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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.


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