On July 18, the Indian arm of General Motors informed the government that an internal probe had shown that its employees had sent for inspection new Tavera models that were fitted with engines that had already been approved in order to meet the emission standards, and that they had falsified data about the weight of the multi-utility vehicle to get away with lighter emission controls. The company suspended production and distribution of two models of the Tavera and recalled more than 100,000 units it had sold since 2005. General Motors has taken action against the employees responsible for this misdemeanour. Several senior people have been asked to leave. More heads are expected to roll.
Was this an isolated lapse? Hardly. Mint reported last month, quoting information provided by the Society of Indian Automobile Manufacturers, that Indian car makers had recalled 11 per cent of the cars they had sold in the 12 months to June 2013. Those who recalled their products during the period include Toyota, Honda, Ford, Renault, Nissan and Mahindra & Mahindra. The General Motors recall will only increase that number.
Is it something restricted to the automobile space? Again, hardly. Look at the problems Indian pharmaceutical companies have had with the United States Food and Drug Administration, or FDA. Ranbaxy admitted in May that it had falsified data while seeking approval to sell its drugs in the US and paid a penalty of $500 million (Rs 2,743 crore) to close the case. The stories that tumbled out after the fiasco were startling, to say the least. Executives, it was alleged, would bring medicine from abroad in suitcases, which would be ground and repackaged as Ranbaxy medicine and then sent for approval to the FDA. The incidents relate to the time Ranbaxy was owned by the Singh brothers, Malvinder and Shivinder. They have denied any wrongdoing. But nobody contested that serious manufacturing lapses had taken place.
In June, the FDA issued a warning letter to RPG Life Sciences for violation of current good manufacturing practice norms at its two plants in Ankleshwar and Mumbai. And in mid-July, in a letter addressed to Habil Khorakiwala, the FDA said it might freeze approvals for any new launch Wockhardt was planning in the US until the company addressed its concerns about its factory at Waluj. The FDA also recommended Wockhardt hire independent auditors to review its operations at Waluj and asked the company to detail its plan for an upgrade. According to Wockhardt, the FDA import alert will cause an annual loss of $100 million (Rs 600 crore). On Wednesday, Strides Arcolab's share fell steeply after the company disclosed it had received "observations" from the FDA in June about its factories and had responded to them. In addition, there have been several product recalls by Indian drug makers in the US. In the past year or so, Ranbaxy, Sun Pharma, Cadila, Dr Reddy's Laboratories, Glenmark and Lupin have recalled some of their key drugs from the US market. Little surprise then, as Business Standard has reported, that the FDA has decided to tighten the regulatory standards; instead of one batch of medicine, companies will need to send three batches to the FDA for inspection before they can launch the drug in the US.
Both car makers and drug makers say there is nothing unusual in these numbers. The world over, manufacturing regulation is being upgraded and such things - recalls, essentially - are bound to happen at this stage. That many of the recalls have been voluntary shows that Indian industry is finally coming of age - the tendency to sweep such things under the carpet is on the decline, they argue. That may be true, but only to an extent. The number of incidents of recall and defects in India is far greater than that in other countries.
Credibility is a serious crisis Indian industry faces; of course, apart from the fact that manufacturing in the country is in decline - many Indian industrialists refuse to invest any further in the country. For the credibility gap, industry cannot get away by putting the blame on Manmohan Singh, Sonia Gandhi, Jairam Ramesh and Jayanthi Natarajan. The fault lies within, in the quick-fix approach of Indian business. Jugaad and frugal engineering, the skills that were supposed to catapult India to manufacturing greatness, have grounded the Indian story. What was being hailed as innovation not so long ago was, everybody now seems to have realised, nothing but cutting corners and skipping processes. It was shabby engineering masquerading as innovation. Industry associations have for several years talked of building the "Made in India" brand through an advertising campaign. I doubt if that alone will work. The biggest advertisement for Indian produce is the produce itself; unless it is of high quality, nobody will buy the advertising campaign.
One reason for the poor quality of Indian manufactured items is poor human resources; the challenge in recent years has become severe. A majority of those who pass out of engineering schools are unemployable, and companies that hire them are unwilling to spend on their training because the money comes straight out of their profits. In fact, thanks to the inflexible labour laws, most companies prefer to engage contract workers. This, by nature, is a low-engagement affair. The company has no interest in upgrading the skills of such workers. Most business houses pay lip service to innovation, though there are exceptions like the Tata group and Mahindra & Mahindra.
The need for excellence in manufacturing cannot be overemphasised. It is now widely acknowledged that the only long-term solution to bridge the rising current account deficit is higher and higher merchandise exports. That can happen only if the quality controls are strengthened immediately.