is a tough sell. The share of manufacturing
in the economy peaked in the mid-1990s. It will take more than the glad-handing
of world leaders to revive it.
The roots of the malaise go back to 1991, when India opened up markets for
goods to competition, including from imports, but left its factor markets for
land, labour and capital unreformed. Indian-based factories suddenly needed to
be bigger and better-equipped to compete in a global market. But the cost of
capital, high in inflation-prone India, was forced still higher because of the
trouble banks had in pursuing deadbeat borrowers through clogged courts.
Complex laws made it tricky to acquire farmland for industry or infrastructure.
Baffling labour laws, written largely in the 1940s, piled onerous regulations
on manufacturers. Because they made it hard to lay off workers, few were hired.
For these reasons the standard-bearers for post-liberalisation India have not
been widget-makers but capital-light IT-services companies such as Tata
Consultancy Services, Infosys and Wipro, untroubled by India s factory laws or
congested ports. Such brainwork cannot provide for all the 1m, mostly
unskilled, youngsters who join India s labour force each month. More factories
would help. But India let its industrial base wither while China was busy
building one. And export-led growth is now a harder trick to pull off, not
least because global trade has slowed to a standstill. Meanwhile India is stuck
in heavy industries, such as steel, that are chronically oversupplied.
There are beams of light amid the gloom. Mahindra shows that Indian
manufacturers can break into a prestigious global supply chain. The firm
entered the aerospace business in 2006 when it acquired Plexion Technologies,
an engineering-design outfit. It soon spied an opportunity in orders for
single-aisle passenger jets, which were mounting fast at Airbus and Boeing.
This was the sort of bet a family-owned firm could make: a steep upfront
investment but with a steady long-term payoff for a job well done. After two
more acquisitions it signed a technology-transfer agreement with Aernnova, a
supplier to Airbus based in Spain. The factory near Bangalore was built in ten
months. Land was no problem, says Arvind Mehra, boss of Mahindra Aerospace. The
state of Karnataka offered a choice of business-ready sites with room to expand
from its land bank. The firm is building links with colleges to ensure a supply
of skilled workers. The factory layout is designed to diffuse know-how.
Specialist engineers sit in a glass cabin at its centre so that advice to and
feedback from the shop floor flows freely.
Prime factories
Optimists point to this and other high-profile investments in India. Foxconn, a
Taiwanese contractor that is the biggest private-sector employer in China,
recently announced plans to open as many as a dozen mega-factories in India by
2020. In March, Ford opened a 400-acre car factory in Gujarat, the
business-friendly state run for 13 years by Mr Modi before he became prime
minister. Last month the state of Telangana granted approval for a new factory
to Micromax, an Indian handset-maker. BMW and Mercedes are using more
components from local firms for their Indian-assembled saloons. Volvo says it
will soon sell Bangalore-made buses in Europe for the first time. A
fast-growing local market of 1.25 billion people is a big draw. Transport costs
should encourage manufacturers who wish to serve Indian consumers to shift
production there. Even Mahindra Aerospace indirectly benefits from local
demand. A large order received by Airbus, its prized client, is from Indigo,
India s leading low-cost airline.
Yet for all these bright spots, it is hard to imagine a manufacturing
renaissance in India without significant reforms to make factories easier to
set up and run. Mr Modi has pledged to vault into the top 50 countries in the
World Bank s ease-of-doing-business rankings (India is 142nd). But his reform
programme has stalled. His government has been forced to abandon changes to a
land-acquisition bill in the face of protests. A bill to put in place a
nationwide goods and services tax, to replace a myriad of state and federal
levies, remains stuck. A plan to streamline India s labour laws is bitterly
opposed by trade unions. The problems that have weighed on Indian manufacturing
since the 1990s remain. Until they are tackled, successes like Mahindra s
aircraft venture will remain all too rare.