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How automation could impact Make in India

Time£º2015/12/4 Posted£ºShenzhen Winshare Precision Technology Co.,Ltd

The hope is that with higher wages impairing China¡¯s competitiveness, India can take China¡¯s place as the factory of the world.

Whether you look at the UK, the US and Germany, or Japan, Taiwan and South Korea, no country has climbed the economic ladder to prosperity without many years of manufacturing-driven growth. The factory allows people to shift from cultivating land to industrial activities that are much more productive, and this results in an increase in value-added that contributes to the prosperity of the country and its people. Manufacturing also generates a large number of related and auxiliary jobs across the value chain. This is the reason that, for years now, Indian policymakers have been concerned about the decline in manufacturing which accounts for only 15% of India¡¯s gross domestic product.

To address the manufacturing challenge, the previous government set up a National Manufacturing Competitiveness Council, which started new programmes focused on quality and clusters. This government has taken the focus on manufacturing a step further by starting a Make in India campaign and complementing it with a Skill India campaign. The hope is that with higher wages impairing China¡¯s competitiveness, India can take China¡¯s place as the factory of the world.

However, in all of this, I see an implicit assumption that manufacturing will remain largely the same as it has been in the recent past. That could be a terrible mistake.

Manufacturing is at an inflection point

Martin Ford¡¯s ¡®The Rise of the Robots: Technology and the Threat of Mass Unemployment¡¯ (Oneworld Publications, 2015) is a fascinating account of how increasing automation is changing the nature of manufacturing and of services across the world. Ford points out that while the productivity of manufacturing rose steadily in the 20th century, there was a major qualitative difference in two phases. Prior to the first oil shock, productivity increases came from electrical and mechanical improvements, and the benefits of productivity increases were matched by increased wages to workers. However, from the 1980s onward, productivity increases have been largely due to information technology (IT) and the beneficiaries have been owners and the investors in capital, not those working on the shop floor.

There has been a big jump in the nature of tasks that machines can do. Thanks to developments in artificial intelligence and machine learning and the huge decrease in the cost of computing because of the relentless march of Moore¡¯s law (where the power of computers doubles every 18 months), machines can do a whole new set of tasks that earlier required human intervention. Ford provides several examples, but I was particularly captivated by a story from Japan about a completely automated sushi restaurant. The third dimension of this change is the declining cost of automation, including robots. This is bound to accelerate the diffusion of robots.

Is this for real?

It would be easy to dismiss all of this as science fiction, alarmism, or as irrelevant to India. But that would be a mistake. Several pieces of disparate evidence that Ford provides underline this. In recent years, there have been several reports of the return of some manufacturing activities to the developed world, particularly to the US. This has worked because of the combination of lower costs of automation with the advantages of manufacturing close to the market. China already has the largest number of robots in the world. Automation is thus clearly an integral part of the kind of manufacturing that we in India hope to do. Leaders of the IT services industry have repeatedly spoken about how automation is the next big thing in their industry as revenue growth rates slow down and people costs remain high.

The jobs that India is targeting through foreign direct investment are primarily those that can be offshored or outsourced. But it is this same set of jobs that is repeatable and programmable, and hence most vulnerable to automation. In India, several studies show our impressive growth since liberalization has not been accompanied by the expected growth in employment. While this may not be due to automation alone, it is clear a combination of capital investment in technology and the casualization of labour is stunting the growth of labour in the organized sector. Ford also points out the irony that the average capitalist would prefer a pliable robot to an idiosyncratic human being.

Other relevant trends

Ford draws our attention to several paradoxes inherent in the current evolution of Western economies in general and the US in particular. While there are jobs, and unemployment rates may have returned to the levels before the 2007-08 recession, these are mainly low-level service jobs. In this scenario, Ford asks where will the consumers of tomorrow come from? Don¡¯t forget that the US is the world¡¯s largest consumer economy and the powerhouse of the global economy. Basically, growth and wealth have got delinked from employment.

What this means for us

Technological progress is a mixed blessing. It is changing the nature of work in ways we don¡¯t realize. Automation can¡¯t be stopped by fiat or regulation. And, with our weak record in capital goods development and manufacturing, we are unlikely to become the centre of production of the means of automation. My takeaway is simple. Our push into manufacturing will take time to fructify. If we want it to be successful, we need to prepare for manufacturing as it will be five years from now, not the way it was five years ago. Given the rapid changes happening in manufacturing, we should be cognizant that manufacturing by itself is no panacea for our challenges of economic and job market growth. ¡®The Rise of the Robots¡¯ should be essential reading for every policy maker, economist and CXO in the country.


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