1. Manufacturing
Competitiveness
of Indian States
Anshul Pachouri
Senior Researcher
Institute for Competitiveness, India
E-Mail: anshul.pachouri@competitiveness.in

2. Defining Manufacturing Competitiveness
• Manufacturing Competitiveness is determined by the productivity (value per unit
of input) with which the manufacturing sector uses its human, capital and
resources.
• Manufacturing Competitiveness can be measured at different levels
firm, city, state or national level.
• Manufacturing competitiveness of a region is dependent on various factors and
sub-factors including regulatory structure, business environment, technology
sophistication & skills of the workforce.
© Institute for Competitiveness, India & Michael. E. Porter

3. Defining Competitiveness
World Economy
Broad Economic Areas
The business environment at a
Group of Neighboring Nations given location is the cumulative
outcome of policy at all levels of
geography
Nation Microeconomic Competitiveness
raises the importance of lower
levels of geography
State, Provinces The allocation of responsibilities
across levels of geography is a
crucial policy challenge
Metropolitan Areas
Rural Areas
© Institute for Competitiveness, India & Michael. E. Porter

4. Indicators and Enablers of Manufacturing Competitiveness
Productivity
Presence
of Gross Value Investment Technology Innovation
Suppliers Output per Added per in the Sophisticati & Patents
and firm Worker sector on
Related
Clusters
Competitive Business Environment
© Institute for Competitiveness, India & Michael E. Porter

5. Levels of Influence on the Business Environment:
Manufacturing
Context for
Firm Strategy
and Rivalry
National
Cheap Imports from other
economies, Incentives for
Factor manufacturing Demand
Conditions Regional Conditions
State tax policy
National
Availability of skilled labor
Force, land, power, technological National
advancement Related and Growing Population. Rising Income
Regional Supporting Levels
Local public education system; Regional
Vocational Training
Industries Price competitiveness, Distribution
Regional
Suppliers; Clusters and Logistics
Partners
© Institute for Competitiveness, India & Michael E. Porter

6. World Manufacturing
% Contribution in World Manufacturing (1991) % Share in World Manufacturing (2010)
Latin America & Latin America &
Caribbean 5.8 Caribbean
6.3
European Union European Union
23.1 24.3
India 20.9 India
China China
33.0
2.9 1.8
0.8 13.7
United States United States
• The contribution of Europe in World Manufacturing has decreased from 33% in 1991 to 20.9% in 2010. This significant
decline has come at the cost of rising China whose contribution in World manufacturing has reached 13.7% in 2010from
merely 2.9% in 1991.
• India on the other hand is just able to increase its share by merely 1% in the past 20 years and was 1.8% in 2010.
© Institute for Competitiveness, India & World Bank Database

7. World Manufacturing
7000
6000
5000
Latin America & Caribbien
4000 EU
India
3000
China
2000 US
World
1000
0
• Per capita Manufacturing GDP of China had increased by 8 times from 1991 and reached 806 US$ in 2010 while India
had just reached 112 US$ in 2010.
• China may be succeed to capture the world manufacturing but still its per capita manufacturing GDP is still far behind
US which is 6147 US$ in 2010
© Institute for Competitiveness, India & World Bank Database

8. Manufacturing Competitiveness of India: Need of the Study
• Manufacturing sector is the backbone of Indian economy which has the potential
of creating millions of job opportunities and helping in poverty reduction in the
country.
• Its importance can be realized by the fact that manufacturing sector employs
around 9% of the total workforce estimated around 36 million workforce
combining organized and unorganized sector.
• The manufacturing sector of the country is suffering from low labour
productivity, shortage of skilled manpower, unsophisticated technology, high
taxes, unsupportive policies & cheap imports from other economies.
• With 75% of the total working population educated till middle school or
below, Manufacturing Sector only has the capacity to absorb the large labour pool
of the country. (CISCO)
• With more than 50% of the total workforce employed in agriculture and
generating only 22% of the GDP, manufacturing sector has great potential to
employ people and increase income levels. (FICCI)
© Institute for Competitiveness, India

9. Manufacturing Sector in India: An Introduction
• India’s manufacturing today is known for its quality, precision and value across the
globe.
• There is a huge export opportunity for industries such as auto components (US $
25 billion by 2015), and textile (US $ 50 billion by 2010) which is huge. (CISCO)
• With estimated middle class population of 600 million by 2022, there is a huge
domestic market in India itself for manufactured products especially consumer
goods.
• According to KMPG Executive Survey, the manufacturing sector will attract huge
investments in coming 2-3 years.
• The UN Industrial Development Report puts India as of the top manufacturer. India
tops in the production of textiles, chemicals, basic metals, general & electric
machinery in developing countries list excluding China.
• India is placed second in the Delloite Manufacturing Competitiveness Report.
• India has already beaten Brazil in the production of motor-vehicles which is good
sign for country’s growth in value added manufacturing.
© Institute for Competitiveness, India

10. India : Sourcing Destination
India has big potential to become the best preferred sourcing nation which can be
easily understood from success stories below.
• Pharmaceutical company AstraZeneca sources active pharma ingredients (APIs) from
India for use in its global operations, according to James Chelliah, CFO for branded
generics operations at AstraZeneca India. "Over the years [sourcing from India] has
been increasing year on year by around 100%. From the sourcing perspective India is
ahead of China.
• Through a partnership between Suzuki and Nissan, Indian subsidiary Maruti Suzuki
manufactures the Pixo model compact car for sale in Europe, according to Mayank
Pareek, Maruti Suzuki India's managing executive officer for marketing & sales. The
Indian auto major is likely to start making vehicles for Volkswagen soon; in 2009, the
German carmaker bought a 19.9% stake in Suzuki for US$4.5 billion.
• At Pfizer India, Thomas Lobo, director of global external supply, says there has been a
significant increase in sourcing activity from India with an average annual growth of 35
to 50%. "We source drug formulations, APIs and drug intermediates. India is a leading
country in drug product-formulation outsourcing, although we are starting to see
competition from other markets, including China.“
(Source: Knowledge@ Wharton, Business Standard)
© Institute for Competitiveness, India

11. Contribution of Manufacturing in GDP
% Contribution of Manufacturing in GDP
17.0
16.4
16.5 16.2 16.1
16.0
16.0 15.8 15.9 15.8
15.8
15.5 15.2 15.3 15.3
15.2 15.1
15.1 15.0
14.9
15.0 14.8 14.8
14.4 14.5
14.5
14.1
14.0
13.5
13.0
12.5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
• It is interesting to note that the percentage contribution of manufacturing in GDP has remained nearly constant to 15-
16% for the past twenty years.
• This shows that the potential contribution of manufacturing in GDP is yet to achieve.
© Institute for Competitiveness, India & RBI

12. Manufacturing in India : Situation
2000000
1800000 TN
1600000
MH
1400000
Total Persons Engaged
1200000 GJ
AN
1000000
800000 KA UP
HR
600000 WB PB
KE RJ
400000
UK MP
OR
CH
JH
AS DL
200000 HP
GO BH
JK
TR
ME
NA
MN
0
0 5000 10000 15000 20000 25000 30000
Total Number of Factories
© Institute for Competitiveness, India, Data Source: ASI

13. Gross Output at Factory Level
12 BH
10 Size of the Bubble denotes the Gross
Gross Output/ Fixed Capital ( Per Factory)
DL
Output ( Per Factory)
8 GO
KE JK
NA
UK
6 MN HR
PB AS WB MP
MH
HP
ME
UP KA GJ CH
TNAN
RJ
4 JH
OR
TR
2
0
-500 0 500 1000 1500 2000 2500 3000 3500
-2
Fixed Capital ( Per Factory)
• The two states Maharashtra and Gujarat together forms the 34% of the total Gross output in the manufacturing sector
of the country which makes them manufacturing giants of India.
• In states like Bihar, the firms are found to be very efficient in using their capital and are producing more than 10 times
the gross output on their fixed investments.
© Institute for Competitiveness, India, Data Source: ASI

14. Total Output - Input
1.8
UK
1.6 ME
TR HP
JK JHOR
NA CH
1.4 MN GO RJ KA MH
MP AN
Totao Output/ Total Input
DL PB HR UP TN GJ
BHAS KE WB
1.2
1
0.8
0.6
0.4
0.2
0
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000
Total Inputs ( Rs in Crore)
• The manufacturing sector of Uttarakhand is best able to use its inputs in an efficient manner and has Outputs/Input
ratio of 1.6.
• The lowest Output-Input Ratio is found is Bihar which is 1.17 and needs to be addressed.
© Institute for Competitiveness, India, Data Source: ASI

15. State-wise Manufacturing Growth
30.0 GO
GJ JH
% Contribution of Manufacturing in GDP
25.0
TN CH
20.0 KA
MH HR
PB OR
15.0 UK UP
RJ
HP AN
MP AS
WB
10.0
DL KE JK
BH
5.0 SK TR
AP NA
0.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
CAGR Manufacturing (2006-10)
• In states like Goa, Gujarat and Jharkhand, manufacturing contributes to nearly 27% of the total GDP which makes it
extremely important for these states to focus on developing policies to foster the development of this sector.
• It is interesting to note that manufacturing sector in Odisha and Chhattisgarh had grown by more than 16% against the
overall India’s manufacturing growth rate 9.3% for the past five years and driving the future growth of these states.
© Institute for Competitiveness, India, Data Source: ASI

16. Labour Productivity in Manufacturing versus Labour Productivity
in Agriculture
500 Goa
450
Labour Productivity in Manufacturing (In thousand)
400
350 Haryana
Chattisgarh
300 Gujarat
Himachal
250
Maharashtra
Punjab
200
Jharkhand
Uttaranchal
150 Karnataka
Andhra Delhi
Tamil Nadu
Assam
Rajasthan
Uttar Pradesh
Orissa Kerala
Madhya Pradesh
100
West Jammu & Kashmir
Bengal
50 Bihar Manipur
Mizoram Arunachal Tripura Nagaland
Sikkim
Meghalya
0
0 20 40 60 80 100 120 140 160 180
Labor Productivity – Agriculture (In Thousand)

17. Emoluments per employee (Manufacturing) Vs Net Value
added per employee ( Manufacturing)
1400000
Uttarakhand
1200000
Net VAlue Added Per Employee (Manufacturing), ASI
Himachal Pradesh
Chattisgarh
1000000 Meghalaya Goa
Jharkhand
Odisha Maharashtra
800000
Jammu & Kashmir
Madhya Pradesh
Gujarat
600000
Rajasthan Karnataka
Bihar
400000 Haryana
Andhra Pradesh
Uttar Pradesh
West Bengal
Delhi
Punjab
Tamil Nadu
Kerala
Assam
200000
Nagaland
Tripura
Manipur
0
0 50000 100000 150000 200000 250000
Emoluments Per Employee for Manufacturing

18. Manufacturing : The China Factor
• China is losing its competitive edge in low-cost manufacturing like toys and
garments which is moving to other low-cost locations like Vietnam, Indonesia &
Sri-Lanka.
• In high-end manufacturing where design plays a critical role, India will have a
positive edge over China due to their precision techniques and high quality.
• Lower costs alone will not tilt the scales, however. Many Western companies head
to India for outsourcing manufactured parts and sub-assemblies because China
lacks the required expertise. (Knowledge @ Wharton)
• Dumping of cheap products in India from Chinese firms had a huge negative
impact on Indian domestic Industry in the past especially in consumer goods
category.
© Institute for Competitiveness, India

19. Manufacturing: Areas of Concern
• Manufacturing in India today requires urgent attention of the policymakers to
address the challenges both at the macro and micro level.
• There is need to reduce the tax burden especially on the MSME sector to improve
their profitability.
• More support to enhance the skills of the workers and technology up-gradation is
needed from the government. India itself is a very big market due to high demand
of manufactured products.
• The cost of production has reached extremely high levels with the rising land cost
in India which needs to be checked.
• The high power costs, lower efficiency and declining availability of quality labor are
affecting competitiveness of the Indian manufacturing sector.
• Indian manufacturing players needs to pitch on the quality of the product in the
western markets rather than focusing too much on the price competition from
China.
© Institute for Competitiveness, India

20. Manufacturing: Challenges Faced
• Low labor productivity as compared to Asian counterparts. CEOs of the leading
export companies think that their productivity is atleast half or one-third of
Chinese firms operating in same sector. (CISCO)
• Building world-class infrastructure is again a big challenge to support high
manufacturing growth.
• Indian Manufacturers are operating way beyond their potential and capability.
• Insufficient return on Cost of invested capital.
• No presence of intelligent production planning
• Rising commodity prices and raw material costs.
• Low labor productivity.
• Lack of efficient capital expenditure decisions and management
• Lack of reforms in land, labor and operating environment
© Institute for Competitiveness, India

21. Manufacturing : Opportunity
The key sectors which promises a huge and attractive opportunity for the Indian manufacturing
sectors are mentioned below.
High Technology Exports
Clean Technology – Wind, Bio-fuels
Heavy and Light Tech Products – Aerospace, Defence
Auto & Auto-components
Consumer Goods – Textiles, Leather etc
© Institute for Competitiveness, India

22. Ranking Manufacturing Competitiveness
• Extensive use of hard data to reflect on
Secondary Research
performance of states and reduce sampling
errors and personal biases.
• Selection of indicators & grouping is done in Identification & Grouping of
way that inform overall policy for corporate to Indicators
take informed decisions while establishing
strong framework for assessing policies at Development of Framework for
various levels in the manufacturing sector. Analysis
• Calibrated weights are applied to the set of
indicator values to generate an overall Index
Analysis & Calculation of Index
score
• Principal Component Analysis is used to
defining weights for the indicators so as to
Rankings of States
take care of multi-collinearity
• First time index is developed hence
Defining Strategy for companies
comparison with past rankings is not and policy imperatives for
available. This would evolve over a period of government
time
© Institute for Competitiveness, India

23. Key Deliverables of the Manufacturing Competitiveness Index
• Assess all states of India on manufacturing competitiveness and come out with an
integrated index grounded in academic research and measured through hard data
• Presents a comprehensive framework of analysis for measuring the manufacturing
competitiveness of the states & concentrate on understanding determinants of
productivity in the manufacturing sector.
• Identification the key pain areas in the states which are affecting the
manufacturing sector in their region Capturing basic insights about state
performance in manufacturing.
• Key strategies with which the companies can increase their productivity in the
manufacturing sector in different parts of the country.
• Implications & suggestions for the policymakers & key government agencies to
enhance the manufacturing competitiveness of their region.
© Institute for Competitiveness, India

24. Manufacturing Competitiveness Framework
Factor MSME Industry
Conditions Performance Factors
Economic
Clusters Innovation
Conditions
Institutional Business
Support Environment
© Institute for Competitiveness, India

25. Manufacturing Competitiveness Framework
Manufacturing Competitiveness Score ( Manufacturing Productivity) =
W1* Factor Conditions Sub-Index score + W2* MSME Performance sub-index
score + W3*Industry Factors Sub-Index score + W4* Economic Conditions
sub-index score + W5* Clusters Sub-Index score + W6 * Innovation sub-index
score + W7* Institutional Support Sub-Index score + W8 * Business
Environment sub-index score
© Institute for Competitiveness, India

26. Factor Conditions
Availability of Communication Human Capital
Infrastructure
Credit
Credit given to the Road, rail and air Availability and Number of
manufacturing infrastructure; access to employees and
sector by different availability of internet, telecom workers engaged
types of financial power, pollution, services that in different
institutions. quality of include land line industries in
healthcare et al access as well as manufacturing, pr
cellular esence of
access, personal vocational training
computers etc institutes and
excellence centres
© Institute for Competitiveness, India

27. MSME Performance
Export Credit & Loans Sickness
Productivity
Performance
Productivity of Exports per Credit and Loans Percentage of
labour, output enterprise from both institutional MSME enterprises
from plant and the MSME sector. and non- which are sick and
machinery. Gross Major industries institutional in suffering from in-
Valued Added per contributing to nature. Interests debtedness.
per enterprise in the exports and paid and
the MSME sector. firms percentage of
performance. enterprises which
have taken the
loan.
© Institute for Competitiveness, India

28. Industry Factors
Diversification of
Productivity Cost Composition Profitability Capital Formation
Factories
Productivity of Share of materials Profits and Capital Formation Number of
labour, output used and fuels in Income made at done at the sector factories which
from plant and the total inputs the factory and and firm level. are currently
machinery. Gross and costs. The industry level. operating in
Valued Added per amount of interest Total amount of different
per factor in the paid and amount debt and debt industries in the
industry sector. spend of plant & servicing at the manufacturing
machinery. factory level. sector.
© Institute for Competitiveness, India

29. Economic Conditions
Difference in
Manufacturing
State GDP GDP Composition Per capita GDP Manufacturing
Growth Rate
and other sectors
Size of the Division of GDP in Short-term and Per capita GDP of Difference in the
economic output various sectors long-term growth the state and growth rate of the
of the state. like rate of the share of the manufacturing
manufacturing, se manufacturing manufacturing per sector in
rvices and others. sector. capita GDP in comparison to
overall per capita other sectors.
GDP.
© Institute for Competitiveness, India

30. Clusters
People Employed
Total Number of Nature of Categorization of
Type of Clusters in Different
Clusters Operations Clusters
Clusters
Total Number of Different types of Clusters operating Division of clusters Total Number of
clusters both clusters in in seasonal, casual like people engaged in
services, manufact different and full-time micro, medium different clusters
uring and industries existing modes. and small in the state.
repairing clusters. in the state. enterprises in
various industries.
© Institute for Competitiveness, India

31. Innovation
Technical-Know Quality Patents &
Technology Used R & D Institutions
how Certifications Trademarks
Source of Status of Number of quality Total number of Presence of
technical-know technology used certifications patents and research and
how of the by the taken by the trademarks taken development
manufacturing manufacturing manufacturing by the institution, excelle
firms like firms like latest or firms in the state. manufacturing nce centres.
abroad, domestic outdated. companies in the
companies and state.
R&D institutions.
© Institute for Competitiveness, India

32. Institutional Support
Assistance in
State Government Special economic
Support in Exports technology up- Banking Support
Incentives zones
gradation
The different Initiatives taken by Different supports Dedicated special Lower interest
policy initiatives the state and assistance economic zones rates given by
taken by the state governments to provided by the for manufacturing various financial
government to increase the state government sector and their institutions for the
support the growth of exports for technology up- performance. manufacturing
manufacturing of the gradation like firms.
growth. manufacturing interest free loans
sector. for manufacturing
enterprises.
© Institute for Competitiveness, India

33. Business Environment
Registered
Lock-out and Doing Business Political Regulatory
Investments Industry
Disputes Conditions Conditions Environment
Bodies
Total Number of New investments Time taken to Number of Crime and safety Quality of
lock-outs and that are expected start a business. Industry Bodies in the bureaucracy, prote
disputes occurring to come in the Operating operating in the state, political ction of investors
in the factory states through conditions and state and their stability and rights and
sector in the letter of intents costs involved in effectiveness in effectiveness of intellectual
states. and foreign taking clearances bringing problems the government in property rights.
projects approved. and procedures of the implementing Burden of
involved. manufacturers to reforms and take regulations
the government. decisions. including
environment.
© Institute for Competitiveness, India

34. Manufacturing Competitiveness Strategy for States
Each state is at the different stage of development in the manufacturing industry and therefore different
strategies need to be adopted to improve the manufacturing competitiveness.
Strong Manufacturing States – Innovation Driven Strategy
These states need to move towards more technological advancement to improve their efficiency in
production. These states should invest in developing advanced skill-sets for manufacturing and become
more export competitive.
Weaker Manufacturing States- Clusters Development Strategy
These states should adopt the cluster based approach focusing on the MSME sector. They need to give
more incentives to the industry in terms of tax, power costs and logistics and try to facilitate more private
investments in the sector.
Medium Manufacturing States- Factors Driven Strategy
These states need to focus in lowering down the costs of inputs of production, develop right set of skills
and talent and remove barriers in doing business. The states should initiate public private partnership
mechanism to attract investments and improve productivity.
© Institute for Competitiveness, India

35. Categorization of States
Strong Manufacturing States
Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Goa, Haryana, Jharkhand
Medium Manufacturing States
Chhattisgarh, Himachal Pradesh, Madhya Pradesh, Odisha, Punjab, Rajasthan, Uttar Pradesh,
Uttarakhand
Weaker Manufacturing States
Tripura, Sikkim, Nagaland, Kerala, Jammu and Kashmir, Delhi, Bihar, Assam, West-Bengal
© Institute for Competitiveness, India

36. Policy Imperatives
• The government should adopt the cluster based development strategy to maintain
the high growth in the manufacturing sector.
• The government needs to develop strategic policy framework to identify and
develop innovative clusters which have the great potential in exports and can
generate more employment.
• There is need to develop investment mechanism to foster public private
partnerships to invest in the sick clusters and focus on improving their productivity.
• State specific approach towards enhancing the manufacturing competitiveness
needs to be adopted.
• The clusters which are not export oriented needs to be analyzed that where they
can fit in the global value chain of manufacturing.
• The manufacturing clusters in India need more marketing and brand building
assistance to improve their export competitiveness in comparison to other
competitors like China.
© Institute for Competitiveness, India

37. Manufacturing: Steps Needed
• Supportive policies for the manufacturing sector which eases land acquisition &
labor employment.
• Focus on growing domestic demand especially in the consumer goods sector.
• New Business models which can fit in global manufacturing value chain.
• Invite global manufacturing giants to come in & invest in India to cater Asian
market easily.
• Investment in Skills development centers and vocational training centers through
Public-Private partnership model.
• Provide support infrastructure in key manufacturing targeted clusters.
• Focus on improving the cost competitiveness of the manufacturing sector
• Marketing support for the firms to increase their exports in big markets.
• Ease the doing business conditions in manufacturing sector to attract fresh
investment and improve overall competitiveness of the sector.
© Institute for Competitiveness, India

38. Manufacturing: Steps Needed
Building world class Infrastructure (Dedicated freight corridors, Roads, Power etc)
People and Skills Development (Vocational Training Institutes, More Training Facilities)
Sophisticated use of IT for supply chain management
Supportive Policy
Investment in R&D (Inviting Companies, Soaps & Tax Holidays)
Technology & IPR (More Incentives needed)
Best business practices
Enhance the Investment Climate in manufacturing sector in Indian States
© Institute for Competitiveness, India

39. Innovation in Manufacturing
The manufacturing firms in India needs to capitalize innovation to increase their competitiveness in
global manufacturing. The present needs of various innovations needed by manufacturing companies
are presented below
Innovation in Sourcing of Raw-Materials
Process Innovation
Decreasing the Product Development Life Cycle
Business Model Innovation
New Management Techniques
Technological Innovation
© Institute for Competitiveness, India

40. © Institute for Competitiveness, India