Precision Engineering: Paving the way for India's self-reliance

Indian economy’s recovery from pandemic-induced stresses and business disruptions has received a thumbs up from IMF and global economists. The provisional estimates of GDP released on 31 May 2022, showing the real GDP growth in 2021-22 at 8.7 per cent is a strong affirmative indicator. However, the global uncertainties resulting from sudden and unforeseen seismic geopolitical tremors brought to the fore the need of developing secure indigenous global supply chains and concomitant domestic supply networks to respond effectively to emerging challenges.

The prevailing geopolitical hurdles have further enhanced the crucial importance of Atmanirbharta in strengthening the country’s digital infrastructure, especially at a time when India is driving tech-led growth and digital inclusion through schemes like BharatNet, encompassing rural broadband connectivity and up-gradation of the fibre network laid across 2.5 lakh Gram Panchayats.

Despite the real GDP in 2021-22 being 1.5 per cent higher than the real GDP of 2019-20, India recorded a current account deficit (CAD) of 1.2 per cent in FY22. India’s widening CAD, exacerbated by surge in crude and other imports has added to domestic inflationary pressures. Thus, it is crucial to strive speedy attainment of self-reliance, and strengthen domestic industries in core and critical segments to catapult the country into a precision manufacturing and technological orbit.

Traditionally, global supply chains in various industries have evolved based on their specific economic advantages in contributing to the diverse stages of the supply networks. However, global disruptions have underscored the significance of geopolitical imperatives in structuring supply networks, moving away from the traditional approach of solely relying on economic efficiencies, cheaper prices and the structure of imports. While India has made a mark as a service-oriented economy, there is need for a sharper focus on various supportive segments of the precision manufacturing economy, not only due to comparative advantages but to leverage the geopolitical vacuum created by growing sanctions on China and also global market uncertainties. There is a strong need to focus on advancing our core domestic industries to ring-fence the economy from business disruptions due to sudden and unforeseen factors.

In the country’s accelerated march to a ‘Digital India’, rapid developments in the capacity for intelligent computing and new age tech-industries has expanded the dependence on semiconductor research and enhanced the economic value of its manufacturing capacity, with the sector growing at 15.1 per cent. The semiconductor shortage resulting from disruptions among key Asian suppliers such as Taiwan, which account for 92 per cent of global production of raw material, crippled global supply chains. These chips, a critical component in a wide array of products ranging from automobiles, electronics, medical equipment and defense, led to a global crisis in today’s technology focused world with burgeoning demand and shrinking supply. The government has come out with several strong initiatives, including PLI support, to boost domestic manufacturing of semiconductor chips and reduce supply chain disruptions.

The need to shore up India’s self-reliance capabilities has also been echoed by the Ministry of Micro, Small and Medium Enterprises (MSMEs), highlighting the establishment of 15 new Technology Centres (TCs) and upgrading 18 existing TCs to create skilled manpower, needed for making India a manufacturing hub with precision engineering.

In today’s world with data as the new oil, smooth and expeditious flow of data in most commercial operations is a pre-requisite for accelerating the inclusive growth of economy with digital fuel. Taking cognizance of this, the government has taken several landmark initiatives, to overcome India’s lag in the establishment of semiconductor wafer fabrication (FAB) units due to a relatively dependent ecosystem, as compared to more competitive bases such as China and Vietnam, by setting up semiconductor manufacturing facilities in the country, including the Program for Development of Semiconductors and Display Manufacturing Ecosystem in India, to foster development of this supportive ecosystem.

Similarly, the government has also announced ambitious plans of laying optic fiber cables across the country, in rural and far-flung areas, as one of its top priorities to enhance the country’s digital infrastructure and strengthen backbone. Consequently, the demand for optical fibers and associated materials, critical for data flows, is going to witness exponential growth, with BharatNet project requiring about 20-25 Mn FKM of optical fibers per year for the next 3 years, etc. This still nascent market, growing at a CAGR of 17.2% from 2019 to 2026, is very well placed to cater to BharatNet fiber demand, in addition to current domestic demand and exports.

As India’s data demand grows, dense fiberization is the need of the hour, along with investments in 5G, FTTH, data centers and next-gen digital networks wherein private players may have important role. Policy frameworks may be needed to promote and protect domestic players against cheaper, low-quality imports especially at a time when geo-political tensions have heightened the importance of building robust, indigenous supply chains.

At the present crucial juncture, and to achieve Prime Minister Modi’s vision of Atmanirbharta, it may be considered relevant to identify the core and critical sectors and support domestic champions therein, to harness and develop their full indigenous potential, to shield and ring-fence economy during any unforeseen geo-political turmoil and resultant supply chain disruptions. The role of precision manufacturing hubs will be crucial among various strategic initiatives in achieving true self-reliance, resilience and an inclusive $5 trillion goal for our economy.

The author is former chairman, Competition Commission of India and Executive Director for India at World Bank. Views are personal.

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