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back to index backASIAtalk October,  2005


India: Manufacturing Cuts the Flab, Roars Back to Form

Behind the numbers, the story of the revival of Indian manufacturing is unfolding. The latest data from the IIP reveals that manufacturing grew 8.2% in the last quarter, and nearly 10% in April-August ‘05. ETIG takes a look at why manufacturing is staging a comeback.

Indian manufacturing is gaining from a clear focus on key parameters like operating costs, efficiency and innovation. Fuel & power, critical & neglected inputs were amongst the first targets. Fuel & power expenses vis-à-vis sales of ten sectors within manufacturing between FY00 and FY05 show that while sales have grown at a CAGR of 11.5%, power and fuel expenses have grown at 7.3% only.

This is despite a substantial rise in fuel prices during this period, but for which the results would have been even more pronounced. Chemicals and steel, for which fuel costs form a significant part of the total cost of production, have brought down the fuel/sales ratio by 4.2 and 2.8 percentage points respectively.

Working capital, hitherto not thought of as a cost-cutting tool, has gained prominence. For a sample of 43 companies with annual sales of over Rs 1,000 crore, the working capital/sales ratio has fallen from 12.1% in ‘95 to 5.6% in ‘05. The total sales for these companies in FY05 was Rs 6,30,000 crore. At a 10% interest rate for short-term borrowing, this corresponds to a savings of over Rs 4,000 crore a year.

Indian manufacturing is also leveraging innovation like never before, using it to push the envelope on operational efficiencies.

The greatest contribution of innovation to Indian manufacturing is faster product development, smart supply chain and deployment of lean manufacturing for dynamic production and supply of customised products — all these aided by the deployment of IT applications,” says RN Mukhija, president, operations EBG, L&T. V Madhavan, Vice President — Technology, Anand Automotive Systems details the improvements in the auto ancillary business.

Reduction of lead time for new product development has come down by as much as 50% in the past three years. For example, the development of the brake system in India takes six months, in Korea it is 8 months, in Germany 12-14 months. Then there's reduction in inventories — by about 20 to 30% in the last four years, added to which is the reduction in defects from about 20,000 parts per million (ppm) to below 100 ppm.” On a scale of 1-10, says Srivastava, Indian manufactured goods quality could be seven, against Germany's nine.

Probably the greatest transformation has been brought about by a change in workers' mindsets and an improved work culture. While problems still exist, there is a substantial change in the attitude of a work force that wasn't always flexible, and who are, themselves, feeling the impact of globalisation in Indian industry.

Research by ET Intelligence Group confirms that a big part of the change is also attributable to the entry of matriculates/graduates into the work force, who have a better understanding of the changes happening all around and the consequences of a rigid stand. A statistic to prove the point is the substantial decline in the number of industrial disputes. As per CMIE data source, the number of recorded disputes fell from 1,825 in 1991 to 1,166 in 1996 to 489 in ‘03, the latest available.

Source: India Times - GAI


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ASIAtalk

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How Confucianism shapes Korean culture
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India: Manufacturing Cuts the Flab, Roars Back to Form
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