Industrializing for economic recovery in the digital age

Source: UNIDO (2020): Digital Transformation and Industrial Recovery: COVID19 Impacts and Responses, see: https://www.unido.org/sites/default/files/files/2020-07/UNIDO_COVID_Dig…

These (and other) examples are testimony to the increasingly blurred boundaries between physical (material) and digital systems across sectors of society. This is often referred to as 4th Industrial Revolution (4IR) with reference to the earlier industrial revolutions that followed the invention of respectively steam (1IR), electricity (2IR) and electronics and automation (3IR). In manufacturing, Advanced Digital Production (ADP) technologies combine hardware (e.g. robots, 3D printers), software (e.g. big data analytics, artificial intelligence) and connectively (Internet of Things). ADPs give rise to smart production – also referred as Industry 4.0. For producers, ADPs can fast-track product innovation, increase productivity and reduce consumption of resources (including materials and energy). At the consumer end, ADPs allow for mass customization – tailor-made individual products at the unit price of mass produced ‘ready-made’. However, are such benefits equally achievable and relevant to India as to the most innovative manufacturing nations of the world?

The United Nations Industrial Development Organization (UNIDO) shed a developing country perspective on Industry 4.0 in its flagship publication “Industrializing in the digital age” (https://www.unido.org/sites/default/files/files/2019-12/UNIDO%20IDR20%2…). The publication predates the emergence of the pandemic, yet its key findings remain at least equally relevant for the economic recovery. A few key findings:

1. Advanced Digital Production (ADP) technologies, indicative for the 4th Industrial Revolution (4IR), can foster inclusive and sustainable industrial development and the achievement of Sustainable Development Goals. ADP-enabled product and market innovations are abundant, given their superior productivity, quality and market-responsiveness. On average, ADP-based patents have a higher environment and resource conservation content than industrial patents at large, and through better monitoring and predictive maintenance, energy and other resources are conserved during manufacturing. ADPs can take over hazardous and physically demanding tasks and there is empirical evidence that the introduction of robots can be a net job creator, in particular, through indirect job creation for knowledge intensive business services.

2. So far only a few countries, and therein only a few firms, are creating and adopting ADP technologies at scale. Globally, UNIDO found that 10 counties are leading the development and application of ADP technologies, including Germany, Japan, Republic of Korea, United Kingdom and USA. India is the only lower middle-income country that made it to the group of followers in production – a group with, amongst others, Australia, Canada, Hong Kong, Italy, Singapore and Spain. Different generations of digital and physical technologies coexist in India and other developing countries, creating ‘technological islands’ where a few firms with advanced technologies are surrounded by a majority of firms operating at lower technological levels. Leading firms are hampered by this gap, because they have trouble linking backwards and nurturing benefits from their supply chains.

3. To utilize Advanced Digital Production (ADP) technologies, developing countries must nurture industrial capabilities. Such industrial capabilities ultimately depend on the capabilities of firms, yet may be acquired and strengthened through the business support ecosystem. Investment and technology capabilities enable the firm to deal with technological change. Production capabilities are related to experience, learning-by-doing and the behaviors of entrepreneurs related to production. These production capabilities are of prime importance to prepare for and leverage from ADP led innovation and can be acquired only through experience in industrial production.

4. Policies for Advanced Digital Production (ADP) are highly contextual. However, three areas are particularly important: developing framework conditions through industrial, technology and digital policies; fostering demand and adoption by improving awareness, readiness and availing appropriate financing; and strengthening of capabilities, particularly human resources and research capabilities.

To deepen India’s engagement with ADP technologies and indeed make Industry 4.0 ‘work for India’, parallel interventions could be considered aimed at: (1) bolstering firm’s and industry’s readiness; (2) nurturing firm’s and sector’s ability to deploy ADP technologies beneficially; and (3) development and promotion of replicable Industry 4.0 solutions, for example: digital-enabled optimization of existing 3IR or 2IR machines; digital solutions for monitoring and optimization of inventory, logistics and supply chains; and virtual assisted reality for improving training, inspection and maintenance.

Select Indian firms have already started to benefit from adoption of ADP technologies in factories and products. In the automotive sector, Mahindra and Mahindra for example is upgrading existing assembly lines with cobots (intelligent machines that co-work with employees), a practice that is spreading within the sector. New products are created for new markets through ADP technology integration, such as for example sensor and navigation technology by Sagar Defense Engineering which created India’s first unmanned floating drone that collects plastic and other wastes from waterways. These and other examples provide testimony for the potential contributions of ADP technologies and Industry 4.0 towards realization of the AtmaNirbharBharat vision of a self-reliant India. Ongoing initiatives like “Make in India” and “Digital India” can be further targeted to support the roll out and scale up of Industry 4.0 - as a means to achieve the ambition for an Indian USD1 trillion manufacturing sector by 2024.

René Van Berkel, r.vanberkel@unido.org @Rene_Van_Berkel @UNIDO_India