Key issues for growth in manufacturing sector – R C Bhargava, Chairman, Maruti Suzuki Ltd

Mr. R C Bhargava, Chairman, Maruti Suzuki Ltd

Manufacturing has spear-headed the growth of various countries like Japan, Korea, China, Thailand and other countries. Manufacturing sector has been the leader for the growth of a country. The area of manufacturing contributes 40% to the GDP. In India, we have had periods of high growth but manufacturing sector is contributing only about 15-20% to our GDP. The government of India recognizes the importance of manufacturing and the new manufacturing policy included in the 12^th plan brings forth various reasons why manufacturing has to grow much faster.

The growth of our economy so far has been led by service sector & IT sector. But to make sure the inclusivity in the growth and to provide employment to millions of people who will be joining the industries from rural areas, we have to focus on the area of manufacturing. That’s why manufacturing has been rightly given high priority in the 12^th plan.  Why has not manufacturing picked up in India like it did in other countries? India had been ranked by the World Bank as one of the most difficult company to do business due to its strict business policies.

Till 1991 we had a different kind of economic environment, we were living with planned& socialistic developmental policies. There was a distrust of private sector, distrust of profit making, distrust of people accumulating wealth &the licensing policies were very strict. But after 1991, we changed our entire approach to development, we became more market oriented &brought in competition. We opened up the foreign investment and foreign technology. The whole picture changed after 1991 but this factor of distrust towards private sector remained. To take care of this the government and corporate sector has to work together and should come up with policies that are fundamental to the growth of our country.

The general public and media have distrust of most industrialists. They believe that people who set up industries are not concerned about the welfare of India. Whether this is a right perception or a wrong perception, it does not really matter. What is important is that this perception is pretty wide spread. There is also a feeling that there is a nexus which exists between politicians and businessmen and this is used for individual benefits by the businessmen. The recent scams that happened in last one year and a half strengthened the belief in that nexus. That made the distrust even deeper than it used to be.

Along with this over the last few years, the margin between salaries of higher management and civil servants has grown enormously in businesses and everybody is aware of it. This is creating a kind of social tension which we all should worry about. Why these salary disparities have grown so much? One of the reasons is that we have more or less adopted the American way of giving away salaries and rewards. In Germany, the ratio between the salaries of top CEOs and workers with equivalent amount of service is somewhere around 10-12 times, not more than that. In Japan it comes around 6-7 times. There’s hardly any president of Japanese company whose earning in a year is more than half a million of dollars. The same amount is earned in India by thousands of people at much lower level. Cost of living in these countries is much higher than in India. In India we have created a salary disparity of 800-1000 times between the worker and management salary, something we all should think about. We also understand that this creates a divide between the workers and the management.

We need to change the perception of Indian public and media that the nexus between politicians and businessmen is used for enrichment and growth of our country and not for an individual or a specific company. I believe that if we follow the policies in the 12^th plan, manufacturing will constitute around 25% in the GDP in next 10 years, it can only happen if the entire government is actually working to promote the competitiveness. Indian products should not only be sold in India but they should become exportable products that are competitive in the international markets.

There is a lack of distrust in the service servants that is there from the beginning. There is a perception that civil servants should be kept in strict control. When I was a civil servant during my initial phase, there was a rule that a civil servant can’t have dinner with an industrialist. The idea was to keep a distance between the civil servants and the management. Over time civil servants developed a perception that they should not take any decision or risk and should become totally risk averse as taking any kind of risk or innovative step could adversely affect their careers. Also, even if their innovative ideas work, they would not be given any credit. So, projects get delayed because our civil servants are not empowered to make decisions. The industries has to take an initiative to build trust in our civil servants, we need to develop a egalitarian work environment just like in Japan and Germany and all this will begin a change and we can become competitive in manufacturing sector globally.

The above article is an excerpt from the speech delivered by Mr.R C Bhargava, Chairman, Maruti Suzuki Ltdat AIMA’s 39th National Management Convention which was held in September 2012.