The Telegraph
Since 1st March, 1999
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McKinsey manual to beat the dragon

Mumbai, Oct. 23: If the government and industry listen, McKinsey says it has a plan that promises to turn India into a manufacturing powerhouse with credentials that could leave the dragon green with envy.

The global consultant known for its ideas on turning around companies and rejuvenating economies argues that China is a text-book example of just what a nation can achieve if it can tap into its reservoir of labour.

India, by contrast, is on the cusp of a transition that shifts the focus from sweatshops — that many say underpins much of China’s industrial resurgence — to storehouses of skill. And that, McKinsey reckons, is just the turf where India can steal China’s thunder to become the world’s favourite workshop.

Up its sleeve is an array of proposals that it wants the government and India Inc to accept if they are convinced that the goal is worth chasing and toiling for. There are, however, leaves that have been taken out of China’s book on development. One of them is that India should shift a part of its workers from farms to factories.

Among other things, McKinsey wants indirect taxes should be dramatically pruned to shore up flagging demand for products at home. A 30 per cent cut in the rates could produce twice as many buyers as there are now.

The other thing that should be done is to replace all indirect taxes with a value-added levy, reducing it to 15 per cent of the retail price. Import duties should come down to 10 per cent over the course of the next four years.

The country cannot do without labour reforms, and units in special economic zones would have achieved the world if they can sell their wares in the domestic market, it says.

The retooling of India’s manufacturing base would cover all segments — from pharmaceuticals to garments to metals forging and engineering — so that all emerge as global outsourcing bases for firms world wide.

“This is only the beginning as global mega-corps have just started outsourcing,” said McKinsey principal Ramesh Mangaleswaran in his presentation to an audience that was an eclectic group of industrialists and professionals. The global market for products in skill-based manufacturing industry, he said, is 70 per cent bigger than the labour-intensive one.

Contrary to what many in India believe, China’s manufacturing success stems from strong fundamentals. “It has succeeded in shifting people out of agriculture and re-located them in manufacturing,” said the man behind the McKinsey tome.

Just how difficult it would be to bring companies together on this mission could be seen in the way barons interpreted the manual. TVS’ Suresh Krishna believed Indian industrialists could make a mark on the global stage only if they decided to go it alone, ignoring the importance of overseas alliances. “Foreign companies have their own ideology and agenda.”

The man whose group firm Sundaram Fasteners ships spares to GM was clear that looking inward would not help. “India is just a pond,” he said in a call that companies must export their way to prominence.

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