With more than 500,000 new engineering graduates each year, India is in a strong position to be an engineering powerhouse.
But while India is one of the biggest players in the services and information technology sector, the same cannot be said of our supply chain and engineering capability.
India's manufacturing exports still amount to less than 10 per cent of gross domestic product, whereas more than one-third of China's GDP comes from manufacturing.
India still doesn't have the most congenial business environment. Bureaucratic hurdles and a tough approvals system for setting up new businesses are not as severe as in the past, but they continue to create bottlenecks.
Land acquisition is a major hindrance to setting up new plants, as the problems of Tata Motors in West Bengal last year demonstrated.
Illiteracy and unskilled labor are disincentives to modern organisations that thrive on high productivity. So, too, are infrastructure problems such as clogged ports and roads, power failures, and water shortages.
In spite of these many challenges, India is slowly but surely making a mark in the global supply chain.
We are still a long way behind China and Japan, but there has been definitive progress.
Automobiles
The Indian triumph in the auto supply industry is well known. A small set of Indian manufacturing companies are vendors of choice for global automobile multinationals that purchase small parts.
These suppliers are valued for their reliable, high-quality products and on-time delivery. Four Indian auto parts companies have received the coveted Deming Prize for excellence in quality.
The next challenge for Indian component suppliers is to upgrade from supplying simple parts to complex assemblies and transmissions.
The transition to high-end manufacturing already is in progress. In the automobile sector, quality is crucial for the top players.
And in a vote of confidence for India, leading carmakers such as Hyundai, General Motors, Toyota, and Ford have either tied up with a local operator or opened their own manufacturing units and are supplying cars from India to the rest of the world.
With India's manufacturers combining engineering excellence and low costs, more companies are discovering the benefits of operating out of the country. In the coming years, India should continue to be a major manufacturing base for auto companies. Local demand for small and midsize cars is growing, thanks to increasing disposable income.
The current global recession has dampened automobile demand, but it
should encourage more cost-conscious manufacturers to shift operations out of Europe and the US to India.
Oil exploration and petroleum refining
India currently imports nearly two-thirds of its crude oil. With volatile oil and gas prices worldwide, self-sufficiency in energy is a national imperative.
The Indian government has come up with a National Exploration Licensing Policy, or NELP, under which exploration and production companies have acquired exploration blocks.
Aggressive implementation of NELP has resulted in quite a few new gas discoveries in the last few years. Oil refining companies in India have world-class capabilities.
But the government's oil subsidy policy and differential pricing has been hurting their bottom line. Future growth in the oil and gas sector depends on new discoveries.
To be more self-sufficient and globally competitive, India needs to shift from pricey crude imports to higher volumes of Indian crude.
India also is looking toward adapting cheaper, greener alternatives such as liquefied natural gas, biofuels, and hydrogen energy.
However, for this movement to pick up momentum, the government needs to offer more incentives for research and adoption of these fuels.
More state governments should follow the example of Delhi, where enforced use of compressed natural gas for commercial vehicles has led to cheaper transportation costs and a cleaner environment.
Power
Power generation, transmission, and distribution have historically been dominated by central and state government electricity boards.
More than 86 per cent of India's total capacity is owned by the central or state governments, with the private sector contributing just 13.5 per cent.
Saddled by transmission and distribution losses and rampant power theft, the state electricity boards have not been very efficient organisations, but private players have been unable to make significant inroads primarily because pricing remains subject to government control.
Introduction of private power distribution players in Delhi and Mumbai has reduced theft and streamlined the distribution process. Kolkata's RP Goenka-owned Calcutta Electric Supply Corp, the city's sole electricity provider, has brought near self-sufficiency to Kolkata through a combination of adopting modern technology in power generation and an efficient distribution mechanism.
It is a strategy worthy of emulation.
Three factors are crucial for growth and self-sufficiency in Indian power: a concerted public-private partnership in generation, transmission, and distribution; a financially viable pricing structure that is not subject to state government controls; and assured supply of fuel.
Since a power plant and its fuel source could be in different states, a predefined, mutually acceptable agreement between the state governments to facilitate smooth supply is critical.
Steel
India is one of the world's leading iron ore exporters, but Indian steel manufacturers have had trouble obtaining it.
Only a handful of manufacturers have their own captive iron ore mines; the rest depend on government-owned mines. Many states with high reserves have poor infrastructure.
So in recent times global steel manufacturers have set up steel plants in raw-material-rich states such as Orissa and Bihar.
To drive growth in the Indian steel industry, the government should encourage investment in fresh mining of iron ore, coal, and gas.
The government should also formulate a policy to encourage investors to buy (or lease) iron ore and coking coal deposits abroad.
In the short term, the government should narrow the supply gap by diverting some iron ore exports to domestic steel producers.
And since economy of scale is a proven success factor for growth in the steel industry, the government should encourage global manufacturers to tie up with Indian manufacturers.
Hardware and consumer electronics
Electronics hardware is one of the largest and fastest-growing industries in the world.
The Indian government's special economic zone policy encourages duty-free imports and tax concessions.
Global manufacturers such as Samsung, Nokia, Motorola, and Texas Instruments have already established manufacturing operations in India. That's because the government allows 100 per cent foreign direct investment in this sector.
As per the investment commission's estimate, India is expected to attract a total of $6 billion to $10 billion in foreign direct investment by the end of 2010.
With the availability of cheap skilled manpower, incentives on exports and imports, and an ever-growing domestic market, this industry should see rapid and continued growth in the next few years.
