China regained its Manufacturing eminence; can

India do the same?

(Can India leapfrog into Industry 4.0? Part 2)

Co-Authored by B.S.Krishna
You may read Part 1 of the blog series Can India leapfrog into Industry 4.0? here.
Summary: We have seen a resurgence of interest in Manufacturing in all key
economies and countries,
focusing on specific programs at the Government-Industry levels, like
Germany-Industry 4.0, China-China 2025, US-IIC and India-Make in India.
We strongly believe that India can leapfrog into Industry 4.0
just like it did in the case of Telecom, Financial Services and IT.
Global economy always shows striking shifts, which keep redrawing the economic
map
of
the
world.
India and China who were once the leading economies in the world, lost their
eminent position by 1800s post Industrial Revolution in the west. Till 1800s, which
was pre-dominantly an agrarian economy, population and arable land mass, more
or less determined the strength of GDP. This got radically changed
due to Industrial Revolution. Other factors of Production like Capital, Equipment,
Raw material and access to Markets, became prominent.

If one looks at the chart in closer detail, India has slipped very significantly, while
China has done a great recovery act over the past four decades. To a large extent,
the significant jump of China, had a lot to do with emphasis on Manufacturing and
the reform process initiated during post-Mao era.

Can India repeat what China did, to regain its economic leadership?
To answer this, it is necessary to list some factors which have led to the low share of
Indian GDP. Prior to independence, India lost out due to British colonial rule, World
wars, and protectionism.
While China was reversing its fortunes from mid 1940s, Indias economy- in
particular, the Manufacturing, continued to lose out, due to some bad choices in
Governance. Listing a few reasons:

Massive investments in public sector without granting autonomy them in

decision making
Inward looking path : import substitution led path rather than export led
path
Over regulated private enterprises
Reservation to Small scale industries: this created an ecosystem of suboptimal scale entities, artificially dispersing the investments, which could
otherwise have led to more automation and competitiveness.
Social lending by banks, in a Capital starved country with high interest
rates, deprived the industry of much required capital
Discouragement of foreign investments

Low productivity of labour

Lip sympathy to education and skill building

Post 2000, a newly emergent Services economy in India, with hardly any controls,
showed a dramatic increase, while Manufacturing with all its historic shackles
continued to flounder. Although India has made some gains in few sectors like
Pharma, Automobiles, Cement and Steel, it still needs to catch-up with the rest of
the world.

Given this situation, can India revolutionise its Manufacturing economy through Industry
4.0?
Before we delve into the answers, let us take a brief look at the evolution of the
term Industry 4.0.
Originally coined by the German Government, it has come to mean the fourth
Industrial
revolution.
The concept behind the name divides the history of industry into four phases

The first Industrial revolution mobilised the mechanization of production

using water and steam power in the 18th century.
The second Industrial revolution then introduced mass production with the
help of electric power in the early 20th century.
The third was aided by the digital revolution - use of electronics and IT, to
further automate production from the 1970s.
The fourth (Industry 4.0) will herald the global network of cyber-physical
collaboration where information technology and operational technology
will get synchronised.

Other rationales exist for the meaning of "4.0". For example, McKinsey cite: "the
fourth major upheaval in modern manufacturing, following the lean revolution of the
1970s, the outsourcing phenomenon of the 1990s, and the automation that took of
in the 2000s.
On a lighter vein - one of my co-speakers on a panel, discussing Indo-German
Collaboration
on
Industry 4.0, at the recently concluded Hannover Messe, commented the prior
three revolutions were characterised by major upheavals in the society in terms of
nature of work, lifestyles and migration, while the 4.0 is more like an unborn baby
who is expected to be a superman even before being born!

In the next part of the blog we will elaborate on what is Industry 4.0.
- Is it just a Hype? Will it be a slow evolution or will it lead to a massive
revolution,
disrupting lifestyles, and employment patterns?