There is a Hindi proverb, “Chhoti chabi bada tala khol sakti hai” (a small key can open a big lock). This may hold some lessons when it comes to big-picture thinking on a particular reform agenda that has recently captured policymakers’ attention: Transforming India’s manufacturing sector.
The ambitions are clear — to grow India’s economy to $10 trillion by 2035, and with it, grow manufacturing’s share from 15 per cent of GDP to 25 per cent. The goal of this shift is to increase the employment elasticity of growth, which is to provide greater employment per unit of output. This implies a four-fold growth in manufacturing.
With the serendipitous opportunity offered by China post-Covid, Prime Minister Narendra Modi’s government has not spared any effort. Everyday, we see announcements related to Production Linked Incentives (PLIs) and Make in India, particularly for focus sectors like electronics and semiconductors.
Before the country went to elections, the government had asked all ministries to prepare a 100-day plan so that it may hit the road running. States are not far behind in engaging on this, rolling out the red carpet to large-scale manufacturers like Foxconn, Micron, and Tata, and creating critical mass in specific industries like the rapidly emerging assembly and packaging industry in Sriperumbudur and the Electric Vehicle hub at Hosur. There is increasing talk of football-field-sized mega factories dotting the industrial landscape across India, the first few of which have already been established.
Amidst the fervent debates over fiscal incentives and land-related policies, there exists a narrative often overlooked. Picture this: A young factory worker, his hands calloused from years of labour, his dreams weighed down by the relentless grind of productivity quotas. This worker is not merely a cog in the machinery of industry; he personifies the essence of the third factor of production — labour. While attention is lavished upon capital and land, his plight remains shrouded in the shadows of neglect. The key to unlocking India’s manufacturing prowess lies not only in setting the right policies but also in the empowerment of its workforce.
One way to enable this empowerment is through safe, on-premises or factory-adjacent workers’ accommodation. This will range from housing for managers and supervisory personnel to dormitories for entry-level workers. It has the power to address other aspects related to skilling, productivity, and attrition as well.
Speaking recently to The Economist, Josh Foulger, a pioneer in setting up assembly and packaging plants for many multinational firms said, “Women only or women majority factories can create a virtuous cycle of both worker and women’s empowerment.” Recognising the importance of this, Apple, which manufactures its iPhones directly through Foxconn International in India, has committed in principle to putting up 78,000 units for its assembly workers.
Currently, most of India’s factories are sourcing their workforce from ad hoc accommodation in cities and peripheral areas. This arrangement is fraught with challenges: Our study of select factories around Bengaluru showed that workers travel by bus for approximately two hours each way to the factory. This has a cost as well as a productivity problem — costing more than Rs 5,000 per worker per month, and leaving workers exhausted even before they begin their shift.
There are lessons to be learnt from other countries that have solved this issue, each in their own way. China is famous for its in situ housing for workers, including mega-factories like the Foxconn one in Guangzhou, which has dormitories for over 3,00,000 workers. Clearly, scale is important, but too big a scale may also pose some challenges like they did for China during Covid. It is critical to recognise what can work in a democracy like India and ensure that the right conditions are enabled. Korean parallels may be more suitable for us, with their stringent labour laws and worker-friendly policies.
In post-Independence India, we have examples both among public sector undertakings like Bhilai, as well as in the private sector (Tata Steel Jamshedpur) where housing and community were a central aspect to the establishment of large-scale factories. The circumstances today are different and there are more choices in the operating mechanics, but the central idea is still the same: Addressing the issue of workers’ accommodation is crucial, in both a practical and moral sense, to our desire to ignite large-scale manufacturing in India.
Are there specific policy implications of adding workers’ accommodation to the policy framework for manufacturing? Yes.
First, land allotment must extend beyond factory construction to include workers’ accommodation. This will require tweaks in industrial land allocation regulation at the state level, including flexibility in the operating arrangements for this enabling infrastructure — built either by the state government, or run by the company itself, and, better still, by specialised institutions that focus on creating and/or managing workers’ housing assets. This is already happening in student housing — with investors and operators having emerged over the past decade because the market opportunity and unit economics are attractive.
Second, the recognition that this is not just a state government issue. The Union government’s role is to catalyse this enabling infrastructure by offering the right tax incentives like GST reduction and other fiscal incentives for investments into workers’ accommodation. Priority sector tagging for the construction finance of this infrastructure, and collaborative financing through vehicles like the National Investment and Infrastructure Fund (NIIF) for credible projects in this space will add further impetus.
Even after these steps are taken, it will require leadership from private sector entities to establish top-notch workers’ accommodation. Economic factors will steer this enlightened self-interest: Reduced transportation expenses, heightened productivity, enhanced training capabilities, mitigation in workforce attrition, and lower carbon footprint.
This triangular leadership between the Centre, state and the private sector firms can help deliver on this important agenda. The “chhoti chabi” of workers’ accommodation could well be the key that unlocks the bada tala of India’s manufacturing ambitions. It deserves to be a part of the 100-day plan for the new government.
Bedi is CEO and Ramachandran is an advisory board member of Janaadhar
