DIARY OF THE HIGHWAY MONK-8 ... Manufacturing vs Services jugalbandi

Ramesh Kumar from Greater Noida

Reading Sanjeev Bikhchandani of Info Edge's interview in The Economic Times (26 July 2021) where he talks about his investment in Zomato in 2010 and how much he reaped in the recent blockbuster IPO of the internet food delivery company, I halted and re-read this portion a few times:

"If you consider where growth and jobs have come from in the Indian economy over the last four decades, it has mostly been from companies and industries that had not existed earlier - IT Services, ITS enabled services, private sector banks, private sector insurance companies, private telecom companies, e-commerce, internet companies, organized retail, private TV channels, and several others. Old mature industries generally do not create as many new jobs. That's why startups are especially important. At its peak, before Covid 19, the Zomato rider fleet was around 250,000. A similar number of people were working for Swiggy. This is the impact of just two start-ups." 

Old matured industries generally do not create as many new jobs! 100% true. Look at the numbers he quoted: 250,000 for Zomato alone. It is no secret that the manufacturing sector's contribution to GDP is stagnant around 16% and, less said about its job generation capability, the better. We are not talking about the Covid 19 situation. For decades, manufacturing began to play a second fiddle to the service sector which is notching upwards of 50% 

Zomato, in a sense, is an internet-enabled logistics company engaged in the food delivery business. Yes, algorithm-driven in the background and uniformed foot soldiers in the front delivering food items to the online buyers. What could be the composition of workforce at Zomato? Backoffice for order processing, sales and marketing team and last but not the least, the delivery executives, mostly on motorized two-wheelers. The last segment must be like an ocean because they are the foot soldiers helping the organisation. Do they create or manufacture anything tangible? No. They don't make Maruti Suzuki cars. But Yes. They create customer delight. Of course, Zomato rides on the back of a lot of manufacturing activities: base kitchens or restaurants whom Zomato serves and the suppliers to these base kitchens, fuel for delivery executives' vehicles, thus making oil marketing companies to be happy. Not to be left is the makers of motorized two wheelers. Plus labor contractors supplying delivery executives. Actually the list is endless. 

Bikchandani's observations triggered  me to trace Maruti Suzuki Chairman R C Bhargava's book  "Getting Competitive: A Practitioner's Guide for India", released in 2020. To establish an equitable society in India, the dependence on agriculture has to come down and job opportunities have to be created outside farming, argues he. Where? "Such employment could largely be only in the manufacturing and from activities arising from industrial production. This would include construction, services, mining, infrastructure building, and so on," he writes. 

Bhargava, a veteran bureaucrat-turned-business head, cautions that "without visible and substantive progress in that direction (industrialization), our stable democratic structure would inevitably come under greater strain because of the changed and higher aspirations of the youth. The young are no longer as patient and as fatalistic as the young were in the past. They expect democracy to yield results". By "results" he means jobs to earn a livelihood.  He is hinting at social unrest if jobs aren't there. 

Bikchandani's assertion that matured companies generally do not create more jobs is because they prefer to go in for automation or mechanization of operations. Not to be ignored is the talk and action in some quarters about the use of technology and artificial intelligence. Bhargava agrees that greater use of technology etc would automatically reduce direct employment in factories: job loss is inevitable if production remains static.

However, he argues that better use of technology and artificial intelligence would lead to better quality and lower cost, leading to better value to customers and higher sales. He adds export potential as well which would add to the top and bottom line of businesses. Bhargava points out that China excels in low technology products and captured the global market. A high volume of these products does not warrant advanced technology.  Cost competitiveness and productivity, according to Bhargava, would be doable with low technology too. 

The 'Make In India" campaign of the government has to be seen in the light of the desire to increasing the size of manufacturing from 16% to 25%. Various measures mooted and being rolled out are to improve the ease of doing business in India. Not an easy task but doable. 

"Everyone loves manufacturing jobs," writes Sarah O'Connor in an op-ed piece in the Financial Times and cites the fixation with manufacturing in the United States by former President Donald Trump and the current one: Joe Biden. Over the past several decades, matured economies have gone in for outsourcing of goods from labor-cheap economies - mostly in China. Now, in the current pandemic and anti-China climate, "nearshoring" or "make in one's own country" is the theme song everywhere. 

O'Connor draws attention to the Tony Blair Institute's economist Jeegar Kakkad on the same topic wherein he asks: "Do you want to increase the jobs if the jobs that are coming back are the lower-skilled, lower-productivity end" We don't want to be competing on labor costs, that's a precarious position in global value chains and that shouldn't be the ambition for workers."

Developing economies like India have to focus on upskilling the existing workforce and simultaneously groom a more tech-savvy workforce to engage in manufacturing. Early indications are there to see in the form of Manufacturing 4.0. Walk into any small and medium enterprise, you cannot escape noticing some form of automation/mechanization. Not out of love but out of compulsion from the end-users whom these business enterprises serve. 

Technology creep is inevitable. Maybe slow. To be alarmed or not? 

According to the IMF, the pandemic is hastening a shift in employment away from sectors more vulnerable to automation. Nobel prize winner Joseph Stigliz is quoted saying that the extra costs of Covid 19 are accelerating the development and adoption of new technologies to automate human work. 

"Predictions of a world without work will continue. This is because the enduring fear of the march of the machines is not the result of a dispassionate analysis of the evidence. It could hardly be so when centuries of technological improvement have never led to widespread structural unemployment. Countries with more robots tend to have less joblessness, not more," opines The Economist. 

It says, rightly that the deep-seated fascination with and fear of technology reflects many economists' concern to get policymakers to pay more attention to the job prospects of people with the least marketable skills, who are always most vulnerable to economic shifts and shocks. 

 Manufacturing and services go hand in hand. Bhargava touches on this aspect as well. "Manufacturing activity leads to the creation of large employment in several service sector areas. These jobs would not be there if manufacturing activity did not take place," says he. Fully agree with him.