Milind Sohoni: You have been closely associated with the manufacturing sector for a very long time. In particular, what lessons can our readers gain from the incredible success of Bharat Forge?
Baba Kalyani: Till the 1980s and 1990s, we were a typical Indian manufacturing company burdened by regulation, licensing, high costs for capital and materials. So like everybody, we deployed a business model that was based on low capital, high manpower and low technology.
But, somewhere in the late 1980s and early 1990s before liberalisation happened, we turned the whole business model on its head. We decided that to be a successful export company – we did not even think about global leadership at that time – we needed to have high technology and invest a lot of money and capital. It was necessary to lay emphasis on skilled people and to allow automation. This shift was a key game changer for us. We offered voluntary retirement to about 2000 of our blue-collared employees and hired 800 engineers in their place. We started using robotics and technology at a very high level. Ever since then, we have not looked back.
To be a successful export company, we needed to have high technology and invest money and capital. It was necessary to lay emphasis on skilled people and to allow automation.
The forging business worldwide is not a very big business. It is typically run by technocrat entrepreneurs in Germany, Japan and the United States. There are only two companies in the whole world that have a turnover of more than a billion dollars. We have a turnover of about $ 1.3 billion. In the initial days, to turn India into a market or a country from where you can supply to the world was itself a challenge. We are still not known as the best manufacturing destination in the world, but we are getting a little better by the day.
We at Bharat Forge used high technology and innovation to create new businesses and product capabilities, for global markets. That has almost taken us to the number one position worldwide in our business. As a result of that, we transformed into a technology-driven global leader in metal forming, having a transcontinental presence across ten manufacturing locations, serving several sectors including automotive, power, oil and gas, construction & mining, locomotive, marine, defence and aerospace. We are also recognised by our customers for an excellent repository of metallurgical knowledge in the region. We offer full-service supply capability worldwide.
Building on the earlier question, what can programmes like the Make in India learn from Bharat Forge’s success story?
Coming to the whole Make in India business, I took up a challenge when the debate started in December 2014. The Prime Minister had called a big meeting in New Delhi with all the ministries. We said, let’s do something for the national cause. Of course, we accorded the highest priority to the Defence sector, because that is very close to metals, metallurgy and the kind of industry that we are in.
Earlier, in 2011, I decided to take up defence manufacturing as a personal challenge and a national commitment. We acquired the RUAG plant from Switzerland and established an ordnance manufacturing facility in Pune. We interacted with various designers in this domain and also with experts from Cranfield University and the British School of Artillery in the United Kingdom. My team and I were confident that with these assets and knowledge, we could develop and manufacture world class products.
In 2013, the first barrel was out. Thus the vision soon fructified. In the last five to six years, we have been able to successfully develop seven artillery platforms, an amazing achievement considering we started from nothing. Just putting a bunch of engineers and having enough passion and belief in oneself to say, “Okay, let’s make it happen.”
The Advanced Towed Artillery Gun System (ATAGS) that we developed with the Defence Research and Development Organisation is touted to be the most modern artillery weapon system in its category. The entire weapon system was developed and proof-tested in a record period of less than two years. The Government of India showcased the system in Republic Day parade in January 2016. Just recently, the Ministry of Defence has officially announced that they will be procuring these gun systems.
You spoke a bit earlier about developing and manufacturing the Howitzer gun. Can you elaborate a bit more on the Research and Development (R&D) effort using simulations in labs before it was deployed into the field?
With the success of ATAGS and other Artillery platforms, we have now proven our metallurgical expertise, especially in the engineering and manufacture of ordnance. Encouraging the private sector in defence production is a recent phenomenon, but we provided a level playing field to the Indian industry. Self-reliance will only be achieved when both the public and private sectors are provided equal opportunity and optimal use is made of all the resources within the country.
With this, we produced a gun weighing around 4.3 tons. It is not only just a Howitzer but the world’s best Howitzer. We have identified 20-30 defence projects and they are now in the pipeline to realise the Make in India dream. These could include artillery, ships, missiles and ammunition.
We focus more on the Research component and have on our rolls some 60-70 graduates from the Indian Institutes of Technology (IIT) at Mumbai, Madras and Kharagpur. There are 60 M Tech post-graduates and 10 PhD holders in our group. Of these PhD holders, six are engaged in research specifically. Our cutting-edge research facilities include 3D printing, Metal Injection Moulding, Ballistic Simulation as well as instruments to measure firing pressure. We have the ability to analyse faults in forging or casting down to the molecular level. We also have jet engines for Unmanned Aerial Vehicles (UAVs) and we have already produced three which are being rigorously tested.
I must say that in the project with the Defence Research and Development Organisation (DRDO), they have played a significant role. As an organisation, DRDO is supposed to be the keepers of technology in this field. But yes, we have developed and used simulation technologies. We can now perform ballistic simulations of shells firing at a speed of 1000 metres per second. That is a kilometre per second.
You raise a fascinating point here – the fact that you were able to use technology to do this kind of R&D to move up in the value chain of manufacturing. However, if you look at the Indian manufacturing ecosystem, only a few sectors have been able to do this. Why do you think that is the case?
The problem in our country is that the default setting is the public sector. You remove the default setting and privatise it. That will drive faster innovation. There are several opportunities across various sectors.
The Indian School of Business (ISB) is a good example. If you were under the government, you would not be where you are today. India, as a nation, is not disinclined to innovation. The way in which Indians today have overwhelmingly adopted smartphone technologies in such a short period was once unimaginable.
India, as a nation, is not disinclined to innovation. The way in which Indians today have overwhelmingly adopted smartphone technologies in such a short period was once unimaginable.
The role of the private sector becomes extremely important to find solutions to the problems we have in front of us today. These challenges will only rise with time owing to the volatility in technology, geopolitics and global protectionist attitudes. Until a few years ago, our economy lacked a level playing field where innovations could compete and disrupt longstanding practices. With more competition fostered in the market today, individuals are more willing to take risks. If we transform India into an innovation-driven economy, it can become a prosperous nation with a large number of medium-income people.
I think that is quite what the Prime Minister’s Make in India policy and initiative is about. Whether it is Make in India or Skill India or Start-up India, these initiatives are designed to change the whole ecosystem in this country and create a level playing field for more people to innovate.
Do you think that the vision to make the Indian manufacturing sector contribute 25% of the GDP by 2025 is a distant dream? Or are we making reasonable progress in shaping India into an attractive manufacturing destination?
I do not see it as a distant dream. I think India is getting there step by step. A lot of things are happening today which are not visible at the surface. A lot of changes in policy. The investment cycle is just starting.
Unfortunately, we got saddled with issues related to Non-Performing Assets (NPAs). This is a huge problem. It is unbelievable that gross NPAs are now close to Rs 10 lakh crores. It has completely destabilised the banking system and its ability to fund growth in this country. But thanks to people like Raghuram Rajan and even the current dispensation who have taken a firm stance against this problem and said, let’s solve this problem. We cannot just keep brushing it under the carpet, evergreening bad loans and letting the problem grow bigger and bigger.
We got saddled with issues related to non-performing assets. We cannot just keep brushing them under the carpet, evergreening bad loans and letting the problem grow bigger and bigger.
Within a one- or two-year period, we should see a reasonable end to this problem. In the meantime, the economy has started growing again. The growth rate is now close to 7.5%. I think next year it would be even better. With reasonable monsoons, our agricultural sector should do reasonably well. You should start seeing the whole investment cycle coming back.
If these policies aimed at growth really worked the way they were intended to, we would see a 10% growth rate in GDP. And if India has a 10% growth rate in GDP for the next 15 years, it will almost equal China in its manufacturing progress. If it will happen by 2025, I am not sure. But by 2030, I am confident that it will happen.
That is very heartening to know. But at the same time, productivity may go up and manufacturing employment may not rise in a commensurate manner.
You are right. Productivity is going up very dramatically. I mean, if you look at my own business, I foresee a two to three times increase in productivity. Now everybody has started thinking about the whole digital business. How do you create a 5x or 10x change? Google’s philosophy is if things don’t make a 10x improvement, forget the initiative. It is not in your business model.
Digital technology, Industry 4.0, automation, all that are going to help. But it does not mean that fewer jobs are going to be created. I think there will be fewer blue collar jobs on the factory shop floor. But a lot more highly paid jobs will also be created.
If you look at the Indian manufacturing sector today, the gross value added was roughly $380 billion. That is nearly 16% of our GDP. To take it to 25% of GDP by even 2030, manufacturing activity must increase manifold. Now in 70 years since Independence, we have achieved about $380 billion. In the next 10 years, if we increase that number by multiples, it will create a lot of jobs. But jobs will not emerge in the traditional industry. The technological revolution that is encircling us all over the world is going to create tremendously different opportunities and different challenges.
Jobs will not emerge in the traditional industry. The technological revolution is going to create tremendously different opportunities and different challenges.
How do we make the manufacturing sector attractive to this tech talent? What needs to be done to change the management perspective on increasing productivity in this sector?
The manufacturing sector does not attract the best talent in the country. If you look at the manufacturing sector over the last 20 or 30 years, the burden of skilling has been with the industry. It has not been with the educational institutes or the universities. Except for some of the IITs and management institutes like yours, not many institutes produce talent that is suitable for industry. And today, most of the engineers who come out of IIT move to the US or other countries. The very few who remain here end up working for consulting companies rather than manufacturing companies or financial services.
If you look at the manufacturing sector over the last 20 or 30 years, the burden of skilling has been with the industry. It has not been with the educational institutes or the universities.
The burden of skilling needs to shift to the education system. So the education system needs to get redesigned and reconfigured to produce people with the complete skills that are required in the field. That linkage currently is missing. The Ministry of Skill Development and Entrepreneurship set up by Prime Minister Modi is doing some work in this direction. But there is still a considerable gap.
You are currently heading a government panel to study the Special Economic Zones (SEZ) policy. For more than a decade now, SEZs have been promoted in India for increasing manufacturing competitiveness. Why in your opinion have SEZs not worked?
It is very simple. There are two types of SEZs. One type is in the cities and houses the Information Technology (IT) sector. As a developer, it is largely a real estate play rather than a substantial economic activity. Therefore, a public perception got created that SEZs are a real estate business.
Now if you look at a manufacturing SEZ, it is necessarily located at least around 60 or 70 kilometres out of a city. There is no real estate play there. You need to provide a huge amount of supporting infrastructure before you can even get it started.
If you are inside the city and if you are putting up a ten-storey building, you would use the infrastructure the city already has. This difference is the reason why SEZs are not working. You need to remove this island called the SEZ and just merge it into the mainland, like China.
SEZs in India first started with tax breaks as the key feature. These tax breaks were taken away and then they became a real estate business. Consequently, the whole political system too started looking at them as a real estate business. So we just lost the concept of what an SEZ can do.
SEZs in India first started with tax breaks as the key feature. These tax breaks were taken away and then they became a real estate business.
On a slightly different note, given your efforts with education, particularly for the underprivileged and your work with Pratham, what would you say about education at the primary, secondary and tertiary levels in the country?
It is extremely important to give back to society. It is essential for people who are in a position to help to support those in need, especially in the cities. Otherwise, we are going to create a huge social divide. That is already happening but it will only become bigger.
Pratham supports over 18,000 children today. These are 18,000 children who would not otherwise go to school.
We have been doing this for close to 15 years now. Some of the children have graduated and have got great jobs. Some are in the government. The alumni of Pratham are currently in the millions.
Thank you for taking the time to share your thoughts with us.
A Padma Bhushan Awardee for contributions to Trade and Industry, Baba N. Kalyani heads Bharat Forge Limited, the flagship company of the Kalyani Group. Bharat Forge is the world’s second-largest forgings manufacturer.
Among Baba Kalyani’s many international awards and honours are the Swedish government’s Commander First Class of the Royal Order of the Polar Star, Germany’s Cross of the Order of Merit, France’s Knight in the Order of the Legion of Honour. He was also conferred the title of Forge Master at the 20th International Forging Convention in 2011.
A graduate of the Master of Science programme at the Massachusetts Institute of Technology (MIT), Baba Kalyani is Doctor of Science (honoris causa) from the Deakin University, Australia and IIT Kharagpur, India.
Milind Sohoni is a Professor of Operations Management and Deputy Dean – Faculty Development & Registrar’s Office at the ISB.