Make in India

Preface

  • Targeted to transform India into a manufacturing leader.
  • Rebalancing of manufacturing weight across developed and developing economies.
  • India is currently at 15% share of overall GDP.
  • Drawbacks: Infrastructure, ease of doing business, lack of ability to compete at a global scale.

State of the Industry

  • Below par performance: Share of global manufacturing has grown from 0.9 to 2 percent. GDP share has grown from 1.2 to 2.5 %
  • The sector accounts for 15% GDP in 1993, rate which remains the same till now. Whereas services has galloped forward.
  • Number of jobs in the sector have increased by 1.8% per year.
  • Services has increases from 80 million in 1993 to 150 million.
  • In the same time, China’s share has increased by 6%.
  • In the past 20 years, India has improved global merchandise exports from 0.5 to 1.7% whereas China from 2.4 to 11.5 %
  • NMP of 2012: Mfg. to reach 25% of GDP, 100 million additional jobs. Has fallen from 16% to 15% and fewer than 5 million incremental jobs over the past 5 years.
  • We have a lot of semi-skilled and skilled labor

Outlook

  • Single largest mandate. Confidence in Modi. Election was contested on the issue of development rather on social or community issues.
  • Overall economic outlook across the world has been improving.
  • Govt. making the right noises: reforms to boost manufacturing growth. Facilitation of FDI. MSME focus.
  • Strategic visits to countries abroad.

The Global Context

  • Wages, energy costs, productivity and currency rates
  • India has second lowest manufacturing cost after Indonesia. Though wages have increasead, these costs have been offset by productivity gains and currency depreciation.
  • China: Increased wages and increased utility
  • Gradual increase in global demand
  • US is a prefered manufacturing destination again. Modest increase in wages and in innovation like AM, nanotechnology, artifical intelligence and robotics.
  • Easiest thing is to maintain the cost advantage.
  • Tougher thing is to address non cost factors: Infrastructure, labor reforms, simpler tax strucuture, easier access to formal credit mechanisms.

The reality of Making in India today

  • India’s NMP target in 2012 was aggressive, 25% of GDP, Manufacturing GDP to INR 25.6 trillion and 100 million jobs. For this manufacturing was required to grow at15% GDP
  • Based on current growth, 10% seems like a realistice estimate.
  • Thus, realistic ism 19 trillion in 2022. around 18% share. By 2030, we could be at 22% GDP
  • This would place India in the top 3 to 5, ahead of companies like UK, Germany, Japan ?
  • Around 3% growth in manufacturing based employment. Around 60 million jobs by 2030
  • We must produce for both domestic and export markets and have same quality for both

Core strengths:

  • raw materials, engineering skills, labor availability
  • Rising incomes and rising exports
  • Demographic dividends
  • Lots of scope for import substitution: Electronics, aerospace

Industries of focus

  • Textiles and leather
  • Gems and jewellery
  • Food Processing
  • Pharmaceutical Industries and bio-technology
  • Electronics: Import substitution
  • Aerospace and Defense: Import substitution
  • Automotive sector: Expand exports

Key Challenges

  • Ease of doing business. Setting up operations, number of licenses which are required
  • Labor related issues: Reforms, productivity (due to lack of formal education )
  • Infrastructure: Power supply, roads and ports
  • Low R&D Spending
  • Tax structure: Double taxation
  • Land acquisition
  • This would place India in the top 3 to 5, ahead of companies like UK, Germany, Japan ?
  • Around 3% growth in manufacturing based employment. Around 60 million jobs by 2030
  • We must produce for both domestic and export markets and have same quality for both

Making Make In India a reality

  • Three step approach:
    • revive manufacturing: infrastructure execution (transport, power), labor reforms, ease of doing business, access to credit.
    • gain global competitiveness: export ecosystem, infrastructure for export, attracting more investment, technology innovation
    • claim global leadership: sustaining and expanding competitiveness, short term to long term
  • Some Concrete actions from Industry
    • We need to invest in technology and be able to make inventions
    • Cannot work on cost arbitrage only.
    • Companies have to initially have confidence in India. Manufacturing investments show long term optimism because of the cost of investment which is so high and is often irreversible. For this, companies should think of making for india as well as for the domestic market
    • Tax SOPs for MSMEs to reduce dependence on imports

Recommendations for Aerospace and Defense Sector

  • We currently import 70% and procure 30% domestically, need to reverse this.
  • 5 categories under DPP: Buy(Indian), Buy and Make (Indian), Make, Buy and make with ToT and Buy (Global)
  • Three step approach:
    • revive manufacturing: infrastructure execution (transport, power), labor reforms, ease of doing business, access to credit.
    • gain global competitiveness: export ecosystem, infrastructure for export, attracting more investment, technology innovation
    • claim global leadership in a few chosen areas.
  • Higher levels of Value Addition: Move out from Just Build-Print
  • AS9100, NADCAP. Minimum requirements are fulfilled.  These are on the process front. Get ready to accept product liability, which is required in a Build-Spec scenario
  • SMEs provide only 20% of indigenous content. Either their under utilization or the lead integrator witholds the high valude addiition
  • Clusters like the Belagavi. They have invested in areas which can be used by a large number of people
  • Need easier access to finance.

Make in India; Trending News

  1. Reliance Jio- Telecom- handset partners- Micromax, Lava, Karbonn, Intex, Lenovo. Cheap handsets critical for 4G, want to source them locally.
  2. Israeli companies: IAI, Elbit, Rafael: UAVs, missiles, radars and other defense equipment. Limit on FDI and stringent offset. Problems which they state are lack of manufacturing expertise, quality standards, operational performance and risk management in Indian entities hindered expansion of partnerships. “There is challenge of local content. There are no Indian made electronics, sensors, airborne quality metals, high quality castings . Service, maintenance, technical publications.
  3. Siemens- $1 Billion, 4000 people to existing 16000 people. Open for acquisition. Software + Engineering is what they are looking at. Maybe looking at orders from Indian Railways: close to Rs. 25,000 crores
  4. Dell is looking at Make  in India to export from Manufacturing Unit. India is a $3 Billion market. Looking at storage, data management and networking. India is growing 30% for Dell.
  5. Airbus: Looking to source close to $200 million. Boeing is looking to double sourcing. Working with companies like Bharat Forge, Dynamatics, HCL. FDI is currently
  6. Russia with Reliance Defense for choppers , 6000 crores
  7. GE: Jeff Immelt : Supply Chain and large investments in infrastrucutre like rail, power. They are still doing loca sourcing and trying to link with the global supply chain.
  8. Its all inter related. If they spend on infrastructure, companies like GE and Alstom will be investing.
  9. China’s problems are a boon  but private sector needs to invest and wait for investments to bear fruit
  10. Foxconn planning a $5 Billion investment in Maharashtra
  11. Ericsson: Plant in Pune
  12. Hitachi plans to make India its export hub:  IT, Healthcare, Transportation, Water, as well as Oil and Gas.
  13. Toyota: Looking to invest more, comparing with Thailand where it is much simpler. Unique regulations like the Sub-4 meter rule. Changing regulations make it difficult to plan new cars. 1.35 lakh cars per year, 5% market share
  14. Society Generale says Make in India is unrealistic. Service to manufacturing has been achieve by very few. Company size is very small so people don’t
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