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1. INDIAN MANUFACTURING - AN OVERVIEW
1.1 Role of manufacturing in the Indian economy
Manufacturing holds a key position in the Indian economy, accounting for nearly 16 per cent of real GDP in FY12 and employing about 12.0 per cent of India’s labour force. Growth in the sector has been matching the strong pace in overall GDP growth over the past few years. For example, while real GDP expanded at a CAGR of 8.4 per cent over FY05-FY12, growth in the manufacturing sector was marginally higher at around 8.5 per cent over the same period. Consequently, its share in the economy has marginally increased during this time – to 15.4 per cent from 15.3 per cent. Growth however has remained below that of services, an issue that has not escaped the attention of policy makers in the country.
Strong growth has been accompanied by a change in the nature of the sector – evolving from a public sector dominated set-up to a more private enterprise- driven one with global ambitions. In fact, according to UNIDO, India (with the exception of China) is currently the largest producer of textiles, chemical products, pharmaceuticals, basic metals, general machinery and equipment, and electrical machinery. In the coming year, the sector’s importance to the domestic and global economy is set to increase even further as a combination of supply-side advantages, policy initiatives, and private sector efforts set India on the path to a global manufacturing hub.
Exhibit 1 Size of the manufacturing sector in India 9000 16.4 8000 16.2 7000 16.0 6000 15.8 5000 15.6 4000 15.4 3000 2000 15.2 1000 15.0 0 14.8 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Manufacturing sector (size in INR billion, constant prices) Share in real GDP (%) Source: RBI, Aranca Research
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Exhibit 2 Growth in real GDP, manufacturing, and services (%) 15 % 13 11 9 7 5 3 FY06 FY07 FY08 FY09 FY10 FY11 FY12
GDP Manufacturing Services
Source: RBI, Aranca Research
1.2 The sub-sectors that stand out in India’s manufacturing sector
Among sub-sectors in manufacturing, the top five are food products, basic metals, rubber and petrochemicals, chemicals, and electrical machinery. Together they account for over 66.0 per cent of total revenues in manufacturing. However, these verticals rely primarily on domestic demand for a major part of their revenues. On the other hand, metal products, textiles, and transport equipment dominate the export scene with a share of almost 70.0 percent of manufacturing exports (2010). Nevertheless, on a size basis, they make up only about 30.0 percent of total revenues in manufacturing.
On a performance basis, there are a number of individual sub-sectors within manufacturing that have outshone overall growth for the sector. An analysis of 121 sub-sectors by the Confederation of Indian Industry (CII) highlights this point. The report reveals that in FY11 only five sub-sectors reported declines with most of them recording strong growth; notable ones include machine tools, ball and roller bearings, textile machinery, and utility vehicles – all of whom recorded either ‘excellent’ (above 20 per cent) or ‘high’ (10-20 per cent) growth.
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Exhibit 3 Growth trend of 121 manufacturing sub-sectors
Growth FY11 FY10 Excellent (>20%) (41) (34) High (10-20%) (26) (30) Moderate (0-10%) (49) (23)
Negative (<0%) (5) (25) Source: Confederation of Indian Industry (CII), Aranca Research Note: Figures in brackets indicate number of sectors
Exhibit 4 Key sectors fall in ‘excellent’ and ‘high’ growth areas
Machine Tools 51.0% Ball and roller bearings 33.0% Air conditioners 29.4% Vehicle industry 28.2% Textile Machinery 25.0% Tractors 25.0% Tyre Industry 24.0% Utility vehicles 17.6% Home and Personal care 12.0%
0% 10% 20% 30% 40% 50% 60%
Source: Confederation of Indian Industry (CII), Aranca Research
2. EXPORTS: THE FIRST STEP TO GLOBALISATION
2.1 India’s growing manufacturing exports
India’s manufacturing exporters have played a key role in promoting the sector’s prowess to consumers across the world. While on one hand sectors such as textiles, and gems and jewellery have been India’s brand ambassadors in global markets since ancient times, the country has also made its presence felt in key industries such as engineering goods and chemicals. In fact, analysis of India’s export data for FY11 reveals that engineering goods had the highest share in manufacturing exports (40.4 per cent), followed by gems and jewellery (25.2 per cent) and chemicals and related products (17.2 per cent). Overall, total manufacturing exports in FY11 grew to USD168.0 billion from USD115.2 billion in FY10. The sector’s exports grew at a CAGR of 19.6% during FY03-11.
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Exhibit 5 Manufactured Goods Exports (USD billion) 180 160 140 CAGR: 19.6% 120 100 80 60 40 20 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
Exhibit 6 Components of FY11 manufactured good exports
1% 0% Engineering Goods
2% Gems and Jewellery 14% Chemicals and Related Products 41% Textile and Textile 17% Products Leather and Manufactures
Others 25% Handicrafts*
Source: Directorate General of Commercial Intelligence and Statistics, Gem & Jewellery Export Promotion Council, Aranca Research. Note: *excluding Handmade Carpets
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Within manufacturing exports, engineering goods was one of the fastest growing – the segment recorded a CAGR of 26.0 per cent during the period FY01-FY11. Other sub-sectors with high growth rates include gems and jewellery and chemicals, which grew at a rate of 18.6 per cent and 17.3 per cent respectively. Within engineering goods, transport equipment led the field with a CAGR of 34 per cent (FY01-FY10), followed by electronic goods (24 per cent) and machinery and instruments (22 per cent). In the chemicals sub-sector, growth in exports was primarily led by pharmaceuticals – exports rose 18.0 per cent during the stated period.
Exhibit 7 Engineering goods exports 80 100
70 80 60 60 50 40 40 20 30 0 20
10 -20
0 -40 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Value (USD billion) Growth - right axis (%)
Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
Exhibit 8 Gems and jewellery exports from India 45 50% 40 40% 35 30 30% 25 20% 20 15 10% 10 0% 5 0 -10% FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12P
Value (USD billion) YoY growth
Source: Gem & Jewellery Export Promotion Council, Aranca Research
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2.2 The main export markets: US, Western Europe, and the Middle East
The main export market for Indian manufacturing goods are the US and Western Europe. Within Western Europe, Germany and UK are two of the most important export markets. The Middle East is also a key destination for Indian goods with the UAE in particular a major market for Indian gems and jewellery, engineering goods and chemicals. The following exhibits highlight the main markets for different Indian manufacturing products (in FY11).
Exhibit 9 Readymade garments (export share by country; FY11) % U.S.A U.K. Germany 27.7 25.4 U.A.E. France Netherlands 0.2 Italy 1.2 2.1 11.3 3.6 Canada 3.8 9.4 Japan 6.0 9.3 Russia Others Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
Exhibit 10 Chemicals and allied sectors (export share by country; FY11) % U.S.A China 16.8 Germany U.K. 4.5 Netherlands 3.5 U.A.E. 3.1 59.4 3.0 Brazil 2.7 2.2 2.5 Russia 1.8 Italy 0.4 Hong Kong Others Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
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Exhibit 11 Engineering goods (export share by country; FY11) % U.S.A U.A.E. 10.0 Singapore 5.9 Germany 4.3 U.K. 3.5 2.9 Sri Lanka 2.8 Malaysia 63.7 2.7 0.9 2.5 Italy Bangladesh 0.8 Hong Kong Others Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
Exhibit 12 Gems and jewellery (export share by country; FY11) % 0.8 0.4 U.A.E. 0.8 Hong Kong 2.4 1.1 6.6 U.S.A 1.1 Belgium 6.2 Israel 43.3 Singapore 13.3 Thailand U.K. Japan 24.0 Switzerland
Others Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
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3. GLOBALISING INDIAN MANUFACTURING
3.1 The advent of SEZs: The leap to global markets
The Indian manufacturing industry started with globalisation on a modest note in 1965, when the government advocated the Export Promotion Zone (EPZ) model to encourage exports. Asia’s first EPZ was set up in Kandla in 1965. Seven more zones were established thereafter. However, the zones did little to boost exports due to multiplicity of controls and clearances, the absence of world-class infrastructure, and an unstable fiscal regime. This led to the setting up of Special Economic Zones (SEZs) in India which addressed the short comings in the EPZ model and added new features like:
No minimum export performance stipulation Units situated in SEZs are allowed to sell 100 per cent of their production in the domestic market upon payment of full duty (unlike a ceiling of 50 per cent of exports for EPZ units) Retention of 100 per cent export earnings by SEZ units in Exchange Earner’s Foreign Currency (EEFC) account (unlike 70 per cent for EPZs) Simplified customs and central excise procedure in SEZs
Currently, there are 143 operational SEZs in the country, concentrated mainly in Andhra Pradesh, Tamilnadu, Karnataka, Maharashtra, Gujarat and Kerala. IT/ITES related SEZs represent a major share of SEZs; followed by multiproduct and other sector specific SEZs.
In India, SEZs have played an important role in facilitating exports, thereby enabling the country to be a part of globalisation. During FY06-11, exports from SEZs increased at a CAGR of 69.1 per cent to USD68.4 billion; annual growth for FY11 was 43.1 per cent. Of this, 61.7 per cent share belonged to the manufacturing sector. This sector contributed 92.4 per cent of the total exports from central government SEZs in FY11. For state government or private SEZs established prior to the SEZ Act (2005) and SEZs notified under the SEZ Act (2005), manufacturing contributed 47.2 per cent and 58.3 per cent, respectively, to the total exports.
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Exhibit 13 Exports from SEZs in India (USD billion)1 75 66 60 46 45
30 21 14 15 3 4 5 7 0
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
Exhibit 14 Share of manufacturing in exports from SEZs (FY 11)
SEZs notified under SEZ Act, 2005 58.3%
State govt/pvt SEZs (est Pre-SEZ 47.2% Act, 2005)
Central govt SEZs 92.4%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
1Conversion rate used is USD1 = INR46.11
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3.2 Scale and Innovation: Pillars of an effective global presence
In the past, India’s manufacturing exporters thrived primarily on the back of low input costs. However, the low-cost story no longer is the prime driver of growth due to rising wages, high energy costs, and increasing cost of capital. Given this scenario, Indian manufacturers need to scale up and innovate their way through competition. On an encouraging note, evidence of both is on the rise. Recently, Indian manufactures have become more confident and have taken recourse to inorganic expansion through ambitious global acquisitions. The key aim has been to augment scale, make a presence in foreign markets, and access better technical and management expertise.
Exhibit 15 Recent overseas acquisitions by Indian manufacturers Year Acquirer Target Deal value (USD) FY12 GVK Power Hancock Coal 1.26 billion FY11 Tata Chemicals Ltd Cheshire Salt Holdings 13 billion FY11 Mahindra & Mahindra Ltd Ssangyong Motor Company Ltd 463 million FY11 Reliance Industries Ltd Pioneer Natural Resources 1.15 billion FY08 Tata Motors Ltd Jaguar Land Rover 2.3 billion FY06 Tata Steel Ltd Corus Group 7.6 billion Source: Directorate General of Commercial Intelligence and Statistics, Aranca Research
According to MAPE Advisory Group, early indications are that the international experience of Indian companies in carrying out deals has been quite good. Tata Tea has successfully managed to integrate Tetley's operations with its own, and has also restructured the acquired company's balance sheet. The buy-out of UK’s BMS Laboratories has helped Dr. Reddy's in scaling up its European business to the USD35–40 million range in FY06 from the target's business level of less than USD10 million in FY02. Wockhardt's acquisition of Wallace Labs and CP Pharmaceuticals in the UK and Esparma in Germany has helped the company in building a profitable USD150 million-plus European franchise. The total investment for these three transactions was less than USD40 million. Ranbaxy's success and early mover advantage in the key US market has been credited to its acquisition of Ohm Pharma in the mid-nineties. A similar example can be cited of Sun Pharma‘s acquisition of Caraco in the US.
For e.g. Bharat Forge’s global success has been on the back of efficient integration of multiple, global supply chains. The company has brought together the supply chains of several loss-making organizations to create one single coordinated, global, profitable system.
A study by Deloitte (2006) on Indian manufacturing firms and multinational ones operating in the country highlights innovation as an underexploited strategy in the
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Exhibit 16 Recent investments in R&D by key players Date R&D investment (implemented and/or announced) ISRO announces setting up of spacecraft R&D center in May-11 Chitradurga Hitachi to invest USD400 million to set up an R&D center in Apr-11 Bangalore Alstom earmarks USD39 million to establish R&D center for Aug-10 power products Bridgewater opens Center of Excellence for telecom software May-10 R&D Jan-10 Huawei allocates USD500 million investment for R&D center Oct-09 Hyundai sets up R&D center at an investment of USD25 million Tata DoCoMo sets up R&D center for value-added services Oct-09 (VAS) and mobile applications LG Electronics doubles its annual R&D investment outlay to Jun-09 USD83 million Source: India's Ministry of Science and Technology, India Electronic News, Moneycontrol, Economic Times, Appliancemagazine.com, Business Standard, company websites, Aranca Research ISRO: India Space Research Organisation
3.3 Initiatives by Indian manufacturers to internalise Global Best Practices
Best Practises - Certifications
To enhance their competitive edge, Indian manufacturing firms have been increasingly resorting to international best practices. For example, in the auto industry, Indian firms have won a number of quality certifications by using practices like 5S, Total Productive Maintenance (TPM), Total Quality Management (TQM), and Just in Time (JIT). Consequently, the country is home to the highest number of ‘Deming Award’ winners in the auto components sphere, outside Japan.
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Best Practises-Processes
In the auto components sector, Original Equipment Manufacturers (OEMs) have also aided in achieving profitability and sustainability of suppliers and dealers through guidance on financial aspects the business. Short-term financial aid is often provided to financially vulnerable dealers and suppliers impacted due to any slowdown in growth. At the same time guidance by OEM’s regarding production schedules helps in reducing inventory pile ups with dealers, thereby avoiding high inventory-carrying costs.
Best practises however are not restricted to a sector alone – they can be applied across industries. Most of these practices involve sustainable cost reduction, material sourcing, and purchase of capital goods, production scheduling, transportation and delivery of products, warehousing, and ensuring product quality. A few steps taken by some pulp and paper mills to adhere to global best practices are noteworthy:
Andhra Pradesh Paper Mills Ltd: Installation of Down Flow Solids Cooking System Tamil Nadu Newsprint and Papers Ltd: Installation of ECF Alkaline Extraction Filtrate Recycling, and chlorine removal (a low cost option) from the ‘recovery cycle’
Notable steps have also been taken in the aerospace industry where all the production divisions of HAL have ISO 9001-2000 accreditation, and 16 divisions have ISO-14001-2004 Environment Management System (EMS) certification.
The Maruti Initiative
Maruti Suzuki, the leading car manufacturer in India, has set up a process to identify business risks faced on an ongoing basis. This helps the company keep abreast of ongoing changes in business environment. Risks are categorized as A, B and C based on severity of the risk and the level at which it can be addressed and monitored. Within each category, risks are further identified as socioeconomic or environmental. Maruti Suzuki has also adopted the Japanese ’Kaizen' philosophy, using it extensively for cost minimization, efficiency, and productivity improvement. In the past, it has helped leading car producer to offer quality cars, spare parts, and after-sales service at cost-effective rates.
3.4 Collaborations by Indian manufacturers with global players
Indian firms over the years have increased their collaboration with foreign ones as they seek to upgrade their products and compete in both domestic and external markets. Some of the key benefits of collaborations are as under –
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Gaining faster access to new technologies or markets Accessing technological expertise located beyond the boundaries of the firm Leveraging the comparative advantage of each other Increasing the firm’s openness to its environment and stimulating innovation Sharing the risks of R&D beyond the resources of any one firm
Technology imports through collaboration with foreign firms have enabled Indian firms to bridge the technological gap and thereby expedite global integration. In this context, liberalisation of the Indian economy is a watershed event. For example, the total number of collaborations in 1991-2000 surpassed that for the four decades (taken together) prior to that. Although examples abound of such collaborations, those in two sectors are noteworthy.
In the auto components industry, in-house designing and testing capability is a pre-requisite for being selected as a direct supplier to automotive companies and large Tier-I suppliers. Liberalisation enabled the start of widespread collaboration of Indian firms with global automakers and their suppliers. Such measures also help Indian auto component producers to enter the global auto component value chain.
In the construction equipment industry, high technology barriers had restricted the growth of domestic firms in the pre-liberalisation era. Local firms used to manufacture basic equipment using limited licensed technology from international players. However, liberalisation allowed these companies to form Joint Ventures with global majors who allowed them access to their technology. It thus enabled local firms to build equipment with international standards and thereby reduced the sector’s dependency on imports.
The Indian pharmaceutical industry is booming with new technology and advanced drugs that meet industrial standards. This has been possible partly due to foreign collaborations which have resulted into R&D centres with state-of-the-art equipment. Foreign collaborations have also enabled Indian firms such as Biocon Limited and Hetero Drugs Ltd to enter the international market.
Given the requirement of state of the art equipment and weaponry in the Indian defence sector, the government is focusing on collaborations and joint ventures with foreign original equipment manufacturers. For example, India is currently partnering a Russian company, United Aircraft Corp. in developing the export version of the fighter aircraft Sukhoi T-50.
3.5 India and the Global Manufacturing Value Chain
Prior to the 1980s, global manufacturing was dominated by large firms such as GM, GE, IBM, Fujitsu and Hitachi. Majority of their manufacturing activities
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Indian manufacturers have been moving up the global value chain, moving on from mere producers of intermediate goods to high-end ones. The large share of engineering goods in India’s manufacturing exports is a testimony to that. Technological development is the key to tap opportunities higher up the manufacturing value chain. Towards this end, Indian firms have been expanding in-house research while moving on with acquisitions of global firms. Domestic firms have also been taking cues from multinationals operating in the country.
A few sectors nevertheless are witnessing the emergence of sub-contracting. The generic pharmaceutical sector is one example where firms such as Piramal Healthcare and Jubilant Life Sciences are among the top ten global players in contract manufacturing. According to Dun & Bradstreet, Indian pharmaceutical companies possess the highest number of US FDA approved manufacturing facilities outside the US. In addition, they lead in the filing of drug master files (DMF) with the US FDA. This has facilitated the domestic pharmaceutical industry to attract contract manufacturing opportunities in the rapidly growing generics market, thereby moving up the global pharmaceutical manufacturing value chain. Indian firms have also been entering into contract manufacturing of patented drugs. Apart from pharmaceuticals, a clutch of other globally competitive Indian firms (many in the auto industry) have moved into the global supply chain. For example, Sundram Fasteners makes generator caps for General Motors while Moser Baer is a global manufacturer of data storage media such as DVDs and CDs.
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Exhibit 17 Up the global value chain: Path of progress followed by the Indian auto components sector
Source: Aranca Research Notes: OEM means Original Equipment Manufacturer
3.6 Playing host to the world: Foreign investments in manufacturing
Over the years, the increasing attractiveness of the Indian market has lured investors from across the world. The country was among the top five preferred destinations for Foreign Direct Investment (FDI) from Asian, European and North American investors as per The 2010 A.T. Kearney FDI Confidence Index. In The 2012 A.T. Kearney FDI Confidence Index, India is positioned second in the world with many developed and emerging countries lagging behind.
Exhibit 18 2012 FDI Confidence Index - Top 10 countries Rank Country 1 China 2 India 3 Brazil 4 United States of America (USA) 5 Germany 6 Australia 7 Singapore 8 United Kingdom 9 Indonesia 10 Malaysia Source: A.T. Kearney, Aranca Research
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Exhibit 19 Top 10 regional preference of investors (2010 – FDI confidence index) Asian European North American Rank investors investors investors 1 China China USA 2 Vietnam USA China 3 USA India India 4 India Germany Brazil 5 Hong Kong Brazil Mexico 6 Indonesia Romania Poland 7 Brazil Italy UK 8 Australia France Canada 9 Thailand Poland Australia
10 UAE Russia Germany Source: A.T. Kearney, Aranca Research, Note: Font in bold indicates countries in the same region
At a more micro level, FDI inflows into key sub-sector of manufacturing have also posted strong growth. The exhibits below highlight cumulative FDI inflows into key sectors of the Indian economy and their shares in overall inflows.
Exhibit 20 Cumulative FDI inflows into key sectors (from Apr 2000) 12
10
8
6
4
2
0 FY08 FY09 FY10 FY11 FY12^ Computer Software & Hardware Telecommunications* Housing & Real Estate Construction Activities# Automobile Industry Power Source: Department of Industrial Policy & Promotion; Aranca Research * paging, mobile, basic telephone services; #includes roads and highways; ^ FY12 - (April - Feb)
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Exhibit 21 Share in cumulative FDI inflows (Apr2000-Feb2012)
Chemicals Petroleum & Natural gas Metallurgical Industries Automotive Power Housing & Real estate Computers Construction Telecommunications % Services
0% 4% 8% 12% 16% 20% 24%
Source: Department of Industrial Policy & Promotion Ministry of Commerce and Industry, Aranca Research
3.7 Government support to make Indian manufacturing world-class
Recognising the potential of the Indian manufacturing sector and to make the country a global hub, the government constituted the National Manufacturing Competitiveness Council (NMCC), which includes industry leaders, academicians and government executives. Apart from working with the industry and the central government to address long-term problems facing the sector, the NMCC also works with the individual states. The NMCC’s document on a national strategy for manufacturing advocates a growth rate of 12–14 per cent for the next 10 years and lists comprehensive action points towards this goal. The Council’s main objectives include:
Improve efficiency of operations and competitiveness of the Indian manufacturing Provide better quality goods and services at affordable prices Increase India’s share of global trade and create more jobs
In keeping with the objectives of the NMCC, the government is also planning to set up National Manufacturing and Investment Zones (NMIZs) to encourage investments and thereby boost the share of manufacturing in GDP to 25 per cent by 2022. While recognizing the fact that a major chunk of investments will be flowing from domestic firms, the government has not been ignoring foreign companies. Consequently, the government issued the new ‘Consolidated Foreign Direct Investment Policy’, which came into effect from April 1, 2010. Further, in FY11, the government eased norms for investments by foreign companies that are present in India through a joint venture (JV) or a technical collaboration. Accordingly, the foreign company will not have to seek a ‘no-objection certificate’ from the Indian partner for investing in the sector where the JV operates.
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According to PricewaterhouseCoopers, eased norms would augment the confidence of investors who will no longer require their Indian partners’ approval. Consequently, investors sitting on the sidelines are expected to move in, thereby increasing FDI inflows into the country.
4. OPPORTUNITIES IN GLOBALISING: BRIEF INSIGHTS
4.1 Pharmaceuticals: Moving on to high-end drugs and clinical trials
The key players in the sector are Cipla, GSK, Ranbaxy, Sun, Zydus Cadilla, Alkem and Lupin.
Strengths and notable trends
rd Annual turnover of USD21.73 billion in FY10; ranks 3 globally in terms of volume and has a 10 per cent share (in terms of volume) of the global market Enjoys comparative advantage in costs and has strong R&D credentials Produces about 60,000 generic brands across 60 therapeutic categories and manufactures more than 500 Active Pharmaceutical Ingredients (APIs) Has the highest number of US FDA approved manufacturing facilities outside the US; Indian firms also lead in the filing of drug master files (DMF) with the US FDA
Opportunities in key areas
Indian firms are currently focussing on the global generic and API business, R&D activities, and contract research and manufacturing alliances. Other notable opportunities in the sector both in India and abroad are:
High-end drugs: Indian firms can building on successes in generic drugs and API Clinical trials: Large and genetically diverse population in the country will aid the sector; Indian firms then have the option to replicate successes in the field and also in rural market penetration in other developing economies
4.2 Engineering goods: Building on existing strengths to go global
Key players in the segment include BHEL, L&T, ABB, Siemens India, Cummins India, Engineers India, Thermax, Kirloskar, Crompton greaves, and Bharat Forge.
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Strengths and notable trends
The engineering goods sector accounts for 3 per cent of GDP with a 30.5 per cent weight in IIP Cost advantage due to economies of scale and low input costs Availability of skilled labour is enabling firms to move up the value chain; India produces 0.4 million engineers every year
Opportunities in key areas
India’s engineering firms are thriving on strong economic growth and the government’s growing emphasis on infrastructure. Opportunities for key industries include:
Electrical machinery: Increase in power generation will drive demand for generation, transmission and distribution machinery. Opportunities will also emerge in renewable energy and nuclear power in India and abroad Engineering process outsourcing hub: India enjoys a strong position in automotive and high-tech telecom engineering services. With its talent pool and existing expertise, opportunities could emerge in areas such as aerospace
4.3 Automobiles: Global hub for auto majors; new markets through innovations
The key players in the sector are Maruti Suzuki, Tata Motors, Mahindra & Mahindra, and Ashok Leyland.
Strengths and notable trends
Annual turnover of USD73 billion in FY11 (22 per cent share in manufacturing GDP) Enjoys comparative advantage in costs and has strong R&D credentials; innovations include the world’s cheapest car – the Tata Nano India is the one of the world’s top three passenger car markets in terms of growth Cumulative FDI inflows over Apr 2000 – Feb 2012 stood at USD6.6 billion (4.1 per cent of total FDI)
Opportunities in key areas
India is all set to become a global manufacturing hub for automobile companies, especially for small cars. Car majors like General Motors, Toyota, and Nissan have already announced their plans to do so. At the same time, OEMs have already lined up plans to make India a component sourcing hub for their global operations. Other opportunities like in –
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Global R&D hub: Both the government and the private sector (Hyundai, Suzuki and General Motors) have been investing in developing R&D in the sector Creating sizable market segments through innovations: Launch of the Tata Nano has directed attention to the low-income market. At the same time, other potential markets are emerging. These include gas-driven two wheelers and electric cars
5. CONCLUSION
India started off as a predominantly agrarian economy. However, the share of agriculture has since declined to give way to the services sector, which contributes the most to the GDP currently. In contrast, the manufacturing sector’s contribution to the GDP has remained range-bound for quite some time. Considering the government’s efforts, the Indian manufacturing sector is expected to substantially increase its contribution to the GDP in the next decade. For this, Indian manufacturing would have to undertake globalisation on a grander scale.
A higher share in global manufacturing compared to a decade ago signifies that Indian manufacturing is moving in the right direction. Growth in the sector has been strong, outpacing overall GDP growth over the past few years. With regard to exports, the country has made its presence felt in key industries such as engineering goods and chemicals. The experience of globally successful companies underscores the fact that success depends on consistent innovation. Considering that India has a marked competitive advantage in innovation with costs about one-third of that in developed markets and amongst the lowest in the world, it should build up on this advantage. This would help in moving towards the manufacturing of high value goods.
India is well aware of the importance of increased trans-nationalisation of manufacturing in economic development and job creation. In line with this, the country has been setting up SEZs and encouraging foreign collaborations with the aim of technology transfer. Today, India is among the world’s 10 largest manufacturers and the country’s manufacturing prowess is set to grow even further given its ranking as the second-most competitive country in the world.
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