Report on the India Mission
October 19, 2012
GRIPS Development Forum
Researchers of the GRIPS Development Forum visited India (Delhi and its vicinity, Gurgaon
and Manesar in the State of Haryana) during September 23-29, 2012 to study India’s
experiences in economic and industrial policy making and to draw lessons for otherdeveloping countries including Ethiopia and Vietnam1. The mission members were Prof.
Kenichi Ohno, Prof. Izumi Ohno, and Ms. Mieko Iizuka (research assistant).
The mission studied (i) methodology of India‘s economic and industrial policy making,including the policy contents and processes of the latest Five-year Plan, the National
Manufacturing Policy, the Delhi-Mumbai Industrial Corridor, kaizen (productivity and quality
improvement), investment attraction, and the roles of export promotion organizations andindustry-specific organizations; and (ii) institutional aspects of policy making at present andin the past including how coordination works among various ministries, agencies, and otherstakeholders; the roles of state governments and the private sector; and how
implementation and monitoring and evaluation mechanisms are set up.
We had meetings with government ministries and agencies, the resident office of the Stateof Gujarat in New Delhi, business associations, industry-specific organizations, andresearch institutes and universities (see attachments for mission schedule, places visited,and information collected). We would like to express our deep appreciation to allorganizations and individuals who kindly received us and shared valuable information withus. This report summarizes main findings of the mission.
1. The state of the economy: liberalization and the role of manufacturing
After independence in 1947, India embraced heavy industrialization and state-owned
enterprise development under socialistic planning. Serious effort in economic liberalization
was started in 1991 by the Narasimha Rao government (1991-1996) where Dr. Manmohan
Singh, the current Prime Minister, served as Finance Minister. Economic growth and FDI
inflow were stimulated by this policy shift. Ever since, despite changes in ruling parties, India
has stayed on the course of gradual and steady liberalization. In 1991, seven sectors were
designated as public-sector only areas, 18 sectors were licensing areas, and over 800
sectors were reserved only for small-scale enterprises. Today, only two areas are
public-sector only areas (atomic energy and railroad), only five areas are licensing areas
1

The purpose of this mission, which was commissioned by JICA, was to compile information on industrial
policies in selected Asian countries for the policy learning of other developing countries. In the phase 1 ofJapan-Ethiopia industrial policy dialogue 2009-2011, we visited Singapore (August and September 2010),
South Korea (November 2010), and Taiwan (February 2011). Our India mission was part of phase 2 ofJapan-Ethiopia industrial policy dialogue 2011-2013.

1

(defense industry, industrial explosives, cigarettes and tobacco, hazardous chemicals, andportable alcohol), and only 20 items are reserved for small-scale enterprises. Many of these
permissions are devolved from federal to state levels.
According to a non-government researcher, remaining focal points in industrial policy are (i)licensing policy, (ii) FDI policy, (iii) monopoly restrictions and trade practices (MRTP), (iv)plan documents, and (v) annual budgets that determine actual resource allocation.
According to other researchers, the only remaining significant economic controls are mainlyin FDI policy, where Prime Minister Manmohan Singh just recently launched a new drive toliberalize even that area (multi-brand retail FDI). Another current move is introduction of“e-Biz” to simplify business permissions. Despite these policy efforts, however, India’s
business environment generally and in reality still remains difficult and fraught with delays,
ambiguity and bureaucracy according to foreign firms.
The Indian economy registered high growth in the early 2000s, to the tune of 9% per annum,
but growth has fallen recently to the 6% level2. This slowdown was partly due to thetightening of macroeconomic policy to fight inflation and partly due to the impact of a seriesof global crisis. As interest rates rise and both domestic and global markets shrink, Indian
manufacturers are currently facing difficulties. Fiscal and current-account deficits are otherserious problems for India at the moment.
From a longer perspective, high growth generated by economic liberalization in the past two
decades was remarkable, but growth came mainly from service sector expansion in which
ICT and finance were prominent drivers. Services rose and agriculture fell in the share ofGDP, but manufacturing’s share remained stagnant at about 15-16%. A concern rose among
political leaders that lopsided growth in certain service sectors did not produce enough jobs
for all, and that strong manufacturing was needed to sustain shared growth in a hugeeconomy such as India. The incumbent United Progress Alliance (UPA) government led byPrime Minister Manmohan Singh, which came to power in 2004, immediately appointed Dr.
V. Kurishnamurti as the head of the National Manufacturing Competitiveness Council（NMCC） to coordinate related ministries and produce a manufacturing policy for the firsttime in India. Businesses and academics also participated in this policy formulation. The
National Manufacturing Policy (NMP) was finalized in 2011 and implementation details are
currently worked out. The key thrusts of NMP will be carried into the industry chapter of the
12th Five-year Plan. Details of the procedure and content of NMP will be discussed below.
The overarching “macro” objective of Indian economic policy is job creation, followed byvalue creation, infrastructure, ameliorating regional inequalities, further liberalization, and soon. The new manufacturing drive is required mainly to create more jobs on a broad basis,2

The reader should be aware that India’s economic data captures only registered (formal) units with 10 ormore employees whose shares of production and employment are two-thirds and one-fifth, respectively, inthe national economy. Annual changes in the small-scale sector, mainly family businesses, where wages
and productivity are low, are difficult to estimate although surveys are conducted for such enterprises every
five years.

2not just for few elites and professionals. India’s sectoral preferences are not very strong;priority sectors in manufacturing are specified but they are not given special incentives ortreatments unlike in some other countries.
As explained below, India’s policy making features broad consultation with all stakeholders,
especially business associations and academia. In addition, as a federal state, close
consultation with state governments is a must. Policy visions are generated both top-down
and bottom-up, as extensive consultation covers various aspects and interests and informs
them for policy makers, while the Prime Minister announces prioritization based on suchinformation. It is amazing to see such a complex and “democratic” policy formulation to work
so reasonably well in India without breaking down or causing significant delay and confusion.
At the same time, implementation and ultimate performance are less spectacular and also
vary across states. Proactive states such as Gujarat, Tamil Nadu, and Andhra Pradesh are
attracting domestic and foreign investment while conservative states are left behind.
According to a representative of one of these proactive states, good economic performancerequires a mixture of “enabling environment” (general liberalization) at the federal level andwise and strong leadership at the state level. Some researchers mentioned good
governance and cultural differences as additional determinants of divergent economic
performance across states.
2. The policy making process
Reflecting the large size and diversity of the country, India’s policy planning is systematicand comprehensive. It is said that a democratic process must take all important aspects into
account if policy is to win legitimacy. Jurisdictions of federal and state governments are
stipulated in the Constitution in which matters related to manufacturing fall into the categoryof “concurrent” or joint responsibility of both federal and local governments. Additionally, inthe last ten years or so, the policy making process has become increasingly participatory
and interactive among government, industry, and academia. Not only the Planning
Commission but also all ministries, in producing any policies, now actively seek andincorporate the voices of industry, through business organizations such as theConfederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce andIndustry (FICCI), and the Associated Chambers of Commerce and Industry of India(AssoCham), as well as academicians in universities and think tanks. Policy making without
deep interaction among key stakeholders is unthinkable in India today. The mission was
informed by a number of researchers that government ministers often hijacked, “owned,”and printed their names on studies independently prepared by them (external experts) when
ministers discovered that the content was agreeable. Tripartite policy consultation among
government, industry, and academia has become pervasive, substantial, and highly
institutionalized in India.

32-1. The Planning Commission and the 12th Five-year Plan
India is well known for its elaborate machinery led and coordinated by the Planning
Commission that produces development plans. The Planning Commission was establishedin 1950 and the first Five-year Plan was launched in 1951 under the chairmanship of
Jawaharlal Nehru. While five-year planning was interrupted several times in the 1960s, 70s
and the early 90s due to India’s political and economic crises, it has been normalized since
the Eighth Plan 1992-97. The Planning Commission consists of Prime Minister as ex-officio
Chairman, one Deputy Chairman appointed by Prime Minister with the rank of a full Cabinet
Minister, and full-time members who are experts of such fields as economics, industry,science, and general administration3. Cabinet Ministers with certain important portfolios act
as part-time members of the Commission. Mr. Montek Singh Ahluwalia is presently Deputy
Chairman of the Commission. The Commission works through its various Divisions (thewebsite shows 30 Divisions, including Industries Division). Full-time members of theCommission provide advice and guidance to the subject Divisions for formulating Five-year
Plans, Annual Plans, State Plans, Monitoring Plan Programs, and Projects and Schemes.
The 12th Five-year Plan (2012-17) was recently approved by the Cabinet. This Plan seeks
to achieve average economic growth of 8.2% per annum. The overarching vision of the 12thFive-year Plan is “Faster, Sustainable, and More Inclusive Growth”4. The Plan has beendrafted through extensive stakeholder consultation, taking about one-and-half years sinceApril 2011 when preparation works started. The Plan document will be placed for final
approval by the National Development Council (NDC) which has all Chief Ministers andCabinet Ministers as members and is headed by the Prime Minister, and must eventually beapproved by the Parliament. It will then be reflected in the annual budget, with the new fiscal
year starting April 2013.
The nature of Five-year Plans and the role of the Planning Commission have evolved overtime. The first eight plans put strong emphasis on the public sector with massive investment
in basic and heavy industries. Since the launch of the Ninth Plan in 1997, Five-year Plans
have become more indicative. The function of the Planning Commission has changed
accordingly from central planning to policy coordination through multi-stakeholder
consultations. There are a large number of ministries and agencies in India whose policy
scopes are limited to narrow sector issues. To rectify this situation, the Planning
Commission is increasingly becoming a focal point for producing a holistic approach informulating policies and bringing “macro” and cross-cutting perspectives in the critical areasof human and economic development. Many officials and experts note that the Five-year
Plan still remains an important policy document which sets priorities and policy direction of3

The tenure of full-time members and Deputy Chairman is not fixed. The total number of members canalso change according to the wish of the government.
4
See Approach Paper to the 12th Five-year Plan. Before the Plan is drafted, the Planning Commission
prepares an Approach Paper which lays out major targets, key challenges in meeting them, and a broad
approach that must be followed to achieve the stated objectives. The Approach Paper is approved by the
Cabinet and the NDC.

4

the country every five years and influences the allocation of development budget (excepting
for defense, subsidies, and maintenance). Based on the Five-year Plan, the Ministry of
Finance formulates annual budgets. It is also charged with the recurrent budget. The
Planning Commission conducts mid-term appraisal of Five-year Plans. Because of thecountry’s size and diversity, five-year planning continues to enjoy legitimacy as an
instrument for ascertaining the current situation of socio-economic development andagreeing on future direction through the process of multi-stakeholder consultation.
At the same time, we heard from a number of officials and experts that implementation is aproblem not only for the Five-year Plan but also for other key policies under it. Once theFive-year Plan is approved, individual ministries assume responsibility for implementation,by “notifying” (officially announcing) policy measures and securing budgets. Furthermore,
under the federal system, state governments are also charged with executing a large part ofpolicy measures. While close collaboration between federal and state levels is necessary, in
reality it is difficult to always ensure this.
2-2. Key features of the 12th Five-year Plan as related to the Manufacturing Plan
The Industries Division of the Planning Commission assumes prime responsibility forcreating policy inputs to the industry chapter of the Five-year Plan. In the process of draftingthe 12th Five-year Plan, 25 working groups (WGs) were created, with 15 WGs for
sector-specific industries (e.g., steel, automobile, and textile) and 10 WGs dealing withcross-cutting issues (e.g., business environment, environment sustainability, and export
competitiveness). Sectoral WGs are normally chaired by respective ministries in charge.
These WGs submit reports to the Planning Commission. Although these reports are nottreated as official documents of the Planning Commission, the Commission takes due noteof their recommendations as policy inputs to the Five-year Plan.
According to the Advisor of the Industries Division of the Planning Commission, with regards
to the formulation process there have been two notable changes in the industry chapter ofthe 12th Five-year Plan: (i) more attention given to cross-cutting issues which are beyond
the interests of specific industries; and (ii) more intensive consultation with various
stakeholders including ministries and agencies concerned, the private sector (throughbusiness associations and industry-specific organizations), think tanks, and universities.
Regarding (i), for the first time in India’s planning history, the Manufacturing Plan was
created as a new and comprehensive document on industry for informing and serving as apillar of industry chapter of the 12th Five-year Plan. The Steering Committee wasestablished and managed by the Industries Division to provide the overall guidance andstrategic direction to the development of this Plan. In this process, recommendations ofvarious reports produced by WGs were incorporated. The Manufacturing Plan also gave
due consideration to the NMP produced by the Department of Industrial Policy andPromotion in 2011 (see section 3).

5Regarding (ii), both government officials and experts and researchers in the private sector
whom we met confirmed a very intensive nature of multi-stakeholder consultation5. Manyexperts and organizations stated that they took active part in the policy-making process
through diverse channels of communication and appreciated the government’s effort on this.

Development of Manufacturing Policy and Plan
Dialogue and Recommendations

PolicyNational Manufacturing
Strategy (2006)

PM's Group Report on
Manufacturing (2008)

National Manufacturing
Policy (2011)

National Manufacturing
Competitiveness Council(NMCC)

PM's Group on Manufacturing

Dept. of Industrial Policy andPromotion (DIPP), Ministryof Commerce and Industry

Manufacturing Plan
(2012)
Industries Division,
Planning Commission

12th Five-Year Plan
Volume III (2012)
Planning Commission,
Cabinet and National
Development Council (NDC),
Parliament

Implementation

Development budget

Annual Budget
Ministry of Finance, withministries concerned, andstate governments

Source: GRIPS Development Forum, based on interviews andavailable information

3. National Manufacturing Policy (NMP) and related documents
In 2011, the Indian government formulated the National Manufacturing Policy (NMP). This
was the first policy document for the manufacturing sector in India. The NMP sets two main
targets that must be attained by 2022: (i) increasing the share of manufacturing in GDP to atleast 25% (currently around 16%); and (ii) creating 100 million additional jobs (which isalmost doubling the current manpower of 120 million). There were several reasons for sucha manufacturing drive. First, there is a growing concern about the low and stagnant share of
the manufacturing sector in India’s GDP compared to East Asian countries such as China(35%), Thailand (34%), and Malaysia (31%)6. The contribution of manufacturing in India isconsidered far below its potential. Second, India is a country with the largest young
population in the world. This creates opportunities and challenges. India must have 220
million jobs by 2025 in order to reap the demographic dividend. Although India has achieved
remarkable growth over the past decade, the main driver of growth was a few service
sectors such as ICT, hostelry and finance, which however does not generate broad
employment opportunities for all. There is mounting pressure to create gainful employment
5

Our interviewees included the Confederation of Indian Industry (CII), the Apparel Export Promotion
Council (AEPC), the Society of Indian Automobile Manufactures (SIAM), Jawaharlal Nehru University, theInstitute of Economic Growth (IEG), the Research and Information System for Developing Countries (RIS),
and the Indian Council for Research on International Economic Relations (ICRIER).
6Quoted from the National Manufacturing Policy of 2011 with original data based on the World Bank’s
World Development Report.

6

for the entire workforce, especially for the youth, and robust growth of manufacturing is
integral to the inclusive growth agenda of the government. This point was emphasized bymany in our meetings with officials and experts. Such obsession with job creation is uniquein India. In many East Asian countries, policy focus tends to cover global and regional
competition (especially with China), productivity and innovation, integration into global value
chains, industrial skill development, and other competitiveness-enhancing issues in addition
to the number of jobs created.
Like Five-year Plans, the NMP is formulated through extensive stakeholder consultation inwhich the Department of Industrial Policy and Promotion (DIPP) of the Ministry ofCommerce and Industry assumed prime responsibility for coordinating the drafting work.7
The initial draft of the NMP was placed on the DIPP’s website in March 2010 for stakeholder
comments. In response, the National Manufacturing Competitiveness Council (NMCC)
proposed a draft national manufacturing policy, incorporating the views of member
organizations such as CII, FICCI, management and technical institutes, and various
ministries. Industry-specific organizations sent their comments through their supervising
ministries. The Planning Commission also commented on the draft NMP, and more recently
prepared the National Manufacturing Plan, as part of drafting work of the 12th Five-year
Plan as noted above. After the clearance of its final draft by the Cabinet, the NMP was
notified by DIPP in November 2011. After that, it entered the implementation stage, with thelatest Five-year Plan (through the Manufacturing Plan) supporting this policy direction.
It is important to note that, as a background of this work, the National Strategy for
Manufacturing, published by the NMCC previously in 2006, played a critical role. This
Strategy gave an impetus to the manufacturing drive and contributed to raising politicalawareness of “manufacturing imperative” in India. It triggered subsequent actions by thegovernment, such as the Prime Minister's Group Report on Manufacturing (2008)8, NMP(2011), and the Manufacturing Plan (2012). The NMCC was created in October 2004 as anapex advisory body to the government based on public-private partnership. It acts as apolicy forum for framing government policies to enhance competitiveness in the Indian
manufacturing sector. Its Chairman, Dr. V. Krishnamurthy, is a guru in manufacturing who
previously served as the first chairman and CEO of Maruti Suzuki as well as a member of
the Planning Commission and enjoys high trust of the Prime Minister. The NMCC iscomposed of 25 members representing industrial sectors, management and technicalinstitutions, economists, industry organizations, and various offices of the Indian
government.
Content-wise, the most notable features of the NMP are (i) establishment of National
7

The Ministry of Commerce and Industry has two departments, the Department of Commerce and theDepartment of Industrial Policy and Promotion. Previously they belonged to different ministries.
8
In 2008, Prime Minister Manmohan Singh constituted a group led by NMCC Chairman Dr. Krishnamurthy
to look into the reasons behind the sluggish growth of the manufacturing sector. The group produced thePrime Minister’s Group Report on Manufacturing, which recommended measures to ensure its sustained
high growth.

7

Investment and Manufacturing Investment Zones (NIMZs) which intend to offer comfortablebusiness environment for both exporters and domestic market targeting enterprises in placeof failed SEZs; and (ii) rationalization and simplification of business regulations (e-BIZ
project). These measures collectively aim to ease the problems of administrative red tapes
and business regulations. The NIMZ is one type of industrial zones where procedural
clearances are simplified—for example, in the areas of environment, labor, landacquisition—and one-stop-services are provided to enterprises but without any specificfinancial incentives. To this end, Special Purpose Vehicles (SPVs, for this purpose often
called industrial estate management authorities in other countries) are to be created,assuming a role of developer of industrial zones. On the other hand, the e-BIZ project isapplied to those firms operating outside an NIMZ. It aims to drastically improve businessenvironment by providing efficient and convenient electronic services to investors in theareas of information on forms and procedures, licenses, permits, registrations, approvals,
clearances, permissions, reporting, filing, payments, and compliance. Additionally, the NMP
also discusses simple and expeditious mechanisms for closure of units, incentives for SMEs,
industrial training and skill upgrading measures, and green technologies.

Here again, many government officials and non-government experts stated that the drafting
process of the NMP had been consultative with very active participation of stakeholders
including concerned ministries, apex business associations (CII, FICCI, AssoCham, etc.),
industry-specific organizations, and academia. They appreciated the participatory process
and opportunities provided for them to comment on the draft. The process of policy
formulation in India is built on the value of democratic society with various constituencies,
with enormous effort and energy being expended to ensure the inclusive and participatory
nature of the process.

8

Despite the impressive policy formulation process, India continues to face problems in theimplementation stage. This is another point stressed by many officials and experts we met.
India needs to strike a balance between formal correctness of policy making procedure
which can be supported by democratic aspiration of all stakeholders on the one hand andensuring effectiveness of implementation (budgeting, staffing, monitoring, etc.) as well as
obtaining ultimate objectives such as growth, productivity and competitiveness on the other.
India seems to be very strong on the former but weak on the latter. Three things may bementioned in relation to this problem.
First, though India is admittedly a huge and complex society, extreme subdivision oforganizational structure makes the policy process unnecessarily cumbersome. For example,
there are 12 ministries directly involved in manufacturing such as the Ministries of Textile,
Steel, Heavy Industry, Micro and SMEs, and so on; and 48 ministries are either directly or
indirectly related to the manufacturing sector. In most East Asian countries such as Japan,
Taiwan, Korea, Malaysia, and Thailand, only one ministry directly handles all manufacturingissues. In export promotion, the textile sector alone has 10-12 agencies separately
promoting exports of apparel, cotton, wool, synthetic fiber, handloom, power loom, silk, etc.
whereas East Asian countries usually have only one export promotion agency for all sectors(JETRO in Japan, KOTRA in Korea, MATRADE in Malaysia, etc.)
Second, while state governments assume prime responsibility for implementing policy
measures specified in the NMP, their commitment to policy reforms varies significantly. In
manufacturing, state governments issue licenses, provide infrastructure, facilitate landacquisition, oversee environmental clearance, and so on. In these matters state autonomy isensured and the federal government cannot simply instruct state governments.
Consequently, great performance variation exists among states in, for instance, attracting
investment and developing industries.
Third, although the NMP outlines policy direction and broad measures, there is no concrete
action plan which specifies sub-actions, expected outcome, deadlines, monitoring criteria
and procedure, organizations with principal responsibility, and organizations with
supplementary responsibility. Such action plan matrices are used to ensure policy
implementation in a number of countries, but no such mechanism has so far been mobilizedin India.
National Investment and Manufacturing Investment Zones (NIMZs), featured in the NMP in
which the Delhi-Mumbai Industrial Corridor (see section 5) is supposed to be thespearheading showcase, may also face similar problems in the forthcoming implementation
stage. It is unclear whether and how fast the NIMZ concept can be put into practice. First,
the establishment of an NIMZ requires approval by both federal and state governments.
According to the NMP, the application for establishment of an NIMZ must be forwarded by
the state to DIPP upon which DIPP will constitute a Board of Approval for considering all

9

such applications and approving such proposals as are found feasible. Each NIMZ will be
notified separately by DIPP. How quickly and smoothly this process will go is to be seen.
Second, it is questionable whether a state-run SPV is capable of functioning as an effective
one-stop shop for NIMZs. Providing customer-oriented services to prospective investors andpromptly solving daily operational problems faced by tenant firms in NIMZs is a challengethat requires deep understanding of global trends, enormous expertise, and dedicated effort.
East Asian experiences show that only a limited number of industrial estates can supply
such services, and it is particularly a tough call for state-run bodies. In fact, industrial zones
in East Asia, upon official approval, are usually built and managed by domestic or foreign
private developers rather than operated directly by the public sector. Given that Indianauthorities have not had any experience in offering efficient business-support functions inindustrial estates, how effectively proposed SPVs can operate needs to be seen.
4. Kaizen
The concept and practice of kaizen, and its associated tools such as 5S, muda elimination,suggestion box, QCC, TQM, quality awards, etc., are widespread among officials andorganizations in the manufacturing sector of India. Though our mission had no time to study
the extent of sectoral or geographical reach, it is clear that kaizen is a firmly establishedpractice in the Indian automotive sector and is also recognized in some other sectors suchas textile9. India is one of the few countries that use the Japanese term “kaizen” to denote
this practice10.
Kaizen was introduced to India with the establishment of the first factory of Maruti Suzuki(joint venture of Suzuki for automobile manufacturing) in Gurgaon in the State of Haryana in
1984. Indian managers and engineers at Maruti Suzuki were trained and local component
suppliers were selected and improved as required by Japanese quality standards. For this,the Maruti Center for Excellence (MACE) run by Maruti Suzuki, as well as the Association
for Overseas Technical Scholarship (AOTS)11 training in Japan (Nagoya), played key roles.
Japanese component suppliers, such as Daiichi, and Japanese organizations, such as theJapan Productivity Center, also assisted Indian companies. Introduced practices changed
names from Toyota Production System (TPS) to Suzuki Production System (SPS) then to
Maruti Production System (MPS) but the contents remained essentially the same. Honda
also teaches kaizen. Other automotive producers in India include Hyundai, Toyota, GM,
Volkswagen, Tata, and Mahindra & Mahindra (the last two are local and mainly produce
commercial vehicles).
After nearly three decades of introduction, kaizen is widespread among car assemblers and9Previously we visited an Indian textile firm spinning synthetic fiber in Kitwe, Zambia, which practiced
kaizen throughout its factory.
10
The term kaizen is also well known in Thailand and Ethiopia among industrial circles. In Singapore,
Taiwan, Korea, and Malaysia, substance of kaizen is broadly introduced without calling it kaizen.
11 In April 2012, AOTS and the Japan Overseas Development Corporation (JODC) were merged into theOverseas Human Resources and Industry Development Association (HIDA).

10

component suppliers. It is practiced smoothly without Japanese assistance. All 380 first-tiersuppliers of Maruti Suzuki must practice kaizen which is introduced by vendor training
programs and monitored regularly. Local suppliers teach kaizen to employees and new
recruits through in-house training as well as MACE and other external programs. One
salient feature of Indian kaizen is active interaction and migration of kaizen leaders bothvertically and horizontally (between Maruti Suzuki and suppliers as well as among suppliers).
It is common that experienced kaizen experts at Maruti Suzuki teach vendors throughshort-term visits or long-term assignments. Kaizen leaders of each company know eachother well through various programs, award ceremonies, and mutual assistance. This
promotes information sharing, standardization, and training of new employees. While exact
data are difficult to obtain, it is suspected that highly experienced Indian kaizen leaders arethousands in number, if not more. While excellent persons and practices are frequently
recognized by prizes and awards, India does not have any formal licensing or certification ofkaizen leaders.
Another interesting feature of India is that kaizen has so far been private sector activity
without any support from government. In this sense, its development is closer to Japan thanSingapore or Ethiopia where the state is (was) the initiator of national productivity movement.
The Confederation of Indian Industry (CII) and the Automotive Component Manufacturers
Association (ACMA), as business associations, are active promoters of kaizen. CII isparticularly important in spreading the practice to non-automotive sectors. Its headquarters
has a library that carries manuals and textbooks on kaizen. In this regard, JICA’s Visionary
Leaders for Manufacturing (VLFM) program, led by Professor Shoji Shiba, for inculcating thespirit of Japanese manufacturing to senior and middle managers, is an important component(human capital). Another important industrial cooperation of JICA is the Delhi-Mumbai
Industrial Corridor (physical infrastructure), as discussed below.
The mission visited one factory, Horizon Industrial Products, Pvt. Ltd., a Blue Peter Group
company, in Manesar Industrial Zone in the State of Haryana. Blue Peter was a metal utensil
manufacturer which turned to the production of Maruti Suzuki components with the help of
Maruti Suzuki in 1985 and Honda components in 1996. Its products are welded andstamped automotive metal parts (45 parts for 6 car models) as well as jacks for all Maruti
Suzuki cars. The factory has 120 staff (all Indians, of whom 60 are managers andengineers) with a very low turnover (1% quit rate per year). It has six experienced kaizen
leaders who migrate actively across companies, three of whom were trained by AOTS.
General Manager Mr. V.K. Saxena is a veteran of kaizen since 1984 who was dispatchedfrom Maruti Suzuki to Horizon in 2010. The factory practices the same quality andproductivity activities as in any excellent Japanese company, including morning meetings,
weekly staff meetings, wall posters, kaizen and other boards, safety control, suggestion box,
red box (rejected parts are analyzed), in-house training and awards, seven QC circles, clean
toilets, family events and sports, etc. It received the Corporates of the Future Award from CII
and 5S Silver Award from the Suppliers Convention. For Maruti Suzuki (largest customer
occupying 60% of orders), the Dispatch Instruction System is used where part orders are11received on the previous day by email and delivered the next day by trucks, by 11am to the
Gurgaon Factory and by 2pm to the Manesar Factory of Maruti Suzuki.
5. Delhi-Mumbai Industrial Corridor and investment promotion by the State of Gujarat
The Delhi-Mumbai Industrial Corridor (DMIC) is a flagship project of the governments ofJapan and India, agreed by the two top leaders12. DMIC is conceptualized to eventually
become India’s largest industrial belt by linking the industrial zones and harbors of the six
states between Delhi and Mumbai (Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan,
Gujarat, and Maharashtra) in order to promote export and investment by foreign enterprises,
particularly those from Japan. Under the DMIC initiative, plans are also being developed tocreate industrial zones and logistics hubs with well-developed infrastructure extending up to
150 kilometers on both sides of the Western Dedicated Freight Corridor (DFC) which aims
to provide fast-freight railway connection between Delhi and Mumbai. 13 The Japanese
government is actively exploring ways to support the implementation of the NMP for which
the DMIC project is regarded as the principal instrument. The Japan International
Cooperation Agency (JICA) has already signed ODA loan agreements (450 billion yen on
STEP terms14) on the DFC project. The Japan Bank for International Cooperation (JBIC) isalso supporting the DMIC Initiative by contributing to the Project Development Fund (US$75
million) and equity participation in the DMIC Development Corporation (DMICDC)15. The
majority of infrastructure projects in DMIC are envisaged to be implemented throughpublic-private partnerships.
Out of the six states covered in DMIC, the State of Gujarat is the front runner in investment
promotion and business environment. Furthermore, about 37% of the planned DMIC route
will pass through Gujarat and more than 60% of total investment is likely to come to Gujarat(according to the information provided by the Resident Commissioner of Gujarat in Delhi).
Thanks to its pro-active and business-friendly policies for investment promotion, Gujarat has
achieved tangible results in enhancing the social and economic welfare of its people andhas become a highly industrialized state. Gujarat accounts for 7.5% of India’s GDP(2011-12), 17% of national industrial output (2011-12), 26% of total investments(implemented projects up to 2011), and 25% of India’s exports (2010-11). With a longcoastal line, the state is strategically located and its ports handle 37% of India’s total port
cargo (2011-12). Unlike other states, Gujarat is a power-surplus state that can supply
electricity without interruption in every town and village in the state.
12

See the Japan-India Strategic and Global Partnership, signed by two Prime Ministers Mr. Noda and Dr.
Singh in December 28, 2011, entitled “Vision for the Enhancement of Japan-India Strategic and Global
Partnership upon Entering the Year of the 60th Anniversary of the Establishment of Diplomatic Relations.”
http://www.mofa.go.jp/mofaj/kinkyu_img/20111229_01.pdf
13 Quoted from JICA homepage: http://www.jica.go.jp/english/news/press/2010/100726.html
14
The scheme of Special Terms for Economic Partnership (STEP) is designed to promote ODA with adistinct Japanese profile through transfer of Japan’s advanced technology and know-how to developing
countries.
15
JBIC will invest about 260 million rupees ($4.67 million) or 26% stake and send an executive as a board
member of the DMICDC. JICA will also send an expert to DMICDC to provide technical advice.

12

Gujarat’s achievements can be attributed to three factors: (i) good leadership of the current
Chief Minister, Narendra Modi, who assumed office in 2001; (ii) cultural traits of the Gujarat
people who are industrious and business-oriented; and (iii) enabling business environment
provided by the federal government through economic liberalization since 1991. In particular,
Chief Minister Modi has won high reputation for his pro-business policy and moral authority.
From around 2002-03, various reform initiatives were taken under his leadership, which led
to increasing FDI to Gujarat. A good example is “Vibrant Gujarat Global Investors Summit,” asummit organized every two years by the Gujarat state government inviting businessleaders and prospective investors from all over the world. The first summit was held in 2003,
and the sixth one is planned for January 2013. Gujarat is ranked top among Indian states interms of total investment attraction including both domestic and FDI, and is poised to
become a new hub for automotive production in India. Tata and Ford have already car plants
in Gujarat16 and Maruti Suzuki plans to build its third factory in Gujarat with expected start ofoperation by 2015.
Gujarat formulated its state industrial policy in 2009 embracing a vision of “Gujarat aspires tobecome a beacon of comprehensive social and economic development”. The industrial
policy of Gujarat discusses extensively the need to leverage DMIC and its surrounding area
to integrate industrial, social, and infrastructure development. To this end, special emphasis
is placed on clusters, large industrial zones (which can become NIMZs, subject to theapproval of DIPP), special economic zones (SEZs), and special investment regions (SIRs).
The state industrial policy is also mindful of the urgency of job creation and skill
development in light of growing young population who will enter the labor market in the near
future.
Regarding large industrial zones, the Gujarat Industrial Development Corporation (GIDC),an SPV funded by the state through paid-up capital, constructs basic infrastructure such as
roads, power, water, sewerage, waste treatment, etc. and develops industrial zones
including land acquisition 17 . The Industrial Extension Bureau (iNDEXTb) of Gujarat
promotes investment in industrial and infrastructure projects, acting as a single contact point.
As part of the DMIC initiative, establishment of an industrial park dedicated solely to
Japanese enterprises is planned at Detroji (Sanand area)18. Currently, details are being
worked out to launch the offer in December 2012. A unique feature of this industrial zone isdeep involvement of the Japan External Trade Organization (JETRO) in providing fulladvisory and consultative services to Japanese firms interested in investing there.
Furthermore, JETRO even directly negotiates with state authorities (including GIDC and16

Tata Motors originally planned to invest in the State of West Bengal, but decided to eventually come to
Gujarat due to the difficult business environment in the former, especially in land acquisition.
17
In India, land acquisition for industrial purpose is a very difficult matter due to complex registration of land
inherited through history which does not easily reveal all owners. As a result, investors must spend
significant time in investigation and negotiation with farmers.
18
Along DMIC, there are five planned NIMZs including a Japanese industrial zone in Gujarat (Detroji)
mentioned in the text. They are the first NIMZs notified by DIPP. It should be noted, however, that theconcept of DMIC was shaped before the NMP invented the concept of NIMZs.

13

iNDEXTb) on behalf of individual Japanese enterprises on matters that require immediate
attention and action. In East Asia, such concrete problem-solving is usually handled byprivate industrial estate developers, foreign, or local, while JETRO’s role is to provide
general information and facilitate FDI in its initial stages. India is the only country where
JETRO provides full investor services both before and after investment in place of private
developers. Detroji is the second case of Japanese industrial zones fully supported by
JETRO, following the Nimurana Industrial Zone located in the State of Rajasthan19. JETRO
intends to scale up the expertise accumulated through the experience of the Nimurana
Industrial Zone to other states, particularly Gujarat.
In India, manufacturing is the “concurrent” sector in which federal and state governments
have shared responsibility for policy implementation. While the federal government setsminimum standards for the regulatory framework (e.g., environment, labor codes), state
governments can set their own guidelines (which are stricter than federal standards), issue
business licenses and permits, facilitate land acquisition, and supply infrastructure. Now thatthe first generation of economic reforms (general liberalization) has advanced at the federal
level, state-level efforts for the second generation of reforms (which should include creationof jobs and value added) matter a lot for investors’ choice of location for establishing newfactories. States that offer superior initiatives and business environment are likely to garner
the lion’s share in new industrial investment.
6. Concluding observation
Successful execution of development policies requires fulfillment of the following steps.
(i) Policy formulation—vision creation, consensus building, stakeholder consultation,
surveys and analyses, and documentation(ii) Implementation—budgeting, staffing, legal base, organizational setup, assignment ofauthority and responsibility, and monitoring and evaluation(iii) Economic performance—growth, structural transformation, job and income creation,
productivity, innovation, and competitiveness.
Needless to say, (iii) is the ultimate goal while (i) and (ii) are the means to attain it. It must be
stressed that perfection in (i) alone, or even (i) and (ii) jointly, does not automaticallyguarantee (iii). Each step requires separate expertise and conditions, and their linkage is acomplex one. If (ii) is lacking despite good effort in (i), implementation must be additionallylearned. If (iii) is missing despite progress in (i) and (ii), government should go back to (i)and re-work the direction and concrete content of the policy from scratch. Studying India’s
policy method sharply reminds us of linkage issues among these policy steps.

19

The Rajasthan Industrial Investment Corporation is responsible for the development and management of
the Nimurana industrial zone. About 80% of the Nimurana Industrial Zone has already been rented out toapproximately 40 companies.

14

India is very strong in (i) but weaker in (ii) and (iii). The new manufacturing policy inparticular and development policies in general are the products of highly complex
consultation and interaction of all key players—national leaders, federal and state
governments, business associations, and academia. The participatory process is exemplary
and admirable, and may even serve as a model for other developing countries. Virtually all
officials and experts whom we interviewed emphasized that the huge size, diversity, anddemocratic tradition of India supported and legitimized this elaborate policy process.
Special features of India certainly dictate its policy methods. Due process and consultative
effort must be respected. At the same time, however, it should also be pointed out that size,
diversity and democracy do not justify all complexities and duplications. What can be
simplified without loss of efficiency or legitimacy should be simplified. There seems to be
excessive subdivision of policy organizations and too many overlaps of responsibilities
within the Indian government that can be streamlined. For competent and proud technocrats,
there is even a risk that policy formulation becomes the end in itself without producing final
economic results. The way must be sought to strengthen (ii) and (iii) while maintaining theachievements in (i)20.
The first-generation reforms launched in 1991 were “easy” ones of gradual liberalization andopening up. The process has almost run its course and produced initial results in economic
growth. However, this is not enough to compete globally and reach high income in the 21st
century. The next step should be establishment of policies and institutions to encourage andeven compel domestic citizens and enterprises to create value and compete effectively witha strong foundation in productivity and innovation. Topics frequently discussed by Indianauthorities during our mission—further liberalization and deregulation, job creation,
infrastructure, industrial zones, etc.—are traditional ones that constitute only a subset ofindustrial policy menus of East Asian high performing countries. From now on, India is likely
to need more proactive industrial policy that not only cursorily mentions but can also actually
implement a large number of capability enhancing measures such as TVET, skills matching,
SME consultation and finance, FDI-local linkage, benchmarking, technology transfer,commercialization of R&D, coalition among government, businesses, and academia to
produce new industries and products, and so on.
Attachments:
1. Mission schedule
2. Organizations/persons visited
3. List of information collected20

During our stay in Delhi a local newspaper printed an article by one of the members of the Planning
Commission (Arun Maira, “The Reforms That Matter,” The Times of India, September 29, 2012). Hisargument was that institutional reforms of government and policy making institutions were key to thesuccessful implementation of the 12th Five-year Plan, in which coordination within the Indian system andadministrative reforms were most urgent. Admittedly, coordination and effective administration areimportant for policy execution, but they are not enough. For India, acquiring technical expertise in industrial
corridor design, strategic FDI attraction, one-stop investor services, etc. on the ground is equally importantfor successful policy implementation.

15

Attachment 1

Mission Schedule (23- 30 Sept. 2012)
1. Mission Members
Kenicni Ohno Professor, National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan
Izumi Ohno

Professor, National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan

Mieko Iizuka

Research Assistant, National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan

2. Mission Schedule
DATE

TIME
ACTIVITYAM
1 Sep 23 Sun
PM Arrival
AM Prof. Amitabh Kundu, Jawaharlal Nehru University
2 Sep 24 Mon AM Prof. B.N. Goldar, Jawaharlal Nehru University
PM Office of the Resident Commissioner, Government of Gujarat
AM Confedaration of Indian Industry (CII)
PM Indian Council for Research on International Economic Relations (ICRIER)
3 Sep 25 Tue PM Mr. Kazuki Minato, Institute of Developing Economies, Japan (@IEG)
PM Prof. Arup Mitra, Institute of Economic Growth (IEG)
PM Business dinner with JICA India office @ Oberoi Hotel
AM Horizon Industrial Products PVT. LTD.
4 Sep 26 Wed
PM Apparel Export Promotion Coucil (AEPC)AM Dr. Ram Upendra Das, Research and Information System for Developing Coutries (RIS)AM Planning Commission
5 Sep 27 Thu
PM Society of Indian Automobile Manufacturers (SIAM)PM Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry
AM JETRO New Delhi
AM JICA India Office
6 Sep 28 Fri
PM National Manufacturing Competitivenes Council (NMCC)PM Department of Economic Affairs, Ministry of Finance
7 Sep 29 Sat PM Departure (Kenichi Ohno & Izumi Ohno)
8 Sep 30 Sun AM Departure (Mieko Iizuka)

16

Attachment 2

Organizations/Persons Visited
The Government / Governmental Organization of India
Organization
Planning Commission
Department of Industrial Policy & Promotion,
Ministry of Commerce and Industry
National Manufacturing Competitiveness Council (NMCC),
Ministry of Commerce & Industry

Name
Renu S. Parmer

Position
Adviser (Industry & VSE)

Daniel E. Richards

Director

Office of the Resident Commissioner, Government of Gujarat
Idustrial Extension Bureau, A Govt. of Gujarat Organization

Gaurav DaveR.Dharini
M.C.Singhi
Gopal Singh Negi
Bharat Lal
Amresh Chandha

Apparel Export Promotion Council (AEPC)

Chandrima Chatterjee

Joint Secretary
Deputy Chief
Senior Adviser
Adviser
Resident Commissioner
Jr. Resident Officer
Director, Economic & Consultancy/ComplianceDepartment of Economic Affairs, Ministry of FinanceResearch Institutes/ University
Organization

Name
Position
Amitabh Kundu
Professor
Purushottam M. Kulkarni Professor
Jawaharlal Nehru University
Deepak Kumar Mishra
Associate Professor
Bishwanath Goldar
Visiting Professor
Rajat Kathuria
Director & Chief Executive
Arpita Mukherjee
Professor
Indian Council for Research on international Economic Relations Chetan Ghate
Researve Bank of India Chair(ICRIER)
Sanjana Joshi
Senior Consultant
Francis Xavier Rathinam Senior Fellow
Pooja Sharma
Senior Fellow
Arup Mitra
Institute of Economic Growth (IEG)
Professor of Economics
Research and Information System for Developing Countries (RIS) Ram Upendra Das
Senior Fellow

Private Sector
Organization
Confederation of Indian Industry (CII)
Society of Indian Automobile Manufacturers (SIAM)
Horizon Industrial Products PVT. LTD.

Name
Sarita Nagpal
Ritika Changia
V.K.Saxena
Sugata Roy Chowdhury

Position
Deputy Director General
Assistant Manager
General Manager (Quality)
Factory Manager

Name
Tomofumi Nishizawa
Kenichiro Toyofuku
Shinya Ejima
Sei Kondo
Kazuyoshi Ohnuma
Yui Nakamura
Kazuki Minato

Position
Director (Research)

Governmental Organization of Japan
Organization
JETRO New Delhi

JICA India OfficeInstitute of Developing Economies

17

Chief Representative
Representative
Representative
Programme Specialist
Researcher

Centre for the Study of Regional Development (CSRD), A Profile
Vibrant Gujarat, Global Trade Show 2013
CD (including "Summit Brochure, Destination Gujarat, Sector Profile,
Presentaions & Films, Doing Business in Gujarat"
50 Golden Facts about Gujarat
Destination Gujarat
Welcome to Vibrant Gujarat -The Global Business HubCentres of Excellence
Wider Perspectives, Clearer Stragies, Smarter Initiatives
Retail in India, 2009
FDI in Retail Sector INDIA , 2005
Japan Project Newsletter 2011-12
about ICRIERICRIER： Medium Term Strategy (2009-10 to 2019-20)
Leaflet

Title

List of Information Collected
Authors/Publisher

ICRIER

Mathew Joseph & Nirupama Soundararajan
Arpita Mukherjee &Nitisha Patel / ICRIER

CII

Idustrial Extension Bureau, A Govt. ofGujarat Organization

CSRD, SSS, Jawaharlal Nehru University

Ministry of Heavy Industries & Public
Society of Indian Automobile Manufacturers
Automotive Mission Plan 2006-2016 -A Mission for Development of Indian Automotive Industry(SIAM)Enterprises
List of Items reserved for Exclusive Manufacture by Micro and Small Enterprise Sector
Definition of Micro, Small and Medium Enterprises in India (ANNEXURE-XII)
Ministry of Commerce and Industry
Statement on Industrial Policy (July 24, 1991)
DIPP, Ministry of Commerce and Industry
Departmet of Industrial Policy & Promotion Brief on Package for Special Category States of J&K, H.P. and Uttarakhand(DIPP)
Delhi-Mumbai Industrial Corridor (DMIC) Project
National Manufacturing Policy Press Note No.2 (2011 Series)
Annual Report 2011-12
Measures for Ensuring Sustained Growth of the Indian Manufacturing Sector (Report of the Prime
National Manufacturing Competitivenes
NMCC
Minister's Group), September 2008
Council (NMCC)
PPT: Welcome to the Mission Members of GRIPS, JapanThe latest economic situation of India (Sept. 2012)
JETRO Business Support Center (New Delhi)
Economic situation and business environment of India (Sept. 2012)
JETRO, New Delhi Office
Comparative cost study for investment (Apr. 2012)
JETRO New Delhi(originally written in Japanese)
List of Japanese companies operating in India (Oct. 2011)
Trend of Japanese companies starting business operation in India, by industry (Apr.2012～）
Trend of local & foreign companies in India, by industry (Apr. 2012～）
Summary of the 6th survey on wage (Jun. 2012)
JCCII (originally written in Japanese)
News Letter from JICA-India Office, Issue 18 & 19
JICA India Office
List of Projcets in India 2012
JICA India Office
Operations & Activities in India
Visionary Leaders for Manufacturing (VLFM)
JICA (originally written in Japanese)
CII
Indian National Award on Professor Shoji Shiba

Indian Council for Research on
International
Economic Relations (ICRIER)

Confedaration of Indian Industry (CII)

Office of the Resident Commissioner,
Government of Gujarat

Jawaharlal Nehru University

SourceAttachment 3

18