BUSINESS SPECIAL................... How to Fix Manufacturing

How to Fix Manufacturing

Simple laws, better implementation and trust-building can turn our Achilles' heel into sprinter's In Germany, the skills of manufacturing managers and workers, and the quality of their relationships, are the sources of sustained manufacturing competitiveness

India's manufacturing sector has been sick for long. Despite the reforms of the 1990s, which boosted overall growth, India's manufacturing could not improve its competitiveness.

At 15% of GDP , it is much smaller than China's 30%, and smaller too than Germany's 21%, though Germany has much higher wages and a much stronger currency . The trust deficit between employees and managers within Indian manufacturing enterprises, manifest in many incidents of industrial unrest, some resulting in deaths as well, does not bode well for a recovery .

We need to understand root causes and should be careful that surgical interventions, such as recent demands to make it easier for employers to fire workers, do not make the patient even worse.
Different Roads Some suggest that we should aim for what China has: very large, labourintensive factories such as Foxconn's, which employ many thousands of people on a single site. For this, they urge the new government to amend India's land and labour laws.
We may have the same vision as China, but our paths to it will have to be different, because our starting points are very different.

China began by usurping all land rights to the state, and taking away democratic freedoms to form associations and free speech. India took a different path, of giving land rights and enshrining democratic freedoms in its Constitution.

Now, the Chinese government is slowly giving some rights, which is easier to do than taking away what is already given, which these economists are urging India's leaders to do. If India has to change its laws, it must win the support of people. For this, it needs good processes for engaging and consulting all stakeholders, not just political will to take decisions.
`Iron'ical Outcome Some say that the Prime Minister should emulate Margaret Thatcher, the “iron lady“ who stamped on the unions. The surgery did not have a happy ending. Britain's manufacturing sector became even weaker. It is Britain's financial services sector that grew with the freeing of markets.

Germany has taken a different path to grow and compete in manufacturing: much less confrontation, much more collaboration. Strong unions, with a place on high tables.
Strong and responsible industrial associations. Consultations mandated before laws are changed. An effort to maintain continuity of employment through recessions, and to use slack periods as opportunities to strengthen skills, coming out of global lean periods even stronger than the competition, as Germany did from the recent meltdown.

In the German way , skills of managers and workers, and the quality of relationships amongst them, are the sources of sustained global manufacturing competitiveness.

India's democratic and political structures are more like Germany's than China's. Also, we would rather have the outcomes that Germany has obtained for its manufacturing sector than what Britain got from its confrontational approach. Recently , France changed its labour laws. The French minister explained it was easy for the government because the unions and employers, taking a lesson from Germany , rather than Britain, sat down and worked out together what should be done, which made the government's work easy .

India's labour laws are antiquated, there are too many , and they are badly administered. The approach to the laws should follow three principles. One, simplify the laws and improve their administration: use technology , reduce procedures, make processes transparent. This is a winwin for all, including understaffed government departments.
Shopfloor Final Arbiter Two, focus on improving regulations and industrial relations closer to the ground, in states and in enterprises.
Competitiveness springs not from national laws but from what actually happens within industrial clusters and enterprises.

Three, build better institutions of representation along with better processes for consultation and collaboration. Such processes will not only build more trust amongst stakeholders but also enable the right changes to the content of the laws that meet all stakeholder needs.

There is a lot of workers' unrest, arising from a trust deficit. But it is good to know that in the last six months, the central trade unions and employers' federations have engaged, outside the glare of media attention, in a dialogue under the aegis of the India Backbone Implementation Network, a government-sponsored initiative, to improve collaboration and find solutions to problems that are the causes of this unrest. That includes uncontrolled use of contract labour on unfair terms in large enterprises, suppression of labour unions and poor social security for employees in small enterprises.

These have to be changed for manufacturing to grow. Hasty surgery by top-down law reforms will increase mistrust among workers and managements and weaken manufacturing further.

Arun Maira

The writer is member, Planning Commission

ET140624