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Commentary

Local Manufacturing Could Be The Future

A number of online media sites are running stories of how the fall in the rupee is hurting real lives. Students in the UK write in to say they have to pay much more, in rupees, until they find local jobs. Others say they have moved their plans to study abroad to a later date.

More will come. They will write about how mobiles have become more expensive. About how that laptop now costs Rs. 45,000 when it was Rs. 10,000 lesser a few months back. About how fridges are more expensive. And toys – oh, toys. Toys now come with even lower quality and a high price.

While we complain about this, let’s spare a few minutes and ask ourselves why these products are expensive. Because they are manufactured abroad. You could take a course in India, but India doesn’t have the quality or depth of courses yet. We could buy an Indian mobile phone…but hardly any of the new phones are manufactured locally. We buy finished products made in Thailand because they aren’t made in India.

The move to manufacturing has got to happen. India needs to manufacture better stuff. For this, labour laws need some reform, but it’s not the only problem. The real issue is that we’ve lost our edge in manufacturing because it was cheaper to import.

Now is the time. Those investing in local manufacturing are likely to see outsized gains. However, for that, the currency needs to stabilize. After all, if you go back to a dollar at 50, we will again be unprofitable in comparison. So we’ll have to wait for a while until people see the “new” dollar, and then we’ll see local toy manufacturers and mobile phone makers and such.

Still, manufacturing is a culture we don’t have. Of great products that need little or no repairing (It has been years since the last time I took my computer, TV or mobile for repairs). Of decent roads and a GST, so that you can transport your goods across the country fast and without delays. Of part-time hiring, because most manufacturing needs to staff in spurts, not permanently. We don’t have this culture, and therefore it will be awkward initially. But I believe there is enormous opportunity here.

If this does pan out that the dollar stabilizes at higher levels, a theme I would look at for investing would be small-cap and mid-cap manufacturers that will scale up. It’s nice to say go long IT and go long Textiles because they export, but they are already at the best of their competitiveness. India can reduce the current account deficit even by substitution of imports with local manufacturing; that will be real change, and it’s currently out of everyone’s radar.

  • Harish Nagpal says:

    Cannot agree more..even a small things like Rakhi,Crackers,Furniture is being imported.

  • Suneet says:

    I have high hopes from auto industry. Historically, countries where currencies depreciates, became the global auto power houses – japan in 90s and 2000s, and korea post asian crisis. May be in another 10 years, we would be there.

  • Gold Bug says:

    Pipe dream. India had missed many chances in the past and will do so in the future. Labour reforms are key which should come internally (due to severe events like war) or externally (through neo-colonisation).
    We will pass from crisis to crisis and only foreign companies and select Indian companies will take us forward.

  • Leo says:

    sorry local agriculture … do u know if ur food is clean in bangalore or elsewhere.food cost are rising coz no one really invests in them..u can eat laptops and ipads.

  • vishnu says:

    Hi,
    I really like your blogs and writing..I have one different thought though..
    Let say that government build Infrastructure (roads etc) and Private Companies invest in Manufacturing and Rupee goes back to (1 $ =60 Rs), what will happen to investment made in Manufacturing ? Kind of crazy to manufacture locally (and investment made) when it wise to import.
    I think we would rather let free market to Import if it make sense , or manufacture if it make sense..
    For example: I was asking for Onion Dosa in a hotel, the owner was saying no ONION Dosa till he gets onion cheaper.

  • Srinivas says:

    Sensible thought.
    However, with the current level of politicians, who have their self good at heart, it looks a distant dream. May be in a few years, when poverty is reduced and younger lot of politicians enter, there may be hope.

  • feltra says:

    Deepak ji,
    Do you really think that this can take root? “Lost edge” in manufacturing can be got back. But the stumbling block – almost impossible to overcome – will be our work (un)ethics.
    In the cities today (hopefully this disease has not spread in the villages yet), no one is looking to satisfy the customer at all – whatever they are selling or “servicing”. We simply don’t have a pride in what we do. I can’t even begin to imagine what it would take to get that back – ever….
    Sorry to sound so pessimistic…. but can’t help…
    -feltra

  • Kishan says:

    I think the most important part of the puzzle we are missing out on is tourism, India can do so much better in tourism! In terms of leisure, medical and long duration visitors. India has one of the lowest tourist visitors in the world especially when you compare the number of tourist destinations in India compared to other countries. This is a low hanging fruit that will bring in plenty of dollars and tourism generates high employment and usually does not require high level of skills. For example, take Bodh Gaya, the only thing you need there is a decent airport, good roads, couple of reasonable hotels and Visa on arrival facility for buddhist countries such as Japan, Thailand, Sri Lanka and Taiwan ( I know we already have it with Japan) and you will have a lot more tourists coming there. Look at how popular Goa is with Russians because there is no visa required, during the peak season multiple chartered aircrafts arrive in Goa from Russia.
    Also, medical tourism, a person almost anywhere in the world, should be able to hop into an airplane and come to India to see a doctor. India has a competitive advantage in this area and should make it easier for people to come to India for medical treatment

    • XYZ says:

      For tourism to flourish in India, our country needs to be cleaner. India is very dirty. I don’t think many Indians realize it. Indians make it to the top 10 in dirtiest cities in the world. Don’t even think about medical tourism in India. That is the biggest joke ever.