Indian manufacturing industry statistics

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Indian Manufacturing Industry Technology Status and Prospects 0 Table of Contents Executive Summary………………………………………………………………………………….. 2 Manufacturing Sector Profile…………………………………………………………………….…. 3 Technology Status in India.………………………………………………………………………….. 9 Technology capabilities of Indian firms……………………………………….………………….…… 10 Factors in technological competitiveness…………………….………………………………….…... 11 India as Global R&D hub ……………………………………….……………………………………... 15 Technology Development Initiatives ………………………………………………………………. 16 Sector Profiles………………………………….………………………………….…………….……. 22 Food Processing……………………………………….……………………………………...…….….. 23 Machine Tools………………………………………………….………………………………………... 29 Pharmaceuticals..……………………………………….…………………………………….………… 34 Auto Components…………………….…………………….…………………………………….…….. 38 Technology Initiatives……………………………………………………………………………….. 42 Bibliography………………………………………………………………………………………….. 46 1 Executive Summary In 1990, India and China had almost the same GDP per capita. Since then, driven by its manufacturing sector, China’s economy has grown much faster than has India’s and its GDP per capita on a PPP basis is 90% higher than India’s GDP per capita. To achieve faster rates of economic growth India urgently needs to strengthen its own manufacturing sector. The growth in manufacturing sector is dependent on the investment climate. The structural reforms since 1990s have made some progress. Despite recent setbacks, it is universally acknowledged that the reforms process in India cannot be reversed and sooner or later these reforms will be implemented. However, the long term competitive ability of Indian firms would depend on production efficiency. Production efficiency, in turn, is dependent on ability to develop, import and adapt new technologies among other factors. India has made significant progress in various spheres of science and technology over the years and can now take pride in having a strong network of S&T institutions, trained manpower and an innovative knowledge base. Given the rapid pace of globalisation, fast-depleting material resources, increasing competition among nations and the growing need to protect intellectual property, strengthening the knowledge base is an important issue. While India’s technical talent is recognized world over, there have been serious institutional gaps in promoting industry-research institutions interaction. This report takes a critical look at the Indian manufacturing sector with respect to the technology and scientific resource availability. Critical high growth manufacturing sectors like food processing, auto components, pharmaceuticals, light engineering etc have been profiled. The current technology status, technology development initiatives and future imperatives have been identified to propel Indian manufacturing industry achieve high growth rates. 2 Section 1 Indian Manufacturing Industry 3 Indian Manufacturing Industry Profile The Indian economy is firmly on the path of steady growth. Even during the last decade when other countries were in the grip of a massive slowdown, India continued to enjoy a comfortable economic position. This recent spurt in growth is propelled by radical reforms such as the removal of restrictions on foreign investment and industrial de-licensing. Tailoring the EXIM policy to GDP: US 650B promote exports and aligning the import duties to meet WTO commitments further contributed to (July 2005) this development. This trend is expected to continue over the next five years, driven by a favourable Agriculture: 22% Manufacturing: 22% business policy environment in terms of tax cuts, broadening tax base, and reduced interest rates. Services: 56% The liberalization of the economy has opened new windows of opportunity for manufacturing sector. Increasingly the success of manufacturing industries is dependent on innovations, research and development. It is critical not only to remain competitive but also, significant advantages can be gained by developing and commercializing new technologies With a size of US 22 billion, the engineering sector exports stood at US 6.6 billion in 2001-02 and imports at US 4.9 billion the same year. Indian engineering manufacturing sector employs over 4 million skilled and semi-skilled workers. The engineering manufacturing sector comprises of heavy engineering (70%) and light engineering (30%). India’s growing integration with the global economy and the government’s recognition that infrastructure needs to be overhauled are likely to ensure that the trend rate of growth increases in the next decade. Importance of manufacturing sector in India’s economic growth The structural transformation of the Indian economy over the last three decades has been Growth of spectacular growth of the services sector, which now accounts for about 50 per cent of the GDP. manufacturing However, the rapid growth of the services sector much before the manufacturing industry attaining sector is critical maturity is not a healthy sign. A knowledge -based economy cannot be sustained in the long run Allows equitable wealth distribution unless it is adequately supported by a growing manufacturing economy. Moreover, a service Largest number of jobs economy cannot continue to thrive on a long-term basis in a country where over 80 per cent of the created population is education below the middle-school level. Some sectors, such as IT, ITES and pharmaceuticals, will compete globally, employing perhaps 2% of the population and bringing wealth to many parts of India. At the same time, around 60% of the population will remain dependent on the agricultural sector, sharing less than one-quarter of India’s GDP. Without reform, the agriculture will continue to suffer from endemic underemployment, low wages and monsoon dependency. This will result in continued urban migration, but without the development of an industrial sector this will lead to rising unemployment in the cities. Recognition that this pattern is unsustainable is growing. It is estimated that India needs to create 7-8 million new jobs each year outside agriculture to stay at its current unemployment level of 7 percent. Manufacturing jobs are ideal for workers transitioning out of agriculture as service jobs require high level of education and professionalism. The revival of manufacturing sector can create close to 2.5 Million new jobs every year. With the removal of all quantitative restrictions on imports and the falling import tariffs under the WTO regime, it is all the more important for the Indian industry to improve its competitive edge. The sheer volume of international trade with over 70 per cent of the seven trillion dollar market being in processed manufacturing, strongly indicates the necessity of developing global competitiveness in this sector. 4 Thus the above 8% growth of manufacturing industry in India is critical to ensure healthy balance of income parity, employment generation and sustenance of growth. Industrial growth The manufacturing sector grew by 8.9% in 2004-05, comfortably outperforming the sector’s long- Manufacturing sector driving GDP term average growth rate of 7%. The sector has remained one of the engines of economic growth since the start of 2005-06. growth Growth Rate: 8.9% Manufacturing Industrial growth averaged 7.1% per annum in the 1980s. It accelerated slightly to 7.6% per year in contribution to GDP has the first five years following the beginning of the economic policy reform process in 1991. In the increased from 17% to second half of the 1990s industrial growth trended lower at around 5% per annum. However, since 22% in 5 years 2002-03 industrial growth has accelerated markedly on the back of recent strong GDP growth. Rising disposable incomes, easy access to finance and the changing attitudes of India’s rapidly rising middle class (with a traditional focus on savings) have resulted in a consumer lending boom. Industrial growth rose above 8% in 2004-05, with consumer durables and non -durables showing exceptionally strong growth. Capital-goods production has been growing at double-digit rates since 2002-03, suggesting increased investment in the industrial sector and the economy as a whole. SECTORAL REAL GROWTH RATES IN GDP (AT FACTOR COST) Percentage change over the previous year 1998 1999 2000 2001 2002 2003 2004- Item -99 -00 -01 -02 -03 -04 05 (P) (Q) (A) I. Agriculture & allied 6.2 0.3 -0.1 6.3 -7.0 9.6 1.1 II. Industry 3.7 4.8 6.5 3.6 6.6 6.6 7.8 Mining & quarrying 2.8 3.3 2.4 2.5 9.0 6.4 5.3 Manufacturing 2.7 4.0 7.4 3.6 6.5 6.9 8.9 Electricity, gas & water supply 7.0 5.2 4.3 3.7 3.1 3.7 6.3 Construction 6.2 8.0 6.7 4.0 7.3 7.0 5.7 III. Services 8.4 10.1 5.5 6.8 7.9 9.1 8.9 Trade, transport & communication 7.7 8.5 6.8 9.0 9.8 11.8 11.3 Financial services 7.4 10.6 3.5 4.5 8.7 7.1 7.1 Community, social & personal services 10.4 12.2 5.2 5.1 3.9 5.8 6.0 IV. Total GDP at factor cost 6.5 6.1 4.4 5.8 4.0 8.5 6.9 P: Provisional Q: Quick estimates; A: Advance estimates; Source: Central Statistical Organisation. Critical Issues for growth Macro-level The primary reason for Indian manufacturing not being competitive enough is the significant presence of small-scale unregistered manufacturing units across the entire spectrum, even in Bottlenecks for classically scale and capital-intensive segments. Such unregistered manufacturing accounts for 23 growth per cent of the total capital employed and 84 per cent of the workforce. Even the registered Historical focus on small scale unorganized manufacturing sector is highly skewed towards low scale. Eighty five per cent of factories in India manufacturing units have less than USD 200,000 invested in plant and machinery. While this is not to belittle the value Poor infrastructure of small and medium enterprises, in India, a large number of such enterprises have been created High cost of power because of artificial market distortions. The deliberate fragmentation of units has been detrimental to competitiveness. 5 The other important reasons for the Indian manufacturing being not competitive enough include: - Poor quality of transport infrastructure across all sectors including port facilities (where productivity is among the lowest in the world), surface roads, railways, airports and waterways. - High cost of power. Industrial power continues to be among the most expensive in the world. It is about 50 per cent more expensive than in China. - High cost of capital: It continues to be 10-12 % against international average of 6-8 %. The Government has to play a crucial role in providing the industry with a favourable investment climate in terms of better infrastructure support, institutional finance at affordable rates of interest, and designing fiscal policies aimed at promoting accelerated growth of the manufacturing sector. In particular, special efforts are needed to upgrade infrastructure facilities. At the same time, the manufacturing firms should concentrate on internal changes aimed at Firm-level improving efficiency and reducing costs. For E.g. a CII-Mckinsey study identifies the difference in technology labour productivity across multiple sectors between India and China from 10% in TV assembly to Bottlenecks for 360% in footwear. growth Emphasis on reverse engineering Following imperatives are required at firm level: Minimalistic technology - Upgrading manufacturing technology levels enhancements on - Redesigning organisation structures to enhance accountability and responsiveness imported technologies - Enhanced emphasis on attracting and retaining talent Low R&D investment - Eevolving product-mix strategies, explicitly factoring in the opportunities in export markets - Re-engineering core processes to dramatically improve efficiency and drive business value - Enhancing quality focus and customer orientation. Industry Structure Although reforms have reduced licensing and regulation, heavy industry is still dominated by Industry Structure public-sector enterprises. State-owned companies have accounted for the bulk of activity in steel, Heavy Engg still dominated by Public non-ferrous metals (virtually 100% for copper, lead and zinc, and about 50% for aluminium), Sector Enterprises shipbuilding, engineering, chemicals and paper. The government had pledged to reduce its holdings Capital goods and in non -strategic public-sector undertakings to a maximum of 26%, and to close down non-viable consumer durables are the fastest growing enterprises. segments Economic sectors: Manufacturing Industrial production (fiscal years Apr-Mar; 1993/94=100; % change year on year) 2000/01 2001/02 2002/03 2003/04 2004/05a Basic goods 3.9 2.6 4.9 5.4 5.5 Capital goods 1.8 -3.4 10.5 13.6 13.3 Intermediate goods 4.7 1.5 3.9 6.4 5.9 Consumer durables 14.5 11.5 -6.3 11.6 14.5 Consumer non-durables 5.8 4.1 12.0 5.8 10.6 All (index of industrial production) 5.0 2.7 5.9 7.0 8.2 a Preliminary. Source: Central Statistical Organisation (CSO). Profile of Key manufacturing sub-sectors Automotive The automotive industry’s turnover stood at US19.1bn in 2003 -04 and has been one of the fastest - growing sectors in recent years. Rising income levels, continuing poor public transport systems, wider availability of car finance and the increase in the young population are the main drivers of growth. Total production of vehicles rose from 4.2 m units in 1998-99 to 7.3 m units in 2003 -04. In 6 volume terms, vehicle production is dominated by two-wheelers, which accounted for 5.6 m units of total production in 2003-04. The production of passenger cars stood at 842,000 units in 2003-04, followed by three-wheelers (340,000), commercial vehicles (275,000) and multi-purpose vehicles (146,000). Most local production is sold domestically, but rising quality has contributed to a surge in vehicle exports, which registered growth rates of over 50% in 2002-03 and 2003-04. Steel India produced 31.8m tonnes of crude steel in 2004 -05, making it one of the ten largest steel producers in the world. A variety of grades are produced and the quality is at par with producers such as South Korea and the US. Increased demand from China as well as strong domestic demand, particularly by consumer -durables and automotive manufacturers and the construction sector are the key drivers of production growth. Around 40% of output is produced in integrated steel plants; the remaining comes from mini-plants, of which over 180 exist, almost all in the private sector. Light Engineering The size of Indian Light Engineering industry is estimated at US 7 billion. In India, the light engineering industry has a diverse industrial base with significant unorganized market. It is estimated that light engineering sector contributes to 8-10% of total exports of the country and its exports were US 3 billion in 2002-03. The exports from the light engineering industry in India mainly consists of structured steel products; motorcycles, cycles and auto components; electrical, electronics, telecommunication and automation equipments; hand and machine tools; fans, filters and pumps; and metal machine tool parts. The Light Engineering Industry is a diverse industry with a number of distinctive sectors and sub sectors. This sector includes low-tech items like castings, forgings and fasteners to the highly sophisticated micro-processor based process control equipment and diagnostic medical instruments. This group also includes industries like bearings, steel pipes and tubes etc. The products covered under the engineering industry are largely used as input to the capital goods industry. Pharmaceuticals The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth 4.5 billion, growing at about 8 to 9 percent annually. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. Machine Tools An industry, which has undergone a radical shift in its paradigm thinking, the Indian machine tool industry is now recognized as a provider of low-cost high quality lean manufacturing solutions. The industry resiliently supports all its users to enhance productivity as well as improve competitiveness, for the betterment of the end user. The Indian machine tool industry is approximately a US 500 million industry. There are 138 major companies manufacturing metal cutting, metal forming, conventional and automated machine tools. 7 The sector grew by 10 percent in 2002-03. Approximately 6 per cent of the production is exported. Exports include CNC lathes, vertical machining centres, grinding machines, etc. Major export destinations include USA, Germany, China, Italy, Mexico, Canada, UK and Brazil. Most manufacturers have their own in-house R&D and there exists tremendous scope for institutional collaboration for development of new technology. Textiles Textiles account for around one -fifth of total export earnings. Because the government discriminated for decades against integrated textile mills, with the aim of helping cottage handlooms, most mills closed down. Mills currently produce only 4% of textiles output. Despite government assistance, the share of handlooms in total output is only 18%; the remaining is produced by power looms located in sheds outside the mills, which allow them to escape the restrictions. Production in the textile industry is based on a decentralised system with continuing small-scale reservation for many items. The phasing out of the Agreement on Textiles and Clothing (ACT) at the beginning of 2005 is likely to benefit the Indian textile industry. The industry has a natural competitive advantage in terms of a strong and large multi-fibre base, abundant cheap skilled labour and presence across the entire value chain of the industry ranging from spinning and weaving to the final manufacture of garments. Computer hardware The rapid growth of software exports has attracted thousands of people into the industry and has stimulated the demand for computers. Sales of personal computers rose by 20% in 2004-05, to 3.6m. Import liberalisation and the entry of foreign manufacturers has transformed this industry, which, until five years ago, was tiny and dominated by a few Indian manufacturers. The ease of importing components has nurtured hundreds of unbranded assemblers, which command 62% of the market. Selected Industry's CAGR Heavy Commercial Vehicles 6.17 Cement 6.75 Washing Machine 7.3 Refrigerators 7.44 Steel 7.83 Multi-Utility Vehicles 8.71 Two Wheelers 11.27 Cars 11.31 Window Air-Conditioners 16.92 0 2 4 6 8 10 12 14 16 18 Percentage 8 industriesSection 2 Manufacturing Technology Status 9 Manufacturing Technology Status Technology development is critical to a country's efforts in improving productivity, efficiency and competitiveness of its industrial sector. Factor cost advantages are being replaced by technology - related factors such as zero-defect product quality and international certification of firms' quality assurance systems (e.g., ISO 9000) in determining international competitiveness. Central to maintaining competitiveness is the ability of producers to respond quickly and effectively to the changing demands of the international market. Technological capabilities can be best described in terms of three levels: the basic level involves Sectoral the ability to operate and maintain a new production plant based on imported technology, the Technology intermediate level consists of the ability to duplicate and adapt the design for an imported plant and capabilities technique elsewhere in the country or abroad, while an advanced level involves a capability to Basic Level: Food undertake new designs and to develop new production systems and components. Processing, Metal forming and forging, machine tools, chemicals Indian firms present a full spectrum of technological capabilities - while there are few firms close to Intermediate: Steel, the international frontier in terms of product design capability and process technology, Pharmaceuticals,, technological capabilities of most players are extremely limited due to growing technological Automotive, Petrochemicals obsolescence, inferior quality, limited range and high costs. This adversely affects the ability of the Advanced: Auto organizations to respond to the challenges, not only of increasing international competition from components, other low-wage countries like China, but also from trade liberalization within the context of WTO. Telecommunications Most Indian manufacturing firms appear to be stuck at the basic or intermediate level of technological capabilities. Though Indian manufacturing industry has mastered standard techniques it has remained dependent for highly expensive and complicated technologies. Sector Technology Capability Level Food Processing Basic Metal forming and forging Basic Steel Intermediate Machine Tools Basic Pharmaceuticals Intermediate Chemicals Basic Electrical and Electronics Basic Automotive Intermediate Auto Components Advanced IT Advanced Telecommunication Advanced Petrochemicals Intermediate Light Engineering Basic 10 Factors in Technological Competitiveness The technology competitiveness of a country is determined by a combination of policy factors and industry specific factors. This section outlines the factors and their status In Indian context. Policy Factors Import Substitution The import strategy of the Indian government, which fostered the development of a wide range of Positive Factors industries, also facilitated the unpackaging of technology imports, and hence helped absorption and High quality manpower Good science and accumulation of technological learning. Though India achieved self-reliance in technologies for technology infrastructure local production and consumption owing to the policy of import-substitution and self-reliance, it Superior technical could not build capacity to create internationally competitive technologies to produce for education international markets. As a result, export competitiveness capabilities could not be acquired. Human Resource Development and Technology Infrastructure The expansion of infrastructure for technical and higher education under the Scientific Policy Resolution, 1958 has ensured an adequate supply of qualified technical personnel and high degree of self-reliance – facilitating quick replacement of foreign personnel and absorption of imported technology. Although Indian organizations are served by a network of national laboratories and institutional infrastructure, these institutions generally fall short of quality when compared to those in industrialized countries – putting India at a comparative disadvantage. The role of national laboratories in designing and innovations varies from industry to industry. The main determinants of success of national R&D institutes appear to be the nature and extent of laboratory-industry interaction, the extent of market orientation of products and accessibility. Since most of the R&D effort is limited to specialized institutes, rather than in-house, market orientation is a weak link. Some key R&D institutes and testing facilities directly related to manufacturing industry are: ? Central Manufacturing Technology Institute (CMTI) ? Council of Scientific & Industrial Research (CSIR) ? Central Mechanical Engineering Research Institute (CMERI) ? Central Power Research Institute (CPRI) ? Indian Institute of Petroleum (IIP) ? National Institute of Foundry & Forge Technology (NIFFT) ? Bureau of Indian Standards (BIS) ? In-house R&D units of large enterprises The range of activities of these institutes includes education/training (both academic and practical), research and development (academic, practical, product, process and input material related), provision of information services, and provision of services like testing & inspection etc. Although the range of activities undertaken by these institutes is quite wide, resource constraints with respect to budget, staffing and equipment limit their effectiveness in both quantitative and qualitative terms. Some of them are located in areas away from the industrialized zones like Mumbai, Delhi etc. Apart from R&D institutes, a number of engineering colleges - Regional Engineering Colleges (RECs) and Indian Institute of Technology (IITs) – provide a steady stream of engineering graduates, while the Bureau of Indian Standards (BIS) is responsible for activities related to the development, promulgation and maintenance of industrial and other standards. The culture of collaborative research involving different institutes has not been promoted in past and the limited resources are not pooled through networking to develop core technologies in sectors where Indian industry has potential. Another vital link missing is the isolation of universities from 11 R&D. While universities are the major research centres in almost all developed countries, especially Germany, Taiwan and Korea, in India they are isolated from scientific research and advancements. This is largely because government funding of the research institutes does not goad them to seek funding from industry and industry associations through fees and royalties charged for work performed. This results in low commercial orientation. This has also affected the quality of higher scientific education, which is becoming increasingly irrelevant over the years. Direct intervention Public sector enterprises - i.e. HMT, EIL, BHEL etc. – initially emerged to be the nuclei for technological development. Public sector industrial enterprises, because of the relatively large scale of their operations, were able to finance and coordinate the requisite level of technological activity – thereby overcoming high entry barriers for innovation. Standardization of unit sizes For process industries, the choice of unit size has an important bearing on the development of local Negative Factors technological capability. Standardization of unit sizes by the government in the case of power Poor industry-academia linkages equipment, petroleum refining, and fertilizers has helped rapid absorption and mastery of Amongst the lowest R&D technologies because it has made possible the frequent replication of similar plants. investment in the world as per cent of GDP Structural and Industry-specific factors Small scale of organizations Brain Drain Technological maturity and pace of technological change Industry’s preference for tried and tested Technological self-reliance is achieved more easily in industries with relatively mature and stable technologies – focussing technologies, such as the process industries, than in those undergoing rapid technological change. on import Availability of Scientists & Engineers High quality human resources, and rich stock pool of engineers and scientists is necessary for innovation. The availability of engineers and scientists determines the ability of a nation to develop competitiveness through differentiation. In terms of availability and quality of scientists and engineers, India scores very highly as seen in the table below. WEF Rankings for Human Resources Country Rank India 4 Germany 32 Japan 9 USA 8 China 59 Korea 35 Taiwan 15 Source: World Economic Forum Global Competitiveness Report 2001 12 However it is necessary to continuously upgrade the manpower skills in technical and techno- managerial dimensions. In a labour -surplus economy, new and efficient technologies tend to be discouraged unless sufficient redeployment opportunities are created. This results in a vicious cycle where new technologies are not introduced, the engineers and technicians continue to work inefficiently, and the technical manpower quality deteriorates with respect to the world. Thus the advantage accruing from the rich pool of engineers has been frittered away by not continuously upgrading the talent pool. This has, in turn, resulted in the brain drain phenomenon leading to flight of talent to advanced countries where the opportunities to upgrade exist. India has been ranked low on the ability to retain its qualified manpower when compared with the reference group of countries. Therefore, Indian scientific and engineering talent pool is at the disposal of countries that create conditions conducive to the nurturing and advancement of this talent pool. Technology Acquisition Technology acquisition has traditionally been viewed as a source of techniques necessary for initiating production and hence was considered as substituting domestic R&D. In the absence of the inflows of new and advanced technologies, however, there has been little incentive, direction and capability to update the existing technologies. Technology continues to be sourced from other nations, but the firm-level technology absorption is low. This is in sharp contrast to firms in Taiwan and Korea, which absorb sourced technology and improve upon it. WEF Rankings for Technology Resources Country R&D Spending as Company spending % of GDP - Rank on R&D India 31 42 Germany 7 4 Japan 3 2 USA 5 3 China 37 34 Korea 2 18 Taiwan 14 20 Source: World Economic Forum Global Competit iveness Report 2001 Expenditure on Research & Development by Capital Goods firms in the public and private sectors R&D R&D Expenditure(Rs million) R&D Expenditure as % of Sales units Turnover 1996-97 1997-98 1998-99 1996-97 1997-98 1998-99 Public sector 34 849.10 535.91 542.53 0.21 0.12 0.10 Private sector 223 2076.37 2602.59 2637.74 0.40 0.51 0.53 Source: Department of Science and Technology 13 The table shows that Capital Goods firms invest less than 1 percent of their sales turnover in research and development. Also the private sector firms invest marginally more than the public sector firms, which makes it look further worse, considering that the major machine tools firms are in the public sector. This could be due to lack of confidence in domestic technology. In the absence of the internationally competitive quality and standards in technology development, industry has created demand for foreign technologies that are tested abroad and are easily available. Nature of international technologies markets The nature of international markets, in respect of the seller concentration and the degree of vertical integration in an industry, affects national attempts to achieve technological self-reliance. The choice of the mode of technology import has been found to influence local technological capability building. Product Technology World Bank study (1990) on the Indian Capital Goods sector notes that the share of human resources devoted to design and engineering activity in Indian Capital Goods enterprises is low compared to other industrialized countries - roughly 20 to 50 per cent of what might be expected in comparable enterprises in those countries. Sound product design and engineering work could have greater impact on ultimate product cost, value and quality than comparable efforts undertaken further down the manufacturing chain. In the firms that were sampled during the World Bank survey, there was evidence that greater engineering resources are devoted to downstream manufacturing activities than upstream conceptual design activities. Process Technology India has the technical ability to achieve a high level of precision, yet Indian firms are unable to produce quality products due to lack of supporting technologies, such as precision measuring, material engineering and process control. The defect rates of final products are many times 5-10 time than that of Japan and those of USA. In addition, about 20 per cent of the firms have equipment, which is more than 20 years old, and therefore obsolete. Most Indian firms are vertically integrated and rely far less on subcontracting arrangements, although such trend is beginning to emerge. Summary The competing imports of products, increasingly allowed on quality and cost considerations, have led to a greater consciousness of quality and costs on the part of domestic manufacturers. The more liberalized technology import policy is also helping to bridge the technology gap. All these factors are putting pressures on the organizations to develop best-practice technology, either by importing or by generating their own. Few solitary achievements notwithstanding, there is clear evidence that technological dynamism has not taken firm root in the Indian industry. In sum, the disjointed policies in India with lack of focus have resulted in a weak innovation system and under-utilisation of research capabilities created during the first phase of growth. Thus, the overall problem relates to the lack of appropriate linkages between different actors of the national innovation system. India needs to address constraints on technology development as an important part of its overall strategy for improving manufacturing sector competitiveness. The role of government in enhancing technological competitiveness is critical to make this happen. 14 India: Global R&D Hub The Indian government has put in significant effort in last 50 years to develop the scientific and Global R&D Hub technical infrastructure of the country. With more than 250 universities, 1,500 research institutions Utilizing low cost high quality technical and 10,428 higher -education institutes, India churns out 200,000 engineering graduates and another manpower 300,000 technically trained graduates every year. Besides, another 2 million other graduates qualify Over 100 MNCs have set out in India annually. The combination of state-of-the-art infrastructure and highly qualified up their research centers manpower ensures that India is poised to be the next Global R&D hub. This is increasingly being observed in Industry as large MNCs including GE, Microsoft, Bell Labs etc have opened there R&D Centers in India – a first outside US for most of these companies. The cost arbitrage provides immediate incentives for corporations to source high quality research output from India. It must be noted that this research is not just restricted to IT industry. Some examples: - Jack Welch Research Center in Bangalore is conducting research for GE Medical Systems. It is the company's largest research outfit outside the United States. The center also devotes 20 percent of its resources on five-to-10-year fundamental research in areas such as nanotechnology, hydrogen energy, photonics, and advanced propulsion - National Chemical Laboratory Pune has transformed itself into a contract research agency where more than 50% of its revenues come from conducting contract research for International clients - P&G comes to India scouting for innovations - 20 percent of the world's largest passive component manufacturer Tyco Corp's high-precision tooling is done by its Strategic Tool Shop in India - Eli Lilly's research facility in Delhi is its largest in Asia, and the third-largest in the world More than 100 multinational companies (MNCs), including Delphi, Eli Lilly, Hewlett-Packard, Heinz, Honeywell and Daimler Chrysler, have set up (R&D) facilities in India in the past five years. For some, such as the US12.6 billion Akzo Nobel's car-refinishes business, the center came even before the company began selling its products in India. This makes India second only to USA and ahead of other more established hubs, such as Japan, Israel and Western Europe, and, for that matter, China. India may be behind China in manufacturing, but it has taken an early lead in attracting R&D investments. According to a survey by Tokyo's National Science Foundation, only 33 of the BusinessWeek 1,000 companies have their R&D centers in China. Although India is not yet near the big league in the United States, it is certainly emerging as a serious contender as a base for new offshore R&D centers. IICT, Toyota Arm Team Up For Nanotech R&D Aisin Cosmos, a subsidiary of Japanese auto major Toyota Automobiles , has entered into a joint venture with the Indian Institute of Chemical Technology (IICT) to undertake joint research in the area of nanomaterials for the automotive sector. It includes manufacture of auto spare parts using nanomaterials which reduce pollution besides increasing the quality and the life of automobiles. A Centre for Nanoscience and Technology will be set up at IICT premises. The project will receive funding of 200,000 from Toyota Automobiles and will initially be for a period of two years. This long-term project on nanomaterials is the first of its kind in the country. It is primarily aimed at collaborating research activities in the areas of nanomaterials for the automotive sector. The research efforts will provide novel industrial standards for the auto segment thereby assisting in reduced recycle effort and sustainable fabrication processes. Using of nanomaterials in the automotive sector will pave way for development of eco-friendly machines, light stiff chassis, windows, easy-to-clean materials both interior and exterior, among other automobile accessories. 15 Global Comparison India has been spending 0.8% of its GDP in R&D which is much less than 2-3% range amongmost Global comparison of the developed countries. Even China and Brazil spend more than India on R&D. This is reflected Total spend on R&D is 0.8% of GNP well below in the relatively poor rankings on innovation in the global competitive index 2-3% spend of developed countries Lowest among the key R&D spend as per cent of GDP, 2000 competing nations like 3.5 China and Brazil Private sector spending on R&D less that 1% of 3 sales turnover 2.5 2 1.5 1 0.5 0 Technology Availability of R&D Spending as Company spending Ranking scientists % of GDP - Rank on R&D 63 4 31 42 16 India China Brazil Russian Federation Australia U.K Canada France Germany Republic of Korea U.S.A JapanSection 3 Technology Development Initiatives 17 Technology Development Initiatives R&D Set Up Research Agencies 250 Public Research Institutions India has a network of scientific and academic institutions engaged in wide spectrum of research. 264 Universities Scientific research is carried out in about 250 research laboratories and institutions. A large part of 1500 private sector R&D establishments these belong to scientific ministries. A few research organizations under non-scientific ministries and their public sector industries essentially carry out research programs of relevance to the respective ministries. There are more than 1,500 private industries with R&D establishments and a similar number of state-owned research centers. In addition, there are 264 universities, deemed universities and institutes of technology, where basic scientific research is conducted in new and emerging areas through external and internal support. Most of the research in the academic sector receives funding support from various scientific agencies of the government, namely, Department of Space, Department of Atomic Energy, Department of Science & Technology, Department of Biotechnology, University Grants Commission, and others. In recent years, several non -scientific ministries have also come forward to fund R&D in the project mode with the participation of public and private industry as well as of academic institutions. This has given a new synergy in the promotion of technology in areas of concern. Funding for R&D The Government of India allocates a budget for scientific and technological (S&T) activity under an R&D Expense: R&D fund. The allocation has increased from USD 18 Million in 1950-51 to USD 2800 Million in USD 2.8 Billion 2000-01. In comparison, the share of industry in R&D has become of the order of 547 million, Government: 70% Private Sector: 22% about 20 per cent of the government's contribution. The percentage share of major scientific agencies in total S&T expenditure is approximately 70 per cent. In the total S&T expenditure by the government, the share of non-scientific ministries has been approximately 30 per cent combined for all sectors, including agriculture, rural development, energy, industry and minerals, transport, communication and others. The total expenditure on R&D, including from industry, is about 0.8 per cent of GNP for the past several years. Compared to most advanced countries, which spent between 4 and 6 per cent on R&D, this proportion is quite low National Expenditure on Research and Development-1998-99 3% 5% 8% Central Govt Private Sector State Governments 22% Public Sector Higher Education 62% 18 Policies and targets The Government has facilitated S&T infrastructural development in the country through a policy framework. A Science Policy Resolution (SPR) was adopted on 4 March 1958.The resolution aimed to secure benefits from the acquisition of scientific knowledge and its application. It emphasized training of scientific and technical personal to fulfill needs in the fields of science and education, agriculture, industry and defense as well as to ensure an adequate supply of scientists and to recognize their work. In January 1983, the government announced the Technology Policy Statement (TPS), with the objective of attaining technological competence and self-reliance, providing gainful employment, modernizing equipment and technology, conserving energy and ensuring harmony with the environment. In 2003, a new Science and Technology Policy was adopted with emphasis on: New Science and Technology Policy - Optimal Utilization of Existing Infrastructure and Competence adopted in 2003 - Strengthening of the Infrastructure for Science and Technology in Academic Institutions Focus on providing soft loans for R&D - New Funding Mechanisms for Basic Research Building better networks and industry-academia linkages - Human Resource Development Management of IP given - Technology Development, Transfer and Diffusion due importance - Promotion of Innovation - Achieve synergy between industry and scientific research - Generation and management of Intellectual Property - International Science and Technology Cooperation 19