Investing in India

Can India apply lessons from Gandhi to manufacturing?

Make in India: The next global manufacturing hub?

As Prime Minister Modi aims to turn manufacturing into a main growth contributor of India's economy, new production models are necessary, warns one of the country's largest conglomerates.

"When you want to build a consumer product, test markets and mitigate risks, it makes sense to be very proximate to your ultimate market," said Anand Mahindra, chairman of the Mahindra Group, a multinational with a wide range of businesses, spanning from aerospace, finance, and defense. Its automobile arm—Mahindra & Mahindra—is currently one of the largest tractor manufacturers in the world.

"Digital technology and things like 3D printing are enabling even more localized manufacturing. I want to make sure that India is ready for that future," the 60-year old tycoon told CNBC.

The idea of peer-to-peer resources resulting in more personalized production harmonizes well with the holistic economic principles of Mahatma Gandhi, India's founding father, where every village becomes a self-supporting and self-contained unit, Mahindra explained.

Employees assemble a Royal Enfield Motors Classic 350 motorcycle moving on a conveyor on the production line at the company's manufacturing facility in Chennai, India.
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"If we want to prevent a mass migration and avoid the problems China's suffered, we should enable a number of small scale units with new digital technology and connect it via the cloud to markets."

New Delhi policymakers are aggressively spearheading an initiative to transform India into a global manufacturing powerhouse - a field dominated by China over the past three decades. Make in India, the centerpiece of the government's drive, was introduced last year and Modi has since embarked on an international tour to get international business leaders on board.

"I just want to make sure that India doesn't get left behind focusing on the old model of 'Make in India' while the rest of the world moves in at warp speed in this new era," Mahindra noted, referring to his innovative ideas of digital technology.

A private garment factory in Bangalore
Manjunath Kiran | AFP | Getty Images

So where does the Mahindra Group's massive productions scale and different verticals fit into the business leader's vision?

"We are remodeling our group to mirror what society will look like. We will have large enterprises which involve large scale manufacturing and at the same time we are incubating a number of start-ups, which I hope will be in the vanguard of the 'small is big' movement."

But India's archaic labor laws could make that movement tough to realize.

Asia's third-largest economy has one of the most rigid labor markets in the world, according to a 2014 World Bank report, with current regulations encouraging firms to stay small instead of hiring more. Modi hopes to carry out a series of structural reforms that would giving companies greater flexibility in hiring and firing workers, measures that experts say will ultimately boost economic growth but they have been met with fierce protest by Indian unions.

"I will not pretend that India is an abundance source already of highly skilled, high tech oriented labor. We have a way to go for that and the government and the private sector have to invest a great amount in skilling them," said Mahindra.

But once that happens, he believes Indian labor will be ideally suited for that kind of high tech manufacturing due to the nation's aptitude for engineering.

—CNBC's Leslie Shaffer contributed to this article.