Can India leapfrog into Industry 4.0? – Part 2

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 (which is based on the pioneering study of Angus Maddison) shown below 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 the 70s.

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, India’s 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 sub-optimal 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 growing on its own steam, 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, Steel, Diamond cutting & polishing, and Satellite launching, it still needs to catch-up with the rest of the world.

Of course, quite a few enabling measures have been taken by the current Government and it has generated an optimism that India can make significant advancements in Manufacturing.

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 1970’s.
• The fourth (Industry 4.0) will herald the global network of cyber-physical collaboration where information technology and operational technology will get synchronised.