1. INDIAN MANUFAC U!IN" #$C O!: AN O%$!%I$& 1.1 !

o'e of (anufacturing in t)e Indian econo(*

Manufacturing )o'ds a +e* position in t)e Indian econo(*, accounting for near'* 1- per cent of rea' "DP in F.1/ and e(p'o*ing a0out 1/.1 per cent of India2s 'a0our force. "rowt) in t)e sector )as 0een (atc)ing t)e strong pace in overa'' "DP growt) over t)e past few *ears. For e3a(p'e, w)i'e rea' "DP e3panded at a CA"! of 4.5 per cent over F.156F.1/, growt) in t)e (anufacturing sector was (argina''* )ig)er at around 4.5 per cent over t)e sa(e period. Conse7uent'*, its s)are in t)e econo(* )as (argina''* increased during t)is ti(e 8 to 15.5 per cent fro( 15.9 per cent. "rowt) )owever )as re(ained 0e'ow t)at of services, an issue t)at )as not escaped t)e attention of po'ic* (a+ers in t)e countr*. #trong growt) )as 0een acco(panied 0* a c)ange in t)e nature of t)e sector 8 evo'ving fro( a pu0'ic sector do(inated set6up to a (ore private enterprise6 driven one wit) g'o0a' a(0itions. In fact, according to UNIDO, India :wit) t)e e3ception of C)ina; is current'* t)e 'argest producer of te3ti'es, c)e(ica' products, p)ar(aceutica's, 0asic (eta's, genera' (ac)iner* and e7uip(ent, and e'ectrica' (ac)iner*. In t)e co(ing *ear, t)e sectors i(portance to t)e do(estic and g'o0a' econo(* is set to increase even furt)er as a co(0ination of supp'*6side advantages, po'ic* initiatives, and private sector efforts set India on t)e pat) to a g'o0a' (anufacturing )u0. $3)i0it 1 #i<e of t)e (anufacturing sector in India 1-.5 =111 1-./ 4111 1-.1 >111 15.4 -111 15.5111 5111 9111 /111 1111 1 15.5 15./ 15.1 15.4 F.15 F.1- F.1> F.14 F.1= F.11 F.11 F.1/ Manufacturing sector :si<e in IN! 0i''ion,

constant prices; #)are in rea' "DP :?; #ource: !@I, Aranca !esearc)

Indian Manufacturing: Overview and Prospects 5

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA.........

$3)i0it / "rowt) in rea' "DP, (anufacturing, and services :?; 15 % 19 11 = > 5 9 F.1"DP 1./ F.1> F.14 F.1= F.11 F.11 F.1/

Manufacturing

#ervices

#ource: !@I, Aranca !esearc) )e su06sectors t)at stand out in Indias (anufacturing sector

A(ong su06sectors in (anufacturing, t)e top five are food products, 0asic (eta's, ru00er and petroc)e(ica's, c)e(ica's, and e'ectrica' (ac)iner*. oget)er t)e* account for over --.1 per cent of tota' revenues in (anufacturing. Bowever, t)ese vertica's re'* pri(ari'* on do(estic de(and for a (aCor part of t)eir revenues.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... $3)i0it 9 Use60ased c'assification of India2s (anufacturing sector

#ource: !eserve @an+ of India :!@I;, Aranca !esearc) 1.9 Manufacturing sectors recent growt) spurt: C'ues fro( IIP

Manufacturing accounts for 'arge ofProduction Indian industr*, a fact 0orne out 0* t)e sectors >5.5 per cent s)are in t)eaInde3 of c)un+ Industria' :IIP;. &it) CA"! of 4.> per cent during F.156F.1/:F. 1/ inc'udes data fro( Apri'/111 to Fe01/;, t)e (anufacturing sector )e'ped t)e overa'' industria' sector get over 'ow growt) in t)e ot)er two su06seg(ents of IIP, Mining and Duarr*ing :15./ weig)t age in IIP; and $'ectricit* :11.9 weig)tage in IIP; witnessed CA"! of 9.5 per cent and 5.4 per cent respective'*. On an even (ore encouraging note, t)e (anufacturing sector )as strengt)ened in F.11 co(pared to t)e previous fisca' 8 an ana'*sis of 1/1 su06sectors 0* t)e Confederation of Indian Industr* :CII; revea's t)at on'* 5 of t)e( recorded dec'ines in F.11 co(pared to /5 in F.11. At t)e sa(e ti(e, +e* su06sectors 'i+e (ac)ine too's, 0a'' and ro''er 0earings, te3ti'e (ac)iner*, and uti'it* ve)ic'es recorded eit)er e3ce''ent :a0ove /1 per cent; or )ig) :116/1 per cent; growt), t)ere0* adding to va'ue creation in (anufacturing.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it 5 CA"! of IIP :F.156F.1/;E a3is )eadings a'so indicate s)ares in IIP 11.9? $'ectricit* 15./? Mining Duarr*ing F 9.5? 4.>? >.4? 1? /? 5? -? 4? 11? 5.4?

>5.5? Manufacturing IIP

#ource: Centra' #tatistica' Organisation, Aranca !esearc) Note: @ase: /115615 G111 $3)i0it 5 CA"! :F.156F.1/; of +e* su06sectors wit)in (anufacturing :IIP; Manufacturing : ota'; Mac)iner* and e7uip(ent n.e.c. Motor ve)ic'esH &ood and products of woodI Food products and 0everages e3ti' es @asic 1? /? 5./? =.>? 5? -? 4? 11? 1/? 15? 1-? -.>? -.= ? 4.> ?

1/.= ?

15.5 ?

#ource: Centra' #tatistica' Organisation, Aranca !esearc) Note: I in'cudes cor+ products, artic'es of straw F p'ating (ateria'sE e3c'udes furnitureE H inc'udes trai'ers F se(i6trai'ers

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it "rowt) trend of 1/1 (anufacturing su06 sectors "rowt) F.11 F.11 $3ce''ent :J/1?; Big) :116/1?; Moderate :1611?; :51; :/-; :5=; :95; :91; :/9;

Negative :K1?; :5; :/5; #ource: Confederation of Indian Industr* :CII;, Aranca !esearc) Note: Figures in 0rac+ets indicate nu(0er of sectors

$3)i0it > Le* sectors fa'' in Me3ce''ent2 and M)ig)2 growt) areas Mac)ine oo's @a'' and ro''er 0earings Air conditioners %e)ic'e industr* e3ti'e Mac)iner* ractors *re Industr* Uti'it* ve)ic'es Bo(e and Persona' care 1? 51.1 ?

99.1? /=.5? /4./? /5.1? /5.1? /5.1? 1>.-? 11? 1/.1 ? /1? 91?

51?

51?

-1?

#ource: Confederation of Indian Industr* :CII;, Aranca !esearc) /. /.1 APPIN" B$ "NO@AN MA!L$ Indias growing (anufacturing e3ports

Indias (anufacturing e3porters )ave p'a*ed a +e* ro'e in pro(oting t)e sectors prowess to consu(ers across t)e wor'd. &)i'e on one )and sectors suc) as te3ti'es, and ge(s and Cewe''er* )ave 0een Indias 0rand a(0assadors in g'o0a' (ar+ets ti(es, t)e countr* )as a'so (ade itsana'*sis presence fe't industries since suc) ancient as engineering goods and c)e(ica's. In fact, of India s in +e* e3port data for F.11 revea's t)at engineering goods )ad t)e )ig)est s)are in (anufacturing e3ports :51.5 per cent;, fo''owed 0* ge(s and Cewe''er* :/5./ per cent; and c)e(ica's and re'ated products :1>./ per cent;. Overa'', tota' (anufacturing e3ports in F.11 grew to U#D1-4.1 0i''ion fro( U#D115./ 0i''ion in

F.11. )e sectors e3ports grew at a CA"! of 1=.-? during F.19611.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it 4 Manufactured "oods $3ports 0i''ion; CA"!: 1=.-? 1/1 111 41 -1 51 /1 1 F.19 F.15 F.15 F.1F.1> F.14 F.1= F.11 F.11

:U#D

141 1-1 151

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc)

$3)i0it = Co(ponents of F.11 (anufactured good e3ports :per cent; 1? 15 ? 51 ? 1? $ngineering "oods "e(s and Oewe''er* C)e(ica's and !e'ated Products e3ti'e and e3ti'e Products Neat)er and Manufactures Ot)ers /5? BandicraftsI #ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, "e( F Oewe''er* $3port Pro(otion Counci', Aranca !esearc). Note: Ie3c'uding Band(ade Carpets &it)in (anufacturing e3ports, engineering goods was one of t)e fastest growing 8 t)e seg(ent recorded a CA"! of /-.1 per cent during t)e period F.116F.11. Ot)er su06sectors wit) )ig) growt) rates inc'ude ge(s and Cewe''er* and c)e(ica's, w)ic) grew at a rate of 14.- per cent and 1>.9 per cent respective'*. &it)in engineering goods, transport e7uip(ent 'ed t)e fie'd wit) a CA"! of 95 per cent :F.116F.11;, fo''owed 0* e'ectronic goods :/5 per cent; and (ac)iner* and instru(ents :// per cent;. In t)e c)e(ica's su06sector, growt) in e3ports was

1>?

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... pri(ari'* 'ed 0* p)ar(aceutica's 8 e3ports rose 14.1 per cent during t)e stated period. $3)i0it 11 $ngineering e3ports 41 >1 -1 51 51 91 /1 11 1 F.15 F.1= F.1F.1> F.11 F.11 F.14 goods 111 41 -1 51 /1 1 6/1 651

%a'ue :U#D 0i''ion;

"rowt) 6 rig)t a3is :?;

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc) $3)i0it 11 and re'ated

C)e(ica's e3ports 95 95 91 /5 /1 15 11 5 1 1

products

91 /5 /1 15 11 5

F.15 F.1=

F.1F.1> F.11 F.11 %a'ue :U#D 0i''ion;

F.14 "rowt) 6 rig)t a3is :?;

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... /./ )e (ain e3port (ar+ets: U#, &estern $urope, and t)e Midd'e $ast

)e (ain e3port (ar+et for Indian (anufacturing goods was t)e U# and &estern $urope. &it)in &estern $urope, "er(an* and UL are two of t)e (ost i(portant e3port (ar+ets. )e Midd'e $ast is a'so a +e* destination for Indian goods wit) t)e UA$ in particu'ar a (aCor (ar+et for Indian ge(s and Cewe''er*, engineering goods and c)e(ica's. )e fo''owing e3)i0its )ig)'ig)t t)e (ain (ar+ets for different Indian (anufacturing products :in F.11;.

$3)i0it 1/ !ead*(ade gar(ents :e3port s)are 0* countr*E F.11; :per cent; U.#.A U.L. />. > 1./ 1./ 9.4 =.9 /5.5 "er(an* U.A.$. France Net)er'and 11. 9 =.5 s Ita'* Canada Oapan !ussia Ot)ers

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc) $3)i0it 19 C)e(ica's and a''ied sectors :e3port s)are 0* countr*E F.11; :per cent; U.#.A C)ina 1-.4 "er(an* U.L. 9.5 5=.5 /./ 1.4 1.5 Net)er'and s U.A.$. @ra<i ' !ussi a Ita'* Bong Long

Ot)ers #ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it 15 $ngineering goods :e3port s)are 0* countr*E F.11; :per cent; U.#.A 11. 1 5.= 5.9 /.> 1.= 1.4 U.A.$. #ingapor e "er(an * U.L. -9.> #ri Nan+a Ma'a*sia Ita'* @ang'ades ) Bong Long Ot)ers #ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc) $3)i0it 15 "e(s and Cewe''er* :e3port s)are 0* countr*E F.11; :per cent; U.A.$. Bong -.Long U.#.A 19.9 59. 9 @e'giu( Israe' #ingapor e )ai'and U.L. Oapan #wit<er'and Ot)ers #ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc)

1.4 1.5 1.4 /.5

/5.1

9. INC!$A#IN" COMP$ I I%$N$## OF INDIAN MANUFAC U!IN" 9.1 #ector )as an edge in t)e g'o0a' arena

India ran+s second in t)e wor'd as per t)e /111 "'o0a' Manufacturing Co(petitiveness Inde3 :"MCI;, prepared 0* t)e U# Counci' on Co(petitiveness, and De'oitte. )e inde3 factors in (ar+et d*na(ics as we'' as po'ic* issues inf'uencing t)e sector. India is a)ead of (aCor deve'oped and e(erging econo(ies 'i+e t)e U#, #out) Lorea, @ra<i' and Oapan. Noo+ing a)ead, Indias co(petitiveness wi'' increase furt)er wit) its inde3 score set to i(prove to =.11 :out of 11; in t)e ne3t five *ears fro( t)e /111 figure of 4.15. In ter(s of ran+, t)e

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... countr* is set to (aintain its g'o0a' second ran+ over t)e sa(e period. )e ne3t e3)i0its )ig)'ig)t seg(ents of t)e "MCI and ran+s assigned to nations in /111. $3)i0it 1Drivers of t)e "MCI in descending order of weig)t a'ent6driven innovation

Cost of 'a0our and (ateria's $nerg* cost of po'icies $cono(ic, trade, financia' and ta3 s*ste(s Dua'it* of p)*sica' infrastructure "overn(ent invest(ents in (anufacturing and innovation Nega' and regu'ator* s*ste( #upp'ier networ+ Noca' 0usiness d*na(ics Dua'it* and avai'a0i'it* of )ea't)care
#ource: De'oitte and U# Counci' on Co(petitiveness, Aranca !esearc) $3)i0it // /111 "MCI 8 India co(pared wit) ot)ers Current !an+ after Countr* Inde3 5 !an+ #core 1 C)ina 11.11 1 / I nd i a 4.15 / !ep of 9 -.>= 9 Lorea 5 U#A 5.4 5 5 @ra<i' 5.5 5 Oapan 5.11 > > Me3ico 5.45 4 "er(an 5.41 4 = #ingapo 5.-= 11 11 Po'and 5.5= = New )ai'an 6 11 #ource: De'oitte and U# Counci' on Co(petitiveness, Aranca !esearc) INew addition a(ong t)e top 11 countries. Current'* )ai'and is ran+ed 1/t) wit) an inde3 score of 5.1>

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... Dua'it* standards in Indian (anufacturing )ave i(proved significant'* and t)e sector is now we'' +nown g'o0a''* for its )ig) 7ua'it*. Over t)e 'ast decade, Indian (anufacturers e3tensive'* adopted t)e ota' Dua'it* Manage(ent : DM; approac). As a resu't, t)e sector now enCo*s cost advantage in t)e range of 156/1 per cent co(pared to t)e 0eginning of t)e decade. Ongoing and new 0est practices wi'' continue to 0enefit t)e sector in t)e (ediu(6ter( t)roug) t)eir inf'uence on 0ot) t)e top 'ine and t)e 0otto( 'ine. Meanw)i'e, India is current'* second on'* to Oapan in )osting co(panies awarded for 7ua'it* e3ce''ence. )ese inc'ude /1 co(panies w)o )ave 0een awarded t)e De(ing $3ce''ence Award and 159 co(panies wit) t)e ota' Productive Maintenance : PM; $3ce''ence Award 0* t)e Oapan Institute of P'ant Maintenance :OIPM;. A'so, of t)e 1-5 Indian co(panies t)at )ave 0een awarded wit) t)e CII6 $3i( @an+ Awards for @usiness $3ce''ence, around 41 per cent are in t)e (anufacturing sector. It is to 0e noted t)at t)is award is g'o0a''* accepted as one e7uiva'ent to t)e $uropean Foundation of Dua'it* Award. 9./ $ncouraging researc) and fostering innovation

Innovation 8 0e it product or e(erging process (ar+et 8 )as received a 0oost due to growing !FD in t)e countr*. 'ess t)an peers spending )as A't)oug), 0een increasing. In /111, for e3a(p'e, India s 'i+e C)ina, Indias s)are in g'o0a' !FD !FD spending is esti(ated to )ave (ade up /.4 per cent of t)e wor'd tota', )ig)er t)an t)e /.- per cent s)are t)e *ear 0efore. )e Inte''ectua' Propert* :IP; app'ications registered in India are a'so on t)e rise. Over F.1-6F.11, IP app'ications fi''ed for patents rose to 95,/4> fro( /5,515E for designs t)e rise was to -,1=/ fro( 5,=5=. Interesting'*, t)e patentee wit) t)e 'argest nu(0er of IP app'ications fro( India in F.11 was fro( t)e (anufacturing sector 8 Bindustan Uni'ever :FMC" sector, 119 app'ications;. co(panies were not far 0e)ind 8 t)e top five Indian fir(s fi'ed 11/ IP P)ar(aceutica' app'ications. $3)i0it 14 !FD spending in India :U#D 55.1 0i''ion; 51.9 51.1 94.1 95.1 91.1 /5.1 /1.1 /11= /111 /111$ /11/$ /4.1 9/.5

#ource: @atte''e, /11/ !FD spending esti(ate 0* @atte''e, /11/ !FD Funding Forecast, Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it 1= Indian p)ar(aceutica' patent :F.11; !an0a3* &oc+)ardt Cip'a Betero !esearc) Concept Medica' !esearc) 1 5 11 11 11 15 /1 /5 91 95 51 /1 99 app'ications

9>

#ource: Office of t)e Contro''er "enera' of Patents, Designs and rade(ar+s /11=811 annua' report, co(pan* annua' reports, Aranca !esearc) @ot) t)e govern(ent as we'' as private p'a*ers in t)e Indian (anufacturing sector rea'ise t)at !FD is a +e* to t)eir g'o0a' a(0itions. Conse7uent'*, invest(ents towards researc) )ave 0een speeded up. "iven 0e'ow are so(e nota0'e invest(ents in t)e fie'd. $3)i0it /1 !ecent invest(ents in !FD 0* p'a*ers :0ot) pu0'ic sector and private sector; Date !FD invest(ent :i(p'e(ented andPor announced; I # ! O announces setting up of spacecraft !FD center in Ma*611 C)itradurga B i t a c )i to invest U#D511 (i''ion to set up an !FD center Apr611 in A ' s t o ( ear(ar+s U#D9= (i''ion to esta0'is) !FD Aug611 center for power products Oan611 B ua we i a''ocates U#D511 (i''ion invest(ent for !FD Oct61= center B * und a i sets up !FD center at an invest(ent of U#D/5 (i''ion N " $ ' e c t r o ni c s dou0'es its annua' !FD invest(ent out'a* to #ource: India $'ectronic News, Mone*contro', $cono(ic i(es, App'iance(aga<ine.co(, @usiness #tandard, co(pan* we0sites, Aranca !esearc) I#!O: India #pace !esearc) Organisation Oun61= )e Indian (anufacturing sector is now rep'ete wit) innovations t)at )ave 0eco(e outstanding i''ustrations g'o0a''*. )oug) e3a(p'es a0ound, t)e one regarding introduction of a new process 0* Ma)indra F Ma)indra in deve'op(ent of a new ve)ic'e is notewort)*. MFM introduced a new process :Integrated Design and Manufacturing; w)i'e deve'oping its (u'ti6uti'it* ve)ic'e Q#corpio. )e

process invo'ved cross6functiona' :inc'uding I supp'iers; co''a0orated e3tensive'* in t)e product tea(s deve'op(ent process 8ier designing, testing w)o

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... and (ar+eting. resu't was a s)orter of product deve'op(ent and MFM was a0'e to ro'' out t)e )e Q#corpio on an invest(ent U#D1/1 (i''ion in t)e c*c'e proCect 8 one6fift) of t)e average spent on si(i'ar proCects g'o0a''*. 9.9 "overn(ent support for deve'oping a s+i''ed wor+force

India adds 511 P)Ds, /11,111 engineers, 911,111 nonengineering postgraduates, and /,111,111 ot)er graduates to its wor+force annua''*. )is ensures t)e avai'a0i'it* of a poo' of s+i''ed (anpower to support t)e nations industria' deve'op(ent. Bowever, industr* sources )ave often e3pressed concern regarding a potentia' s)ortage of ta'ent, given t)e fast pace of econo(ic growt) in t)e countr*. )ere are a'so concerns pertaining to e(p'o*a0i'it* wit) a recent CII 1 esti(ate putting t)e s)are of e(p'o*a0'e graduates in t)e countr* at 9=.5 per cent. a+ing cogni<ance of suc) concerns, t)e govern(ent )as acted in a proactive (anner. )e nu(0er of tec)nica' institutes :inc'uding II s and NI s; )as 0een increased and foreign direct invest(ent in education encouraged. )e govern(ent a'so 'aunc)ed t)e ec)nica' $ducation Dua'it* I(prove(ent Progra((e : $DIP; towards (a+ing t)e tec)nica' education s*ste( (ore responsive to nationa' as we'' as g'o0a' econo(ic and tec)no'ogica' deve'op(ents. )e $DIP was out'ined as a 1161/ *ear progra( to 0e i(p'e(ented in 9 p)ases wit) t)e assistance of t)e &or'd @an+. )e centra' govern(ent )as announced t)e 'aunc) of P)ase II of t)e progra( wit) an invest(ent wort) U#D51= (i''ion. )is a(ounts to /- per cent of tota' funding wit) t)e rest co(ing fro( t)e &or'd @an+ :>/ per cent;, state govern(ents :/> per cent;, and unaided institutions :1 per cent;. )e govern(ent )as a'so set up a Nationa' #+i''s Deve'op(ent Counci' to encourage private participationP (anage(ent of Industria' raining Institutes. 5. CU!!$N 5.1 !$ND# IN INDIAN MANUFAC U!IN"

India e(erging as a g'o0a' (anufacturing )u0

)e process of evo'ving as a g'o0a' (anufacturing )u0 )as a'read* started in India wit) g'o0a' (anufacturing (aCors setting up s)op in India a'ong wit) t)eir do(estic counterparts. A strong pipe'ine of e3isting proCects fro( 0ot) g'o0a' and do(estic fir(s )ig)'ig)ts t)e growing i(portance of t)e countr* as a (ar+et as we'' as a production )u0. #o(e of t)e (aCor invest(ents )ave 0een )ig)'ig)ted in t)e ta0'e 0e'ow:

1A stud* conducted in /114 re'eased during organi<ed 0* t)e CII and Aspire, a )u(an capita' (anage(ent fir( in India

R#+i''s &or'd /114R su((it

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it /1 Internationa' (anufacturing co(panies and India Co(pan* Invest(ents in India Auto(otives and auto co(ponents P'ans to increase its auto co(ponents sourcing fro( India fro( U#D11 (i''ion in /111 to Nissan Motor Ntd U#D51 (i''ion in /11/ %$ Co((ercia' %e)ic'es :%$C%; Announced invest(ent of U#D-1.= (i''ion for a production 0ase for %o'voRs (ediu(6dut* engine Manufactures its (ode' Si11T e3c'usive'* in India :second 'argest (anufacturing 0ase after Lorea; and e3ports it to t)e wor'd #)ifting to India for engine (anufacturing 0ase C)ose India for a (anufacturing faci'it* to serve t)e Indian (ar+et and e3ports destined for Nepa', #ri Nan+a, @ur(a and @ang'ades) $'ectronic Manufacturing faci'it* in India e3ports (o0i'e )andsets to Nort) A(erica, $urope, Midd'e $ast, Asia, Austra'ia and New Uea'and P'ans to set up a (o0i'e (anufacturing faci'it* to serve t)e do(estic (ar+et and $urope and t)e Co((onwea't) of Independent #tates Announced invest(ent of U#D111 (i''ion for setting up (anufacturing p'ant in C)ennai, India

B*undai Ford #+oda Auto

No+ia

N"

#a(sung

Ot)ers P'ans to set up (anufacturing 0ase in India Air0us Industries wit)in 965 *ears Doosan Beav* Industries F P'ans to set up power e7uip(ent Construction Co (anufacturing unit in India Bas out'ined India as its upco(ing Cu(ins (anufacturing )u0 Nu3ur* 'eat)er goods 0rand 6 Nouis %uittonE pre(iu( 0rand for 'inen and )o(e dVcor 8 Big)6end fas)ion 0rands Frette are considering India for t)eir (anufacturing faci'ities #ource: Co(pan* sources, news artic'es, Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... 5./ Indian (anufacturing growt) outs)ining peers in t)e @!ICs

Current trends for t)is *ear suggest t)at growt) in t)e (anufacturing sector in India is outpacing t)at of peers in t)e @!ICs. A't)oug) a nu(0er of production indices are used to (easure industria' growt) in t)ese nations, t)e B#@C Manufacturing Purc)asingPMI Managers Inde3 :PMI M; is used )ere for co(parison. )e B#@C (anufacturing for India incorporates five factors 8 new orders, output, e(p'o*(ent, supp'iers de'iver* ti(e, and stoc+ of ite(s 8 in order to gauge t)e pace and direction of activit* in t)e (anufacturing sector of t)e countr*. An* figure a0ove 51 for t)e inde3 indicates e3pansion w)i'e an*t)ing 0e'ow it denotes a contraction. Data for /11/ revea's t)at t)e inde3 for t)e Indian (anufacturing sector )as 0een )ig)er t)an t)ose for ot)er @!IC nations, t)ere0* indicating a faster pace of e3pansion for t)e sector in India. In fact, Indias (anufacturing PMI for Marc) /11/ stood at 55.>, indicating an e3pansion. )is was in star+ contrast to contraction in C)ina :54.9;, w)i'e (anufacturing in !ussia :51.4; and @ra<i' :51.1; grew at a re'ative'* s'ower pace for t)e sa(e (ont). Muc) of t)is difference cou'd 0e 0ecause of t)e fact t)at t)e (anufacturing sector of countries suc) as C)inas are )eavi'* geared towards e3ports. &it) +e* destinations 'i+e t)e U# and &estern $urope facing recessionar* pressures once again, de(and funda(enta's for C)inas e3porters )ave wea+ened. In contrast, in India, do(estic consu(ption is t)e +e* driver of t)e (anufacturing sector and wit) strong "DP growt) 'i+e'* to continue, de(and funda(enta's re(ain strong.

$3)i0it // B#@C Manufacturing PMI econo(ies -1 54 555 5/ 51 54 555 #ep611 Oct611 India Nov611 C)ina

for

@!IC

Dec611

Oan61/ @ra<i'

Fe061/ !ussia

Mar61/

#ource: B#@C PMI data, Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it /9

"DP growt) 8 co(parison a(ong +e* econo(ies

/D11 U# UL $uro<one India 1.9 1.1.>.>

9D11 1.4 1.5 1.5 -.=

5D11 9.1 1.5 1.> -.1

1D1/ /./ 1.1 61.9I H -.= 4.1

=.5 =.1 4.= C)ina #ource: @'oo(0erg, !@I, Aranca !esearc) I Indicates @'oo(0erg consensus esti(ate H indicates !@I esti(ate 5.9 Interesting trends in +e* (anufacturing su06sectors W Co(puters: India is t)e fastest growing I s*ste(s and )ardware (ar+et in t)e Asia6Pacific region W Co((unication and @roadcasting $7uip(ents: India is set to overta+e t)e U# as t)e wor'ds 'argest D B (ar+et 0* /11/ W Auto(otive: ata Motors )as 0roug)t out t)e wor'ds c)eapest car 8 t)e ata Nano W A'ternative fue' distri0ution: )e CN" distri0ution networ+ is proCected to spread to /51 cities in India 0* /114 fro( 91 cities in /11= W Ce(ent production: MaCor Indian ce(ent (anufacturers are increasing'* s)ifting to a'ternate sources of energ* :especia''* 0io energ*; to fire t)eir +i'ns and t)ere0* cut energ* costs W e3ti'es: )e sector saw invest(ents wort) U#D59 0i''ion in F.11 under t)e govern(ents ec)no'og* Upgradation Fund #c)e(e : UF#;, w)erein spinning accounted for 'argest s)are of tota' invest(ents at 99 per cent W $'ectrica' Mac)iner*: P'a*ers in t)is sector are for(ing strategic a''iances and tie6ups wit) tec)no'og* supp'iers to upgrade capa0i'ities W $ngineering: More t)an /,511 fir(s in t)e engineering sector )ave t)e I#O =111 accreditation 5. FAC O!# D!I%IN" B$ INDIAN MANUFAC U!IN" "!O& B # O!. 5.1 Fortification in de(and ena0'ing sustaina0'e growt) of sector

Do(estic de(and funda(enta's for t)e (anufacturing sector in India )ave never 0een rosier as it is now. #trong growt) in per6capita inco(e, a *oung and growing popu'ation, rapid ur0anisation, and c)anging 'ifest*'es wi'' ensure t)at de(and growt) wi'' +eep t)e (anufacturing sector 0us* for t)e co(ing decades. Per6 capita no(ina' "DP, for e3a(p'e, is s'ated to e3pand at a CA"! of -.= per cent over /111615. De(and6pus) fro( increasing inco(es wi'' 0e aug(ented 0* a rising (idd'e c'ass and a *oung popu'ation, w)ic) current'* )as a (edian age of /5 *ears. According to McLinse*, Indias (idd'e c'ass is 'i+e'* to e3pand 1/

Indian Manufacturing: Overview and Prospects

/1/1

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... ti(es :to a0out 549 (i''ion peop'e; over t)e period /1156/5. During t)is ti(e, ur0anisation is 'i+e'* to increase to 94 per cent fro( /= per cent. As a resu't of t)ese varied factors, India wi'' e(erge as t)e wor'ds fift) 'argest consu(er (ar+et 0* /1/5 wit) aggregate consu(ption in t)e countr* s'ated to rise 0* a0out four ti(es over /1156/5. A s(a'' e3a(p'e )ere wi'' 0est i''ustrate t)e evo'ving nature of consu(er preferences in India. Bar'e* Davidson, t)e iconic U# 0i+e (a+er, announced in Nove(0er /111, its p'an for setting up a unit in India. Interesting'*, t)is wi'' 0e t)e co(pan*s second unit outside t)e U#. $3)i0it /5 Inco(e categories 8 c)anges e3pected in India >1 million #ee+ers: Annua' inco(e -1 households IN!/11,1 116 511,11 51 Aspirers: 1 Annua' inco(e 51 #trivers: IN!=1,1116 Annua' /11,11 1 inco(e 91 IN!511,111 6 Deprived 1,111,1 annua' /1 11 inco(e KIN!=1, "'o0a's: 111 11 Annua' inco(e JIN!1,111, 111 1 /11 /111 /11 /1/ /1/ 5 5 1 5 #ee+ers #trivers Depriv Aspire "'o0a #ource: McLinse* Duarter'* !eport, Aranca !esearc) $3)i0it /5 Per6capita no(ina' :U#D; "DP CA"!: -.=? 1,511 1,111 511
465 384

/,111

CA"!: -.5?
1,342 1,874

391

729

Indian Manufacturing: Overview and Prospects

/1/1

1==1

1==5

/111

/115

/111

/115F

#ource: IMF &$O Data0ase : Apri' /111;, Aranca !esearc)

Indian Manufacturing: Overview and Prospects

////

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... / De(and for Indias (anufacturing e3ports so far )as 0een 'ed 0* advanced econo(ies, consu(ing /= per cent of tota' products e3ported fro( t)e countr*. )e U# and &estern $urope are t)e +e* destinations wit)in advanced econo(ies. Bowever, t)is trend is 'i+e'* to c)ange as t)e growt) in e(erging econo(ies of Asia, Africa and t)e Midd'e $ast is e3pected to outpace t)at of deve'oped (ar+ets. A'read* so(e c)ange is visi0'e, wit) t)e Midd'e $ast e(erging as a +e* (ar+et for a nu(0er of Indian products 'i+e engineering goods, read*(ade gar(ents, and ge(s and Cewe''er*. C'oser trade ties wit) A#$AN nations, C)ina, Natin A(erica, and Africa in t)e co(ing decade wi'' intensif* t)e a0ove trend. $3)i0it /Manufactured goods e3ports 0* destination :F.11; :per cent; Advanced econo(ies 51? /= ? New'* industria'i<ed Asian econo(ies $(erging deve'oping econo(ies Ot)ers and

//?

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc) Note: Ot)ers is t)e tota' of e3ports not c'assified 0* countr* $3)i0it /> $cono(* growt) rate 0* countr* group =? 4? >? -? 5? 5? 9? /? 1?

/111

/111$ /11/$ /119F /115F /115F /11-F Advanced econo(ies New'* industria'i<ed Asian econo(ies $(erging and deve'oping econo(ies

#ource: IMF 6 &or'd $cono(ic Out'oo+ Data0ase, Apri' /111, Aranca !esearc). Note: Countr* groups as c'assified 0* IMF /A pro3* for (anufacturing goods e3ports using seg(ents t)at (ade up >4.5 per cent of t)e tota' during F.11 :'eat)er and (anufactures, ge(s and Cewe''er*, engineering goods, cotton *arn, fa0rics, (ade ups and read*(ade gar(ents;

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... 5./ ec)no'og* deve'op(ent initiatives

ec)no'og* is t)e +e* to e3panding t)e (anufacturing 0ase in t)e countr* and increasing Indias presence in t)e g'o0a' (ar+et. )e govern(ent recogni<es t)is fact and )as t)erefore provided a nu(0er of incentives to faci'itate tec)no'og* deve'op(ent. W P)ar(aceutica's: No dut* for upgrading tec)no'og* t)roug) t)e $3port Pro(otion Capita' "oods #c)e(e W e3ti'es: A (a3i(u( of U#D594 (i''ion of su0sidies on invest(ent of U#D11.5 0i''ion across t)e va'ue c)ain under t)e revised ec)no'og* Upgradation Fund #c)e(e W Food processing: No i(port dut* on capita' goods for 111 per cent e3port oriented processing units )e govern(ent )as a'so 'aunc)ed a nu(0er of sc)e(es for tec)no'og* deve'op(ent in (icro, s(a'' and (ediu( enterprises :M#M$s;. )ese inc'ude 6 W Nean Manufacturing Co(petitiveness #c)e(e: I(p'e(ented under t)e Pu0'ic Private Partners)ip :PPP; (ode wit) 5/ Nean Consu'tants , t)e proCect ai(s to reduce (anufacturing waste, and increase productivit* and co(petitiveness W Design C'inic #c)e(e: )is is a p'atfor( to ena0'e M#M$s to avai' e3pert advice and two cost effective so'utions to rea'6ti(e sc)e(e inc'udes proCects 8 Design Awareness and design Design issues. ProCect )e Funding W Mar+eting Assistance and ec)no'og* Upgradation: )e sc)e(e focuses to upgrade tec)no'og* for increasing co(petitiveness in (ar+eting. Activities inc'uded in t)is sc)e(e are tec)no'og* upgradation for pac+aging, co(petition studies, and deve'op(ent of (ar+eting tec)ni7ues W ec)no'og* and Dua'it* Upgradation: )e sc)e(e ai(s to encourage M#M$s to adopt g'o0a' standards so as to i(prove t)e 7ua'it* of goods produced 5.9 $ncouraging Foreign Direct Invest(ent :FDI;

Over t)e *ears, t)e increasing attractiveness of t)e Indian (ar+et )as 'ured investors fro( across t)e wor'd. )e countr* was a(ong t)e top five preferred destinations for Foreign Direct Invest(ent :FDI; fro( Asian, $uropean and Nort) A(erican investors as per )e /111 A. . Learne* FDI Confidence Inde3. In )e /11/ A. . Learne* FDI Confidence Inde3, India is positioned second in t)e wor'd wit) (an* deve'oped and e(erging countries 'agging 0e)ind.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it /4 /11/ FDI Confidence Inde3 6 op 11 countries !an+ Countr* 1 C)ina / India 9 @ra<i' 5 United #tates of A(erica :U#A; 5 "er(an* Austra'ia > #ingapore 4 United Lingdo( = Indonesia 11 Ma'a*sia #ource: A. . Learne*, Aranca !esearc) $3)i0it /= op 11 regiona' preference of investors $uropean Nort) A(erican Asian investors investors investors C)ina C)ina U#A %ietna( U#A I nd i a Bog Long Indonesia @ra<i' Austra'ia )ai'and U#A I nd i a "er(an* @ra<i' !o(ania Ita'* France Po'and C)ina I nd i a @ra<i' Me3ico Po'and UL Canada Austra'ia

!an+ 1 / 9 5 5 > 4 =

11 UA$ !ussia "er(an* #ource: A. . Learne*, Aranca !esearc) At a (ore (icro 'eve', FDI inf'ows into +e* su06sectors of (anufacturing )ave a'so posted strong growt). )e e3)i0its 0e'ow )ig)'ig)t cu(u'ative FDI inf'ows into +e* sectors of t)e Indian econo(* and t)eir s)ares in overa'' inf'ows.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it 91 Cu(u'ative FDI inf'ows into +e* sectors :fro( Apr /111; 1/ 11 4 5 / 1 F.14 F.1= F.11 F.11 F.1/X Co(puter #oftware F Bardware e'eco((unicationsI Bousing F !ea' $state Construction ActivitiesH Auto(o0i'e Industr* Power #ource: Depart(ent of Industria' Po'ic* F Pro(otionE Aranca !esearc) I paging, (o0i'e, 0asic te'ep)one servicesE Hinc'udes roads and )ig)wa*sE X F.1/ 6 :Apri' 6 Fe0; $3)i0it 91 #)are in cu(u'ative FDI inf'ows Fe0/11/; C)e(ic a's Petro'eu( F Natura' Meta''urgica' Industries Auto(otive Pow er Bousing F !ea' Co(puters Construction e'eco((unications #ervices 1? 5? 4? 1/? 1-? /1? ? /5? estate gas :Apr/1116

#ource: Depart(ent of Industria' Po'ic* F Pro(otion Ministr* of Co((erce and Industr*, Aranca !esearc) In a 0id to 0oost FDI even furt)er, t)e govern(ent issued t)e new QConso'idated Foreign Direct Invest(ent Po'ic*, w)ic) ca(e into effect fro( Apri' 1, /111. Furt)er, in F.11, t)e govern(ent eased nor(s for invest(ents 0* foreign

co(panies t)at are present 9 in India t)roug) a Coint venture :O%; or a tec)nica' co''a0oration. According'* t)e foreign inco(pan* not certificate fro( t)e Indian partner, for investing t)e sector wi'' w)ere t)e )ave to see+ a Qno6 o0Cection O% operates. According to Pricewater)ouseCoopers, eased nor(s wou'd aug(ent t)e confidence of investors w)o wi'' no 'onger re7uire t)eir Indian partners approva'. Conse7uent'*, investors sitting on t)e side'ines are e3pected to (ove in, t)ere0* increasing FDI inf'ows into t)e countr*. 9As per "overn(ent of India2s Circu'ar 1 of /111

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... 5.5 )e Nationa' Manufacturing Co(petitiveness Counci' :NMCC;

o deve'op a co)erent strateg* for deve'oping t)e (anufacturing sector, t)e govern(ent set up t)e Nationa' Manufacturing Co(petitiveness Counci' :NMCC;. )e ro'e of t)e NMCC is to propose (easures to increase t)e g'o0a' co(petitiveness of t)e sector. !ecent'*, NMCC, in coordination wit) t)e Depart(ent of Industria' Po'ic* and Pro(otion, and t)e P'anning Co((ission, )as 0een instru(enta' in fra(ing t)e Nationa' Manufacturing Po'ic* :NMP;. Le* o0Cectives of t)e NMP inc'ude 8 !aise t)e (anufacturing sectors contri0ution to "DP to /5 per cent 0* /1/5 fro( t)e current s)are of 1- per cent W $ncourage invest(ents and co(petitiveness to (a+e t)e countr* a g'o0a' (anufacturing )u0 W Dou0'e e(p'o*(ent generation in t)e sector fro( its current 'eve's W In +eeping wit) t)e o0Cectives of t)e NMCC, t)e govern(ent is a'so p'anning to set up Nationa' Manufacturing and Invest(ent Uones :NMIUs; to encourage invest(ents and t)ere0* 0oost t)e s)are of (anufacturing in "DP to /5 per cent 0* /1//. According to t)e Pri(e MinisterRs Office :PMO;, t)e NIMUs wi'' 0e (ega invest(ent proCects invo'ving state6of6t)e6art infrastructure. Apart fro( t)e a0ove t)e govern(ent )as a'so 0een to*ing wit) ot)er po'ic* (easures to support (anufacturing growt). Apart fro( encouraging FDI, ot)er (easures to deve'op (anufacturing inc'ude fisca' support for deve'op(ent of indigenous tec)no'og*, training progra(s for s+i'' deve'op(ent, and 'a0our refor(s. -. OPPO! UNI I$# IN INDIAN MANUFAC U!IN" -.1 A 'ucrative do(estic (ar+et

)e Indian (ar+et in itse'f offers significant growt) opportunities to a wide ga(ut of industries in t)e (anufacturing sector. #o(e of t)e( )ave 0een discussed 0e'ow 8 Power e7uip(ent: Despite strong econo(ic growt) over t)e past decade, power consu(ption in India is a(ong t)e 'owest in t)e wor'd. "rowt) in de(and c'ear'* outpaces power generation growt). &it) econo(ic activit* e3pected to continue on a fast6paced traCector* in t)e co(ing decades as we'', t)e trend is 'i+e'* to continue. For e3a(p'e, energ* s)ortfa'' for F.1/ stood at 11.9 per cent. Bowever, t)e govern(ent )as not 0een 0'ind to t)e current power scenario in t)e countr* and )as ear(ar+ed power generation as a priorit* focus area. Under its five6*ear p'ans, t)e govern(ent )as announced p'ans to add 55"& of power generating capacit* 0* /11/ and an additiona' 111"& 0* /11>. )e power e7uip(ent industr* wi'' t)us e(erge as a )ig)6growt) opportunit*. At t)e sa(e ti(e, po'icies inc'uding Q )e $'ectricit* Act /119, w)ic) did awa* wit) 'icenses for

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... power generation proCects, and ot)er incentives 'i+e ta3 0enefits, and per(ission for trading of power wi'' ent)use t)e private sector. $3)i0it 9/ Per6capita e'ectricit* consu(ption :/11=; Countr* +&) per capita 1/,=15 United #tates >,41= Oapan -,>>= "er(an* -,19!ussia 5,-=/ United Lingdo( /,419 &or'd average /,-91 C)ina /,/1@ra<i' 1,=59 Me3ico 5=1 Indonesia 5>1 India #ource: &or'd @an+, Aranca !esearc) $3)i0it 99 Per6capita consu(ption India U# Asia :e36C)ina; Oapan &or'd $U C)ina 1 /11 511 -11 411 1111 1/11 1511

ce(ent

#ource: India0u''s, Aranca !esearc) Construction e7uip(ent and ce(ent: )e construction e7uip(ents sector and ce(ent wi'' 0enefit fro( t)e rise in de(and for )ousing and co((ercia' rea' estate space. &it) rising inco(es and rapid ur0anisation )as co(e strong growt) in de(and for )ousing and t)is is 'i+e'* to acce'erate 0* 5./5 (i''ion units in /115 fro( /111. #trong growt) is a'so e3pected on t)e co((ercia' rea' estate front wit) rising de(and for office space, retai', and )ospita'it*. Conse7uent'*, t)e rea' estate sector is proCected to grow to U#D1/- 0i''ion 0* /115 fro( U#D55.- 0i''ion in /111. Construction e7uip(ent and ce(ent wi'' furt)er 0enefit fro( a renewed po'ic* focus on infrastructure. )e govern(ent )as ear(ar+ed U#D515 0i''ion of invest(ents under t)e 11t) P'an and a furt)er U#D1 tri''ion under t)e 1/t) P'an.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... Food processing: India is a(ong t)e wor'ds 'eading food producers. )e countr* is t)e 'argest producer of (i'+, pu'ses and tea in t)e wor'd. &it) its 'arge agricu'ture sector, t)e countr* is a'so t)e wor'ds second6'argest producer of fruits and vegeta0'es, and t)e t)ird6'argest fis) producer. Bowever, current'* on'* - per cent of peris)a0'es in t)e countr* are processed. )e Ministr* of Food Processing Industries :MFPI; esti(ates t)is to increase to /1 per cent 0* /115. MFPI a'so e3pects va'ue addition to increase fro( /1 per cent to 95 per cent over t)e sa(e period. On t)e 0ac+ of rising inco(es, a growing (idd'e c'ass, rapid ur0anisation, and a *oung popu'ation, processed food de(and is proCected to dou0'e 0* /1/1 fro( current 'eve's. )e food processing sector )as and wi'' continue to 0enefit fro( po'ic* support. )ese inc'ude easier credit access, focus on supp'*6c)ain infrastructure, and setting up of Agri $3port Uones and (ega food par+s. Conse7uent'*, t)e sector is set to induce invest(ents wort) U#D/1.= 0i''ion invest(ent 0* /115. -./ Manufacturing off6s)oring and India: An e3a(p'e fro( auto co(ponents

India is e(erging as a favourite destination for g'o0a' (anufacturers. Foreign co(panies )ave 0een attracted 0* Indias cost co(petitiveness, its s+i''ed wor+force, and favoura0'e govern(ent po'icies. )e 0est e3a(p'e of t)is can 0e found in t)e auto co(ponents sector. W Due to a cost6effective (anufacturing 0ase, t)e auto co(ponents sector in India saves 116/5 per cent on operations co(pared to peers in $urope and Natin A(erica W nu(0er )e sector a'so )as )ig) 7ua'it* standards, a fact 0orne out 0* t)e of 7ua'it* awards won 0* fir(s 8 ota' Productive Maintenance : PM; Award :15 p'a*ers;, t)e De(ing Award :11;, and t)e Oapan Institute of P'ant Maintenance :OIPM; Award :9; W "reater access to +e* auto(otive (ar+ets 'i+e t)e Midd'e $ast and $urope MaCor Origina' $7uip(ent Manufacturers :O$Ms; are +een to (a+e India t)eir sourcing )u0. !ecent invest(ent announce(ents 0ear testi(on* to t)is. W %o'+swagen: )e "er(an auto giant p'ans to increase Indias s)are in tota' g'o0a' sourcing to >1 per centE %o'+swagen "roup )as recent'* announced p'ans to dou0'e its co(ponent sourcing fro( India to U#D=/5 (i''ion in /11/ W Bonda: )e Oapanese auto (aCor )as (ade India its e3port 0ase for +e* engine co(ponents W Ford: )e U# co(pan* )as announced p'ans to (a+e India a (anufacturing 0ase for engines to serve t)e Asia6Pacific region as we'' as Africa

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... -.9 $(ergence of a (anufacturing e3port )u0

&)i'e India e3ports a wide variet* of (anufactured goods, t)ere so(e sectors in w)ic) t)e countr* a distinct advantage. present two are suc) 8 ge(s and Cewe''er*, and)as te3ti'es 8 0ot) of w)o( &e )ave p'a*ed)ere a (aCor ro'e sectors in t)e countr* s econo(*. "e(s and Cewe''er*: "e(s and Cewe''er* e3ports fro( India increased at a CA"! of 14.59 per cent over F.1-6F.1/. )e two (aCor constituents in t)ese e3ports are cut and po'is)ed dia(onds, and go'd Cewe''er*. oget)er t)e* accounted for Cust over =9 per cent of tota' ge(s and Cewe''er* e3ports in F.1/. )e countr* )as 0een a0'e to 'everage its past e3perience in t)e sector and i(provise furt)er 'eading to va'ue addition of fina' products. India particu'ar'* enCo*s a strong co(petitive advantage in g'o0a' cut and po'is)ed dia(onds (ar+et. Cost of production is 'ow w)i'e a 'arge poo' of s+i''ed (anpower is avai'a0'e. India in fact )as a (aCor s)are in t)e g'o0a' dia(ond po'is)ing 0usiness wit) 11 out of t)e wor'ds 1/ dia(onds 0eing cut and po'is)ed in t)e countr*. $3)i0it 95 "e(s and Cewe''er* e3ports fro( India :U#D 0i''ion; 51? 55 51? 51 95 91 /5 /1 15 11 5 1 F.15 F.11 F.1F.1> F.11 F.1/P %a'ue :U#D 0i''ion; F.14 F.1= .o. growt) 91? /1? 11? 1? 611?

#ource: "e( F Oewe''er* $3port Pro(otion Counci', Aranca !esearc)

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it 95 Co(position of ge(s and Cewe''er* e3ports :F.1/P; :per cent; 5.1? /.1? 1.4? Cut F Po'is)ed Dia(onds "o'd Oewe''er* 94.-? 55.5 ? Co'our ge(stones !oug) dia(ondsI Ot)ers

#ource: "e( F Oewe''er* $3port Pro(otion Counci', Aranca !esearc) I $3ports e3ti'es: Cost co(petitiveness is a +e* driver of t)e Indian te3ti'es e3ports. )is is (ain'* due to s*nergies ac)ieved 0* Indian p'a*ers w)i'e e3panding capacit*. $3ports fro( t)e sector )ave 0een growing at a CA"! of =.5 per cent during F.156F.11. e3ti'e e3ports are do(inated 0* read*(ade gar(ents :51 per cent of t)e tota' in F.11;, a seg(ent t)at entai's )ig) va'ue addition co(pared to ot)er seg(ents. $3)i0it 9Indian e3ti'e $3ports /5? /5 /1? /1 15? 15 11 5 1 F.15 F.1= F.1F.1> F.11 F.11 %a'ue :U#D 0n; F.14 11? 5? 1? 65?

"rowt) 6 rig)t a3is

#ource: Directorate "enera' of Co((ercia' Inte''igence and #tatistics, Aranca !esearc)

Indian Manufacturing: Overview and Prospects

91

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... $3)i0it 9> of te3ti'e e3ports F.11 :per !ead*(ade gar(ents Cotton te3ti'es 9=.? Man6(ade te3ti'es Bandicrafts #i'+ F Band'oo( &oo' F &oo'en te3ti'es Ot)ers #ource: Ministr* of e3ti'es, Aranca !esearc) Interesting'*, #M$s )ave (ade a strong contri0ution to growt) of t)e Indian te3ti'es sector. Due to t)eir strong presence, t)e Ministr* of e3ti'es )as underta+en a Qc'uster 0ased deve'op(ent approac) for t)e efficient growt) of t)e sector. According to UNIDO, 41 per cent of production of te3ti'es co(es fro( a0out sevent* c'usters. )e (aCor c'usters inc'ude Panipat, irupur and Nud)iana. )e Panipat c'uster produces >5 per cent of Indias 0'an+ets, irupur accounts for 41 per cent of t)e countr*s )osier* e3ports, and Nud)iana )as a s)are of =5 per cent in t)e production of woo''en +nitwear. >. CONCNU#ION India )as e(erged as a g'o0a' (anufacturing )u0 due to its cost co(petitiveness, s+i''ed wor+force and favoura0'e govern(ent po'icies. Furt)er(ore, t)e (ost funda(enta' factor fostering growt) in t)e sector is t)e presence of strong (ar+et 'oca''*. India is one of t)e fastest growing econo(ies. )e Consu(er trend in t)e countr* is ena0'ing do(estic p'a*ers to f'ouris) and a'so attracting internationa' p'a*ers. During F.11, 51 out of 1/1 (anufacturing su06sectors registered e3ce''ent growt) of (ore t)an /1 per cent. &)i'e t)e sector predo(inant'* )as 0een e3panding, Cust five of 1/1 sectors s)run+ during t)e period. )oug) t)e sector )as registered strong growt) in t)e past, t)e Indian (ar+et offers a wide range of untapped opportunities. India, w)ic) )as p'aced )ig) priorit* on infrastructure deve'op(ent, offers )ig) growt) for ce(ent and power e7uip(ent (anufacturers, wit) its current consu(ption pattern wa* 0e'ow t)e wor'd average. Anot)er e3a(p'e is prospects in t)e food processing industr*. )e wor'ds second (ost popu'ous countr* and one of t)e 'argest food producers processed a (eagre si3 per cent of t)e peris)a0'es.

Co(position cent; 9.-?

1.-? /.9?

1>.9?

91./?

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... )e evo'ving trends of (anufacturing off6s)oring in India, as seen in t)e auto(o0i'e sector, and t)e growt) of (anufactured e3ports, portra*ed in su06 sectors suc) as ge(s F Cewe''er* and te3ti'es, i''ustrates t)e 'ong6ter( sustaina0i'it* of growt) in t)e sector.

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... APP$NDIY: #NAP#BO OF L$. INDU# !I$# 1 Auto(otives

Indias auto(otives industr*, wort) U#D54 0i''ion, )as evo'ved fro( a producer of 1.- (i''ion units in t)e ear'* 1==1s to a giant c)urning out 14.1 (i''ion units in /111. )e Bowever, sector is 0* cars w)ic) (a+e upt)e two6t)ird of industr* turnover. in do(inated ter(s of vo'u(es, two6w)ee'ers )ave 'argest s)are 8 a0out t)ree6fourt). As per t)e Auto(otive Mission P'an, t)e sector wi'' 0e wort) U#D155 0i''ion 0* /11-. $3)i0it 94
Auto(otive sa'es :U#D 0i''ion;

!evenue Cars ruc+s wo6 "rowt) :?; Production 11.= 11./ 15.1 :(i''ion units; #ource: Data(onitor, #IAM, Aranca !esearc)

/11> 59.//.= 15.= 5.4 /1.1

/114 55./ /9.4 15. -.1 9.>

/11= 54.1 9/.5 4.= -.-./

/111$ 5>.1 9>.4 1/.9 >.1 1=.1 14.1

$3)i0it 9= Neading (ar+et p'a*ers Categor* Le* P'a*er Mar+et #)are Passenger %e)ic'es Maruti 55? #u<u+i MC%s F BC%s ata Motors -9? NC%s ata Motors 5=? )ree &)ee'ers Piaggio 51? Motorc*c'es Bero Bonda 5=? #cooters Bonda 51? #ource: #IAM, Aranca !esearc) Notes: NC% 8 Nig)t Co((ercia' %e)ic'es, Corresponding'* M in MC% and B in BC% stand for MMediu(2 and MBeav*2 Le* rends W India is t)e wor'ds /nd 'argest two6w)ee'er producer, 5t) 'argest co((ercia' ve)ic'e producer W Increasing innovations 8 ata Motors designed t)e wor'ds c)eapest car :Nano; W Co(pressed Natura' gas :CN"; fue''ed ve)ic'es in India )ave increased at a CA"! of -1 per cent during /114611

Indian Manufacturing: Overview and Prospects

95

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... "rowt) Drivers W De(and drivers: !ising inco(es, growing (idd'e c'ass, a *oung popu'ation, and eas* access to credit W Po'ic* #upport: t)roug) sops, ta3es, FDI encourage(ent, and focus on deve'oping India as a g'o0a' auto (anufacturing )u0 Opportunities W "'o0a' car giants 'i+e "enera' Motors, Nissan and o*ota )ave ear(ar+ed India as t)e )u0 for (anufacturing s(a'' cars for t)e wor'd (ar+et. India offers a 116/5 per cent cost advantage co(pared to $urope and Natin A(erica W )e e'ectric car (ar+et is e3pected to e3pand given t)e passion for fue' efficienc* W "iven favoura0'e po'icies :Nationa' Auto(otive esting and !FD Infrastructure ProCect; and a poo' of s+i''ed (anpower, India is fast e(erging as a g'o0a' !FD )u0 / Food Processing

Do(estic food spending in India touc)ed U#D141 0i''ion in /11= and is esti(ated to surge up to U#D914 0i''ion on t)e 0ac+ of strong growt) in per6capita inco(e and a growing :*oung; popu'ation. )e food processing industr* stands to gain fro( t)e fact t)at t)e countr* is t)e wor'ds 'argest (i'+ producer, t)e second6 'argest fruits and vegeta0'es producer, and t)e t)ird6'argest fis) producer. $3)i0it 51
Le* figures :U#D 0i''ion;

/115 Production "rowt) :?; $3ports 5>.1 4 1.-

/115 -/.1 = 1./

/11-4.1 11 1.5

/11> >5.1 11 1.=

"rowt) :?; 1 111 1> 9#ource: F'avours of Incredi0'e India :$rnst F .oung, /11=;, Aranca !esearc)

Indian Manufacturing: Overview and Prospects

95

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it 51 Neading (ar+et p'a*ers Neading p'a*ers Da0ur, "odreC, Par'e, M ! Pepsi, Coca6Co'a, Par'e Frito'a*, Bein<, Nest'e, @ritannia, Cad0ur*Rs Cooperative societies 6 "CMMF, APDDCF, LMF, Ma)asang, M !,

Categor* Fruits, vegeta0'es, Aerated drin+s and pac+aged Pac+aged food

Mi'+ and (i'+ products #ource: Aranca !esearc) Le* rends

#ector accounted for 15 per cent of Indias tota' (anufacturing sector output in F.1= W Consu(er food :91 per cent;, gain, groundnuts and cerea's :/4 per cent; and processed fruits and vegeta0'es :14 per cent; were t)e (ain e3port ite(s in F.11E (ain destinations were t)e Midd'e $ast and #out) $ast Asia W Unorganised sector do(inatesE s)are: >1 per cent of vo'u(es, 51 per cent of va'ue W "rowt) Drivers W De(and drivers: !ising inco(es, increasing ur0ani<ation, growing (idd'e c'ass, dua' inco(e )ouse)o'ds, and a *oung popu'ation W Favoura0'e supp'* funda(enta's: Narge agricu'ture sector, 'arge 'ivestoc+ 0ase, a 'ong coast'ine, and a nu(0er of in'and water 0odies W Po'ic* #upport: Mega Food Par+s, Agri $3port Uones, 111 per cent FDI under auto(atic route, ta3 incentives, and recognition as priorit* sector for 0an+ credit Opportunities W )e frag(ented (ar+et )as )uge growt) potentia' as current va'ue addition 0* t)e industr* is /1 per centE t)e govern(ent intends to 0oost t)is to 95 per cent 0* /115 W Bouse)o'd consu(ption of processed food is e3pected to dou0'e 0* /1/1 on t)e rising inco(es, povert* a''eviation and furt)er ur0anisation W Potentia' to evo've as a g'o0a' food processing )u0 due to ade7uate supp'* of raw (ateria's, cost advantages, and govern(ent support

Indian Manufacturing: Overview and Prospects

9-

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... 9 $'ectronics

)e e'ectronics (ar+et in India was wort) U#D-4 0i''ion in F.11 and is proCected to grow to U#D511 0i''ion 0* /1/1 :Depart(ent of Infor(ation ec)no'og*;. Production in t)e sector e3panded at a CA"! of 1-.> per cent during F.1-6F.1/. $3)i0it 5/ Le* figures :U#D 0i''ion; F. 1= F. 11 F. 11
Production "rowt) :?; $3ports "rowt) :?; /1.9 15? -.5 19/? /9.1 15? 5.5 61>? /-.4 1-? 4.5 5-?

F.1/$ /=.= 1/? =.9 11?

#ource: Depart(ent of Infor(ation Cata'*st India, Aranca !esearc)

ec)no'og*, Corporate

Categor* Consu(er e'ectronics #pecia'ised products $'ectronic e7uip(ent Disp'a* devices

$3)i0it 59 Neading (ar+et p'a*ers Neading p'a*ers

N", #a(sung, %ideocon, BCN @)arat $'ectronics Oa0i' #a(te'

#ource: !ediff 0usiness, Corporate Cata'*st India, Aranca !esearc) Iin order to (eet needs of Indian defence depart(ent Le* rends W "rowt) in production of co((unication and 0roadcasting :CF@; e7uip(ent overs)adowed sector growt) 8 CA"! of 95 per cent versus 1-.> per cent over F.1-6F.1/E conse7uent'* s)are of CF@ in tota' production rose to /4.9 per cent fro( 1/.5 per cent W Increase in de(and for CF@ e7uip(ents due to dec'ining tariffs W India is witnessing )ig) penetration in co(puters (ar+etE 51 per cent growt) in sa'es of note0oo+s during F. 11 W Increasing afforda0i'it* and organised retai' 0enefitting t)e sector "rowt) Drivers W De(and drivers: $as* access to credit, dec'ining disposa0'e inco(e a'ong, and an e3panding (idd'e c'ass prices, growing

Indian Manufacturing: Overview and Prospects

9>

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... W Po'ic* #upport: a3 incentives for e'ectronic (anufacturers, re'a3ed duties, pro(otion of #$Us, and 0enefits fro( sc)e(es 'i+e $3port Pro(otion Capita' "oods #c)e(e, and $'ectronic Bardware ec)no'og* Par+ #c)e(e W Foreign invest(ent: #ector 0enefitting fro( increasing FDIE cu(u'ative inf'ows fro( Apri' /111 to Marc) /111 was U#D11.- 0i''ion Opportunities W Do(estic production (eets on'* 55 per cent of de(andE po'ic* sops are on t)e anvi' to encourage )ig)er production in India W Penetration in t)e consu(er dura0'es seg(ent is set to rise fro( current 'eve's as disposa0'e inco(es of consu(er rise due to strong econo(ic growt) W According to t)e Depart(ent of Infor(ation ec)no'og*, de(and for e'ectronics )ardware is set to grow at a CA"! of // per cent over /11=6 /1 5 Fast Moving Consu(er "oods :FMC";

)e FMC" sector in India )as grown to a si<e of U#D/>.= 0i''ion in /111 fro( U#D=.1 0i''ion in /111. QFood products is t)e 'eading seg(ent fo''owed 0* Qpersona' care and Qfa0ric care. )e fastest growing su06sectors )ave 0een Qc)oco'ates and QCuices. Bindustan Uni'ever Ntd :BUN; is t)e 'eading p'a*er in t)e (ar+et wit) a s)are of (ore t)an 99 per cent. $3)i0it 55
Le* figures :U#D 0i''ion;

/11> #a'es 1>.4

/114 /1.9

/11= /5./ 15

/111 />.= 15

"rowt) :?; 19 /1 #ource: AC Nie'sen, Aranca !esearc)

$3)i0it 55 Neading (ar+et p'a*ers Categor* Le* P'a*er Mar+et #)are Bair oi' Marico 5/? Bindustan #)a(poo 5-? Uni'ever Ora' care Co'gate 51? Bindustan #+in care 5=? Uni'ever Fruit Ouice Da0ur 5/? #ource: Industr* esti(ates, Aranca !esearc)

Indian Manufacturing: Overview and Prospects

94

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... Le* rends Introduction of Qs(a'' pac+s )as ena0'ed 'ow pricing per unit and )e'ped to e3pand t)e custo(er 0ase :and t)ere0* vo'u(es and (argins as we''; W FMC" co(panies are e3panding t)eir distri0ution networ+s to capita'i<e on t)e underserved rura' (ar+et W #uccessfu' use of custo(er seg(entation and product innovation 0* co(panies W "rowt) Drivers W De(and drivers: Increasing inco(es, e3panding (idd'e c'ass and rapid ur0anisation driving sa'es growt) W "rowing popu'arit* of organised retai' :56- per cent of tota' retai' contri0utes to /5 per cent of sa'es; is 'eading to discretionar* purc)ases and t)ere0* 0oosting sa'es W Favoura0'e govern(ent po'icies as t)e sector is c'assified as a priorit* sector Opportunities W Increasing 0rand consciousness and rising rura' inco(es is (a+ing t)e rura' (ar+et a potentia' )ig) growt) area for t)e FMC" sector W De(and for pre(iu( 0rands and va'ue6added (ass 0rands )ave gone up and t)e trend is 'i+e'* to strengt)en furt)er as peop'e get ric)er. )is provides opportunities for current p'a*ers to e3pand t)eir product portfo'io W Indian consu(ers are )ig)'* new products. co(panies t)e opportunit* to iadapta0'e nnovate wit)tonew products :eg. (ens)is offers fairness crea(; W India is a 'ucrative g'o0a' sourcing )u0 for FMC" co(panies due to its cost co(petitiveness and access to internationa' (ar+ets. 5 P)ar(aceutica's

India is t)e t)ird6'argest p)ar(aceutica' (ar+et 0* va'ue in t)e Asia6Pacific region. )e trade surp'us in t)e sector is 'i+e'* to e3pand to U#D1/.4 0i''ion 0* /115E t)e sectors e3ports are forecasted to increase (ore t)an two fo'ds according to @usiness Monitor Internationa' :@MI;.

Indian Manufacturing: Overview and Prospects

9=

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAA......... $3)i0it 5Le* /11= figures /111 :U#D /111$ 0i''ion; 11./ 19.4 15.15? 5.= 9.= 65? /5? -.1 5.1 91? 19? >.1 -.1 /1?

/11/$ 1>.5 1/? 4.1 >.1 15?

!evenue "rowt) :?; $3ports Net e3ports "rowt) :?;

#ource: @MI, Aranca !esearc) $3)i0it 5> Neading (ar+et p'a*ers Co(pan* Mar+et #)are Cip'a "'a3o#(it)L'ine #un P)ar(aceutica' !an0a3* Na0oratories Pira(a' Bea't)care 5./? 5.-? 5.-? 5.-? 5.1?

!an+ 1 / 9 5 5

#ource: Industr* esti(ates, Aranca !esearc) Le* rends W #pending on !FD 0* Indian fir(s a(ounts to 1.= per cent of revenue on average W India is t)e wor'ds second 'argest Active P)ar(aceutica' Ingredients (anufacturer W "eneric drugs do(inate t)e sectors tota' sa'es :over >1 per cent in /111; W Indias cost advantage )as )e'ped t)e Qc'inica' tria' industr* to f'ouris)E t)e seg(ent was wort) U#D511 (i''ion :esti(ates; in /11= "rowt) Drivers W De(and drivers: "rowing s)are of educated peop'e 'eading to rising acceptance for (edicinesE rising )ea't) insurance coverage :e3pected to dou0'e in /1/1 co(pared to /111;E growing inco(es and popu'ationE i(proved (edica' infrastructure :U#D/11 0i''ion of invest(ents in t)e ne3t decade;

Indian Manufacturing: Overview and Prospects

51

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA......... W 5 Po'ic* #upport: Measures 'i+e MOUs wit) U#FDA, &BO and Bea't) CanadaE SP)ar(a %ision /1/1T to (a+e India a g'o0a' 'eader in end6to6 end drug (anufactureE reduced approva' ti(e for new faci'ities wi'' 'ead to growt) in invest(ents in t)e sector

Opportunities W Avai'a0i'it* of s+i''ed doctors, genetica''* diverse popu'ation, and cost advantage :-5 per cent 'ower t)an in t)e U#; (a+es India a 'ucrative destination for c'inica' tria's W I(proving inco(e 'eve's of Indian consu(ers wi'' 0oost de(and for )ig)6 end drugs W &it) >1 per cent of Indias popu'ation residing in rura' areas, rura' (ar+ets are an opportunit* of growt) for p)ar(aceutica' co(panies in India

5MOU: Me(orandu( of Understanding, U#FDA: United #tates Food and Drug AssociationE &BO: &or'd Bea't) Organi<ation

Indian Manufacturing: Overview and Prospects

5/

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA......... DI#CNAIM$! India @rand $7uit* Foundation :I@$F; engaged Aranca to prepare t)is report and t)e sa(e )as 0een prepared 0* Aranca in consu'tation wit) I@$F. A'' rig)ts reserved. A'' cop*rig)t in t)is report and re'ated wor+s is so'e'* and e3c'usive'* owned 0* I@$F. )e sa(e (a* not 0e reproduced, w)o''* or in part in an* (ateria' for( :inc'uding p)otocop*ing or storing it in an* (ediu( 0* e'ectronic (eans and w)et)er or not transient'* or incidenta''* to so(e ot)er use of t)is presentation;, (odified or in an* (anner co((unicated to an* t)ird part* e3cept wit) t)e written approva' of I@$F. )is report is for infor(ation purposes on'*. &)i'e due care )as 0een ta+en during t)e co(pi'ation of t)is report to ensure t)at t)e infor(ation is accurate to t)e 0est of Aranca and I@$Fs +now'edge and 0e'ief, t)e content is not to 0e construed in an* (anner w)atsoever as a su0stitute for professiona' advice. Aranca and I@$F neit)er reco((end nor endorse an* specific products or services t)at (a* )ave 0een (entioned in t)is report and nor do t)e* assu(e an* 'ia0i'it* or responsi0i'it* for t)e outco(e of decisions ta+en as a resu't of an* re'iance p'aced on t)is presentation. Neit)er Aranca nor I@$F s)a'' 0e 'ia0'e for an* direct or indirect da(ages t)at (a* arise due to an* act or o(ission on t)e part of t)e user due to an* re'iance p'aced or guidance ta+en fro( an* portion of t)is report.

Indian Manufacturing: Overview and Prospects

59