Indian manufacturing: survival sutras for Chakravyuh

Despite the fact that the government has been insisting to increase the share of manufacturing industry to 25 per cent of GDP by 2020, the possibility seems next to never. An in-depth analysis
Manufacturing, a crucial cog in the wheel of progress, has emerged as one of the key growth drivers for the Indian economy. With greater emphasis on policy reforms, the manufacturing sector in India has been able to attract foreign players by providing investor-friendly environment. At the same time, the sector is in continuing process of offering level-playing field to the Indian investors.Growth forecastIndia’s manufacturing sector is poised for immense growth due to increase in domestic demand driven by greater purchasing power parity. Focus on R&D together with availability of huge talent pool is also fuelling the growth of domestic manufacturing sector. The government aims to increase the contribution of the manufacturing sector to 25 per cent of the GDP by 2020 and also targets to create 100 million jobs within the same time frame.
According to Deloitte Global Index 2013 for 38 nations, India ranked fourth most competitive manufacturing nation behind China, the United States, and Germany.
Indo – China comparisonIndia and China had almost the same GDP till a decade ago. But today, India’s GDP stands at 5.3 which is only half of China’s GDP. According to the Planning Commission of India, “India’s manufacturing sector contributes about 16 per cent to the GDP, and India’s share in world manufacturing is only 1.8 per cent.” This is in stark contrast to China where manufacturing contributes 34 per cent to the GDP and is 13.7 per cent of world manufacturing – up from 2.9 per cent in 1991.
Manufacturing sector at an impasseDespite having tremendous potential from every spectrum, the manufacturing sector in India could reach to its desired level till now. Even in the current situation, the situations surrounding the industry are becoming gloomy. Recently, on a shocking note, industry body Assocham has cautioned saying the share of manufacturing in India’s gross domestic product has been coming down, declining to 15.2 per cent in fiscal 2012-13 and is expected to fall below 15 per cent in the current financial year as the sector is facing slowdown and unutilised excess capacity.
“This is despite the fact that the government has been insisting on taking this share to 25 per cent and major initiatives were announced to make manufacturing vibrant part of the economy, which depends pre-dominantly (as much as 60 per cent) on services. Depending too much on services is not good for India because our manufacturing could not scale up to the global standards in the first place,” the Assocham study noted with concern.
Primarily, dominance of service sector over the growth of industrial sector is hindering the growth of manufacturing sector. Infrastructure bottlenecks and regulatory hurdles for mega projects are hindrances in taking leap forward in industrial activity. Also, almost no major development in export rate for “Made in India” products giving no boost for the domestic manufacturing sector.
Standing in this situation, creation of 100 million jobs and increase share of manufacturing to 25 per cent of GDP by 2020 seems to be distant dream. So, is there a way out of Chakravyuh? We spoke to the players from different industry spectrum and here present you the sectoral analysis.
Automotive industry: optimistic of long-term growthAutomotive market has been growing for more than 10 years and more recently is in lull.  M.V. Ravi, National Manager – Transportation, Akzo Nobel India observed, “The government impetus for growth of this industry is crucial and this could be another reason for decline in growth. Owing to this, many OEMs have postponed their capacity expansion or Greenfield project plans.” However, he feels, “The mid-term to long-term prospects of the industry are definitely positive. Investments are still being made by car makers, bus manufacturers, metro coaches, and auto component manufacturers like wheels.”
Harish Sheth, CMD, Setco Automotive Ltd. said, “The bumpy economic climate has forced the sale of automotive products to drop drastically in the last few months. This could be due to a number of reasons like heavy taxes, roundabout policies, changing middle class and so on.” However, he opined, “The automotive industry has a long-term horizon through careful initiatives and measures that are being taken to curb the falling sales.”
International standard machine toolsKeshav Khurana, Sales Director, Wohlhaupter India, suggested, “Indian companies need to adopt the latest technology and establish the quality standards in-line with international acceptance level which will attract developed countries to demand more “made in India” products.”
Material handling industry at infrastructure developmentWith the recent slowdown across the Indian economy, the market witnessed a drop in the announcement of new projects which has reflected on the demand for industrial cranes. Tushar Mehendale, Managing Director, ElectroMech, opined, “There will be certainly a rise in demand for cranes from various sectors in the next few months. The $1 trillion investment target on infrastructure in the 12th Five-Year Plan is an ambitious one and could well be a key growth driver for the material handling industry.”
Whereas, Demag believes that a policy paralysis has dampened the India growth story. Manojit Acharya, Executive Director, Demag Cranes and Components (I) Pvt. Ltd., said, “In the last 2 years, the industry hasn’t seen improvements in many policies around infrastructure, land acquisition, and environment clearance. This has obviously affected the sentiment, and hence the active flow of investments in most areas.”
Welding solutions market looks for changeSubhrajyoti Mukhopadhyay, Director, Automation India Welding Technology informed, “The current situation is only pushing the Indian  manufacturing industries to compromise on quality by spending less expansive, inferior products; thereby, the ultimate quality of the manufactured products are suffering severely.”
Commenting on the remedies to attract industry, Rashmi Ranjan Mohapatra, National Sales Manager, Kemppi India, said, “India should develop its infrastructure like China to attract industry. In India, Gujarat and Karnataka stand out in manufacturing as they don’t have power and transport issues. These are role models to be followed.”
Power sector eyeing policy reformsThe power ministry has set a target for adding 76,000 MW of electricity in the 12th Five-Year Plan (2012-17) and 93,000 MW in the 13th Five-Year Plan (2017-2022). In order to bring a positive growth environment to a sector as important as power, the government has initiated several policies to promote and garner investments like National Electricity Policy, Ultra Mega Power Project Policy etc.
However, Ramendra Baoni, Founder and Chairman, ECCO Electronics Pvt. Ltd., feels, “The manufacturing industry still needs attention from the government to help it grow and build better products.”
According to the annual industry data released by the Indian Electrical and Electronics Manufacturers’ Association (IEEMA), India’s local electrical equipment makers have registered a negative growth of 8 per cent due to sluggish demand and higher imports for FY 12-13 in absence of any protective policy measures.Domestic electrical equipment makers are not very happy with the last Union Budget as there were no favourable announcements in the budget for countering increasing imports of electrical equipment.
Finally, awaiting boost in manufacturing exportsAs per analysis of the disaggregate data made available till December 2012 from April, exports to European Union and Asian countries has suffered a major setback. During April – September 2012, exports to EU (accounting for 16.3 per cent in India’s merchandise exports) has declined by 11.2 per cent, while to Asian countries (excluding Japan) with a share of 28.1 per cent, contracted by 8.4 per cent during.
“The challenges in increasing exports are the relatively slower rate of growth of manufacturing production, the low share of high tech exports, poor transport infrastructure and insufficient information with manufacturing about procedures and regulations of various countries affecting Indian exporters,” the Planning Commission report on strategies for accelerating growth of manufacturing in India in the 12th Five-Year plan and beyond cautioned earlier.

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