Relevance: GS-3: Indian Economy, mobilization of resources, changes in industrial policy and their effects on industrial growth.

Key phrases: Industry 4.0, Incentivise Tech Investments, Boost R&D, Human Capital, 5G Technology, Retail Industry, Technological Advancements, Institutional Capability.

Why in News?

• The government must Incentivise tech investments, boost R&D and enhance human capital for industry 4.0 in India.

Context:

• India was once the world's wealthiest and most industrialised country. India's textiles and metals were once the gold standards for product excellence worldwide. Muslin and calicoes made in India were so popular in 1688 that a black industry for counterfeit Indian goods flourished in Europe.
• On the other hand, global circumstances threw India into an unfavourable turn in its history, deindustrialising it during the next two centuries. Furthermore, legacy issues have been hampering India's attempts to reindustrialise even after independence.
• However, technological innovations that took decades to develop in the previous centuries are displaced in years, if not months. This rapid technological advancement provides India with a rare opportunity to industrialise. With the correct policy framework in place, India could leverage the democratic character of technology to reindustrialise itself.

Background:

• The term "fourth industrial revolution" refers to technical advancements in artificial intelligence, machine learning, 5G technology, the internet of things, robotics, biotechnology, quantum computing, and so on. The introduction of these disruptive technologies is currently redrawing manufacturing processes worldwide. Moreover, these technologies have opened up new possibilities for organisations, allowing them to dream large and expand into previously unthinkable regions.
• Take, for example, the retail industry. It began in China in 1999 and reached a global sales total of $768 billion in 2019. In under 20 years, Alibaba has risen to become a global leader in the retail sector, despite never opening a physical store. Because of the democratic character of technology, businesses have been able to overcome their country's legacy challenges and become world leaders in various industries. Effectively tapping technology could help India industrialise and produce world leaders from its soil.

Opportunity for India

• The demographic dividend, data availability at affordable prices, and India's vast domestic market are good indicators. However, lingering structural challenges are hampering India's future potential.
• The World Economic Forum's Future of Production study from 2018 classifies India as a legacy country. I.e., while India excels in technology and innovation and total demand potential, legacy challenges such as a lack of human capital and sustainability limit its future growth potential.
• Overall, India's prospects are promising, pending local reforms. To usher in the fourth industrial revolution, policymakers must focus on the following four areas to prepare Indian enterprises to adapt to the fast-changing technology landscape.
• First, incentivise investments in technology, encourage R&D, enhance human capital, increase institutional capacity and provide a social security net. These four variables, if effectively applied, might hasten India's industrialisation.

Incentivise Tech Investments

• India's FDI policy is highly liberal. As a result, over 80 per cent of FDI enters the country without seeking government approval. However, there are no mandates for technology transfers.
• Hence, investment data shows that from 2000 to 2019, less than 14 per cent of FDI investments went into high-tech sectors. Most likely this is due to India's comparative advantage, primarily labour, and its limited ability to absorb new technologies.
• In the early 1990s, China, which was at a comparable stage, encouraged and provided incentives for high-tech investments in its economy. China enticed foreign corporations with liberal incentives and market access to transfer technology into their country. The positive externality generated by such efforts enhanced domestic enterprises' technology absorption capacity over time.
• As a result, an investment policy specifically for the fourth industrial sectors is required. This will improve technology absorption in the Indian economy and prepare it for the fourth industrial revolution. Introducing a generous reward system tied to technology could also aid India in attracting investment.

Encourage R&D

• Investing in R&D is a critical aspect in allowing businesses to stay ahead of the curve in an ever-changing world. But, unfortunately, India's overall R&D expenditure to GDP ratio is among the lowest globally. India spends 0.62 per cent of its GDP on research and development, which is insignificant compared to China's 2.13 per cent, Japan's 3.20 per cent, the US 2.8 per cent, and Germany's 3.04 per cent.
• Furthermore, there is no R&D culture in Indian businesses. Various government incentives and initiatives have been implemented to support R&D. It is vital to remember that technological breakthroughs fueled the first, second, and third industrial revolutions. Hence, this aberration must be corrected for India to fully participate in the fourth industrial revolution.

Enhance Human Capital

• Human capabilities drive innovation, which is a continuous and progressive process. Human capital is a critical component of the fourth industrial revolution. However, the current Indian education system, focusing on rote learning, will be unable to generate the workforce required in the future.
• Therefore, a new education curriculum that instils sophisticated cognitive capabilities, such as high-level problem solving, skills to adapt to new technology, reasoning, and lessons related to socio-behavioural components are required to create a future ready workplace.

Social Security Net

• The fourth industrial revolution will usher in a society that is increasingly interconnected. Firms will compete worldwide due to enhanced productivity increases brought about by technological advancements.
• Simultaneously, domestic enterprises will face competition from other countries. Firm survival will depend on adopting new technology and boosting factor productivity. Firm churning will likely rise due to this evolution, as will firm mortality.
• Therefore, the country's institutions should develop the technical capacity to deal with such exogenous shocks. Furthermore, a national strategy for reskilling the labour force that becomes unemployed due to technological shocks and an intricate social security net should be established to reduce negative social repercussions. As a result, firms will have more latitude to improve their risk-taking abilities and engage freely in the fourth industrial revolution.

What are the other Challenges Facing India’s Adoption?

Based on my experience in various Indian industries, here are some key challenges:

• High cost of scaling.
• Lack of resources/knowledge to scale.
• Lack of data analytics skills in-house.
• Jugaad attitude from the plant-floor to management level.
• Lack of courage among investors or management from an unclear ROI or value, due to low transparency from the supplier’s side.
• Lack of trust and a fear of failure.
• Lack of coordination from management.
• Less support from shop-floor employees.
• Risks to data security.
• Unclear budget value presented by the project head.
• Lack of leadership support and attention.

Way Forward:

• The rapidly changing technology landscape offers India a good opportunity to industrialise. Even though India has many wonderful aspects, its legacy challenges hamper industrialisation. The democratic nature of technology may be able to assist Indian businesses in overcoming their legacy issues and becoming globally competitive.
• To secure India's active involvement in the fourth industrial revolution, it will be necessary to restructure some vital domestic industries and strengthen institutional capability.

Source: The Hindu BL

Mains Question:

Q. Industry 4.0 is gaining popularity due to rapid improvements made in the cyber-computing capabilities in the last decade, In this regard what should India do to secure India's active involvement in the fourth industrial revolution, Critically Examine.