Law of supply and demand
Self-reliance to job creation. Backward integration to production-linked incentives. Smart working to sustainable living. Humility to happiness. Manish Sharma, Chairman, Panasonic Life Solutions India, provides his perspective on all this and more in a dialogue with Venkata Peri, Research and Insights Hub Leader and Sanjay Tolia, a Chartered Accountant
Excerpts from the interview
Venkata Peri: Welcome to the second edition of Immersive Outlook. As we explore India’s journey towards self-reliance and Atmanirbharta, Sanjay and I are extremely excited to have Manish Sharma with us to share his perspectives about the country’s progress towards self-reliance and specific policy interventions that may be needed to accelerate such progress. Manish is the Chair of FICCI’s Electronics Manufacturing Committee and also the Chair of its Sustainable Energy Committee. Manish you have been part of India’s evolution story. Share with us – first, as the chairman of a corporate conglomerate that makes in India for India and for the world and second, as an advisor to the think tanks – how are these efforts evolving?
Manish Sharma: Most arguments about Atmanirbhar Bharat have been very progressive and positive. I believe this approach is the necessity of the hour. With this very rich legacy of our country, I believe citizens deserve a better lifestyle and this is in line with that. And the way I look at it is that it is not about isolating ourselves from the world but it is about integrating on our own terms. I believe that there has to be a methodical approach. If you look at the last seven to eight years, on the supply side, there have been lots of initiatives. On the demand side also we need to have more impetus to create larger demand because we have to somehow unlock that potential which exists with so many people living in this country.
When you look at the last seven to eight years, there have been so many initiatives. Today we are talking about initiatives and long-term solutions. The overarching message is to create a self-reliant India. We need to identify sectors which can become champion sectors and do a lot of things, including job creation for the youth and to fulfil their aspirations. We need an inclusive approach.
When I myself look back in my capacity as Chair and at the figures in electronics manufacturing, I see the dialogue with the Government and industry has been very consistent, especially during the last two and a half years, against the backdrop of this pandemic. I think the intention of both the Government and industry was that how do we really convert this adversity into an opportunity. So while the dialogue was very consistent, it became very objective, deep rooted and agile; the decision-making process really became very fast and it was a very inclusive approach. So all the chambers came together and then under the DPIT there was a committee under the chairmanship of Dr Pawan Goenka which was empowered. This committee was supposed to enable dialogue between the chambers and various chambers were entrusted to various sectors; and then the industry champions and the CEOs came together to do a deliberation for a common cause. While competitive rivalries still remain, we came together for a common cause to precipitate a dialogue for policy formation and let that policy be rolled out in a speedy manner.
That has happened in the last two-and-a-half years, as a result of which 14 sectors were identified for production-linked incentive (PLI) schemes. As we all know, a huge outlay in the budget was announced, almost exceeding INR 2 lakh crore for PLIs. We operate in a lot of sectors.
For example, air conditioners are a great example and look at the potential which exists. Today we are at a penetration rate of just about 6% in air conditioners in households in our country. In 2018–19, we would have manufactured roughly about 5 million air conditioners in the country and imported about 2.5 million in a market of 7.5 million. China would have manufactured 120 million air conditioners then. That’s the kind of difference. We are today sitting on a value addition of about 20 to 25% which means that of the total production that happens, only 25% of components are locally sourced. Look at any other country. A majority of what they produce or assemble, the components are produced within the country. So that’s the kind of potential.
To make India self-reliant we need to manufacture in the country all that we consume; that is, the assembly of all the products we consume in the country should happen here. Second, it is not only assembly but we also need to drive backward integration. Therefore, it was consciously decided that PLI will be applicable on components and not on finished goods, so for example for air conditioners it is on components.
Third, we need to then make ourselves competitive on a global scale, bring in cost efficiencies, global quality and then enable export.
Venkata Peri: Share with us what’s the thought process behind increasing the tax revenue in a skewed economy such as ours.
Manish Sharma: Financial inclusion is underway and I believe also that of the output of GST, strategic output of GST. I will again use the example of air conditioners. We did a scientific study to understand the reason that air conditioner should be considered as strategic, and not a washing machine or any other product category. Look at air conditioners in the entire value chain starting from component manufacturing to production to sales and operations to after sales. It has the potential to create jobs in a variety of domains.
So imagine when an air conditioner is sold, you need people to install that air conditioner; once the installation is done you need people to service that air conditioner, potentially every year for maintenance. So, the number of jobs which this category is creating is far exceeding that in many other categories. Such products are now becoming a necessity, no longer a luxury. And today we attract a 28% bracket of GST across such products.
Another small example is how to integrate the intention of Atmanirbhar Bharat with ‘Surakshit’ (secure) Bharat. So, there’s another strategy which is being discussed which is for the CCTV industry, the security surveillance industry; and again that industry is very similar to the air conditioners industry because not only do you need people to manufacture those products – including the necessity to create storage capabilities for that surveillance to get stored on a platform – but also you need people to install cameras and then subsequently maintain them in the time to come. So, again, a very high potential industry.
Sanjay Tolia: Just connected to your point around increasing the manufacturing base and actually bringing backward integration into Tier 2, Tier 3 cities, how do you think that can be achieved? I know you are very passionate about entrepreneurship. How can we provide incentives to them and automatically expand the tax base for the Government?
Manish Sharma: Plenty of things are happening. Today, distribution is just about 25 to 30% of the total opportunity which happens. Retail has formalised in the last 10 to 15 years and today they are empowering consumers by explaining to them the benefits of a variety of products. Then, after-sales service, for example, has changed quite significantly today. Now there is a network of authorised service centres and then all this is riding on data. Then, we are also looking at a situation of analysing this huge amount of data which is being created. On the supply side, opportunities will continue to grow so we are no longer going to deal with products in isolation but looking at letting these products get connected, talk to each other and provide better, comfortable, convenient, energy-efficient and smarter living conditions to people. And then this data is to be analysed for the benefit of both the manufacturer and consumer. I think this is going to take some time, but it will open up opportunities and enhance the collection of both direct and indirect taxes.
I think this is work in progress and somebody has to do a tightrope walk. You know, dil maange more, so we also expect that the GST rate reduction will help open up the demand in a much faster manner than what it is.
Sanjay Tolia: And taking that forward, we spoke about India for India and India for the world. To give an example, at least 35% of income should come from exports. Do you think there is more to be done on the infrastructure side, more to be done on the incentive side or more to be done on the digital India side? Given the geopolitical situation around the world, are we probably in the best situation?
Manish Sharma: We are definitely in the best situation. I was in Vietnam last week and I had a fair chance to understand some benchmarks. I must say that sometimes perception is far different from reality.
Consider again the air conditioners industry; when the PLI was announced for this industry, the total budget outlay was roughly about INR 6,200 crore for this industry, and we took just about seven to eight months to create a consensus within the industry to make a formal proposal about what the PLI for this industry should look like. Now this is phenomenal. Then, the PLI was rolled out in a couple of months. This is the speed at which the dialogue and roll-out of policy have happened and look at the way the industry has responded.
On a budget outlay of INR 6,200 crore, the applications which were received for air conditioners and LED lamps for components exceeded INR 6,500 crore. So, I think there are many opportunities which exist. We are potentially on the cusp of exploding, both for domestic demand and also for enabling export. We have to do that simultaneously.
Sanjay Tolia: And what would those steps be?
Manish Sharma: On the supply side, it is very clear that we have to leverage our biggest strength which is the demand of the country and we have to really put money in the hands of people. So, potentially, that would be the consistent expectation from the Government, especially during the time the budget is being formed; that how do we ensure that money is put in the hands of people, how do we really take advantage of the potential which exists. That is one. Second, manufacturers have a responsibility that they should not look at India merely to assemble their products, they have to really backward integrate.
Then, we need to also enable small and medium enterprises with access to technology; so we should look at some of our friends elsewhere. Taiwan is a good example, Japan is a good example to make technology accessible for small and medium enterprises, and large OEMs have to play a role in letting that happen. The automotive industry has already done that.
The second outreach has to be at the place of consumption, so can we look at delivering the FTAs or even the economies which are high on consumption, especially look towards the wWest where India has a strategic logistical advantage compared to let’s say the Southeast Asian competitors. So, I think the world is looking at us and there are many reasons for the world to do so. It goes beyond cost efficiencies and de-risking supply chains. This is our time and we should enable those outreaches in a very objective and a phased manner.
Sanjay Tolia: How do you build the next class of leaders and future capabilities?
Manish Sharma: In a larger sense, I think we have been lucky. You need to have a framework and a certain amount of consistency in your approach to build capabilities for the organisation and eventually collective capability translates into performance and sustainability for a company.
In our organisation, I am extremely happy to share with you that culture is something which differentiates us from many and this has happened over a long time. We being a diversified conglomerate operating out of multiple product divisions, I believe that in the first instance, it is necessary to make everyone within Panasonic its stakeholders, aware of the purpose for which we exist, and let people get engaged with each other.
In addition, we have created a culture – Vibrant Panasonic – to take people beyond engagement. In the last few years, we have invested a lot of time and I am extremely proud to share with you that we created a framework roughly about four to five years before - of moving beyond engaging people to providing platforms for their well-being. Our intention beyond 2025 is to start to measure the happiness quotient of the organisation. So, that’s the kind of structured approach which we are taking. You also need to identify which attributes would define people at Panasonic, not only the employee but also the stakeholders. We have seven guiding principles which were given by our founder many many decades ago and those seven principles are something like our guiding light. In line with this, we have a very methodical approach of identifying the global competencies of people.
When I look back at the last 26–27 years since I’ve been a professional myself, I think there are three attributes which cut across the board and which I try to propagate in my own small way to people. Ambition. Resilience. Humility. So, ambition, resilience and humility are what define people at Panasonic.
Venkata Peri: You work in a setup that consumes a lot of energy and you have set very aggressive goals for yourself. How do you handle the dichotomy and what specific steps are you taking to create an environmentally sustainable Panasonic over the next few years?
Manish Sharma: It may be easy to say that you need to make sustainability or ESG-based governance models central to what you do. But I think we have reflected ourselves as a responsible organisation. It is not only about designing products which have minimal impact on the environment. Sustainability is not only about designing and producing products which are sustainable; but it is also about looking at the total value chain and its impact on the environment and society. It has been more than ten years now since we have this washing machine factory in Haryana. You will be extremely happy to know that we have not tested our washing machines using water ever. For many years, I was aware that it was only we who were testing the washing machines using air and not water. Those are the investments which we have made. Looking forward, we have set tough targets for ourselves looking towards 2030 and also beyond. There has to be a very data-driven, methodical approach. You need to measure your footprint in a very methodical and objective manner.
Venkata Peri: You provided a lot of insights into leadership, walking the talk and creating a purpose-driven organisation. Thank you very much for your precious time. We wish you all the very best.
Manish Sharma: I must say thank you to you too. Many thanks for the opportunity.
