Case Study

A step in the right direction

  The costs associated with manufacturing in India are very much on the lower side as compared to countries in Europe and Americas where most of the global investors have their bases.Keshav Khurana, Executive Director – India & ASEAN, Wohlhaupter India Pvt Ltd
The “Make in India” initiative is a great positive step to boost the Indian manufacturing sector. Foreign companies have started working towards this and the regular announcements by new and already existing MNCs show the quick outcome of this initiative.
There are 4 major policies by government under the “Make in India” program:New initiatives: This initiative is to improve the ease of doing business in India, which includes increasing the speed with which protocols are met with, and increasing transparency. Here’s what the government has already rolled out:• Environment clearances can be sought online.• All income tax returns can be filed online.• Validity of industrial license is extended to three years.• Paper registers are replaced by electronic registers by businessmen.
Foreign Direct Investment (FDI): The government has allowed 100 per cent FDI in all the sectors except space (74 per cent), defence (49 per cent) and news media (26 per cent). FDI limit in defence sector has been raised from the earlier 26 per cent to 49 per cent currently.
Intellectual property facts: The government has decided to improve and protect the intellectual property rights of innovators and creators by upgrading infrastructure, and using state-of-the-art technology.
National manufacturing:• To increase manufacturing sector growth to 12-14 per cent per annum over the medium term.• To increase the share of manufacturing in the country’s Gross Domestic Product from 16 per cent to 25 per cent by 2022.• To create 100 million additional jobs by 2022 in manufacturing sector.
Opportunities for Indian manufacturersIn today’s world all information is quickly available, foreign companies can easily find information about Indian manufacturers. The Indian manufacturers can plan lucrative offers for these foreign companies and start manufacturing in collaboration with them. The Government of India’s ambitious initiative, which aims to transform the country from being Asia’s third-largest economy into a global manufacturing powerhouse, “Make in India” completed one year in September 2015. The initiative has set an ambitious goal of creating 100 million additional jobs in the manufacturing sector by 2022 and increasing the share of manufacturing in the country’s Gross Domestic Product (GDP) to 25 per cent from 16 per cent. Since the launch of the initiative, overall Foreign Direct Investment (FDI) has increased by 39 per cent.
Investment allowance: The Government of India in its Union Budget 2014-15, has provided investment allowance at the rate of 15 per cent to a manufacturing company that invests more than $ 4.17 million in any year in new plant and machinery.
Skill India: A multi-skill development programme has been initiated with a mission for job creation and entrepreneurship for all socio-economic classes. Cross border sharing information-Countries all over the world have signed Mutual Legal Assistance Treaties (MLATs) to establish cross border cooperation. MLATs are considered very important tools for law enforcement agencies, governments and the private sector, since they act as formal mechanisms for access to data which falls under different jurisdictions.
Why India is the preferred destination for global investors?-The costs associated with manufacturing in India are very much on the lower side as compared to countries in Europe and Americas where most of the global investors have their bases. Also India’s location gives them favourable connectivity options for export. India jumped two places to emerge as the second most preferred destination for global Limited Partners (LPs) in 2016 but high entry valuations and weak exit environment deter investors, a survey has showed.
FDI destination: India has emerged as the number one FDI destination in the world during the first half of 2015.
An attractive market: More 32 per cent of the investors ranked India as the most attractive market this year, while 60 per cent placed the country among the top three investment destinations.
Manufacturing leads investment plan: Manufacturing has regained its share in FDI capital flows in 2014, amounting to approximately 46 per cent. Investors are most optimistic about the sector, with 62 per cent of those interested to expand or enter India over the next year, saying that they plan manufacturing activities.
India’s key strength:• Good growth prospects supported by ongoing economic liberalisation and strong domestic demand. • Stable financial system.• Strong external liquidity position.• High degree of political stability.• Vibrant, transparent and high-yielding capital markets.• High savings and investment ratios.• Strong and competitive private sector.• Healthy sectoral diversity of economy.• Largely local currency denominated debt.• Conducive investment climate.• High growth in exports.• Strong demographic advantage.
Major barriers to “Make in India”The country’s manufacturing sector seems to be headed for a management talent crisis that could become a major roadblock to the government’s “Make in India” drive. The other major roadblocks are as follows:
Corruption and red tape: The biggest barrier is the ease of doing business is less as the country is has corrupt practices which hinder people from setting and running the business with ease.Poor logistics infrastructure: India contribution to logistic cost is as high as around 12 to 14 per cent while in China and developed nation it is around 4 per cent. A simple analysis that we incur 10 per cent extra cost which affects our competitiveness. Poor logistics infrastructure is one of the biggest barriers for “Make in India”. The investments in road and rail infrastructure will improve supply chain speed and efficiency, and strengthen the “Make in India” campaign.
Complex tax regime: The non-clarity on taxation and regulatory front has adversely affected foreign investment in India. Three years ago the GAAR implementation scared the investor and now the MAT on PE and FII are the bone of contention. The Finance Ministry’s use of retrospective amendments is like a hanging sword which impedes the flow of foreign capital.
Wohlhaupter’s initiatives in line with “Make in India”Wohlhaupter is maintaining one quality standard across the globe for its products by manufacturing them at a single location only in Germany.  The company is working on turnkey projects in India for majority of the customers who are already manufacturing the end products in India as well as who are going to start a new manufacturing set up in India.  With the technical know-how, Wohlhaupter is coordinating with all of India manufacturers by sharing its innovative products and implementing the process of machining to achieve the international quality standard products to stay ahead among global competitors.

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