The current industrial model of growth developed when water, land and energy were plenty. Today, water is scarce, land under pressure and energy increasingly expensive. Making in India, is not exactly a cakewalk even if government regulations and approvals become easier.
Even if manufacturing does speed up, the ills of unfettered manufacturing are equally well known. China, the manufacturing hub of the world has seen increasing water and air pollution, unmanageable urbanisation and civil unrest.
At the same time we need to ask ourselves if there is stress on the environment should we abandon a model that promotes manufacturing ? At the ET Global Business Summit the consensus seemed to be that manufacturing is essential for growth and an increase in jobs, while at the same time manufacturing with responsibility is more the need of the hour.
But manufacturing with responsibility can’t just be a slogan. The business model needs to integrate responsibility in its DNA. For that we need to look at a 21st century model of manufacturing.
1. Small is beautiful
Conventional wisdom focuses on economies of scale to gain competitive advantage. Yet large firms are susceptible to volatility, uncertainty, complexity and ambiguity (VUCA) making them fragile. Companies and businesses that are small tend to be agile and robust – antifragile. A model that focuses not on aggregation and economies of scale but on swiftness and innovation and perhaps in India’s context is more local. Many small local manufacturing plants with a low, if not a zero, environmental footprint.
2. Partnerships
Local partnerships where resources are shared and rejuvenated and not exploited. They can be a basis for responsible growth and increased employment. Linkages can foster greater innovation, productivity and sustainability. Three models: Company to Company (C2C); Company to Social Organisation (C2SO); and Company to Governemnt (C2G) models can proliferate. Also, partnerships need to be developed at all points of the value chain for best results.
3. Promoting Green Business Models
Three types of green business models exist – the classical model focusing on green materials, renewable energies and reuse/recycle; the benefits model linking corporations for common good; and the products and services model that extends to both manufacturing and services. We need to look at all three approaches to foster increased growth and competitiveness by promoting businesses that build on sharing, dematerialisation, reuse and recycling of resources and clean energy. Green logistics too need to emphasised which most Indian companies don’t seem to pay much heed to.
4. Responsible Finance
Being responsible is costly is touted as the reason for not being responsible. This under weighs the benefits that accrue from responsible business and increased competitiveness that it brings about. The capital markets have evolved to provide both funding for responsible business as well as provide liquidity for firms that engage in responsible business. Instruments like Social Impact Bonds (SIBs) and green financing can go a long way promoting responsible business.
5. Using the public sector to promote responsible sourcing
The Public sector is a large consumer of resources. Efficiency and regard for resources in government functioning would indeed set a high standard. Also setting standards for suppliers would have a ripple down effect for downstream companies. The government can set an example for private corporations by creating model frameworks within public sector that can be replicated by private corporations.
6. Strengthening the framework for corporate disclosure
Our current laws make CSR investments mandatory but disclosure guidelines leave more to be desired. GRI is a globally accepted standard for sustainability reporting and has several parameters that are far in excess of what the Indian Companies Act prescribes. A move towards such globally accepted standards of CSR and Sustainability disclosure will help in adding the requisite checks and balances for responsible growth.
7. Linking Responsible Make in India with Digital India
Information flows across partners and communication of responsible business requires a strong technological backbone. This can only come by linking firms supply chain with the digital infrastructure. The government can leverage the Open Government Data (OGD) platform for a more transparent responsible business.
Article coauthored with Utkarsh Majmudar and originally published in Economic Times.
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