Manufacturing final

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Manufacturing final

  1. 1. Yatin Vichare yatinvichare@gmail.com
  2. 2. Contents Manufacturing Sector : An Overview Brief History of Policy Developments Performance of India‟s Manufacturing Sector Export – Import Data Global Competitiveness Key Challenges India Manufacturing Sector SWOT Analysis National Manufacturing Policy : Overview & Analysis
  3. 3. Manufacturing Sector : An Overview
  4. 4. What is Manufacturing? Three Heads of GDP Agriculture Agriculture,Forestry & Fishing Mining and Qyarrying Industry Manufacturing (Mfg.) Electricity, Gas & Water Supply Construction Services Trade, Hotels, Transport & Communication Financial, Real Estate, Insurance Community , Social & Personal Manufacturing Definition : Manufacturing can be defined as physical and/or chemical trans formation of materials into products on a large scale using machinery or capital equipment, in contrast to production of handmade goods for personal use. The products provide utility or satisfaction to human/living beings. They may take the form of final consumption goods semifinished goods (parts and raw materials ) or capital goods (used for making final products ). Associated activities such as blending of materials, assembly of components , and finishing (painting, heattreating, packaging, etc.) are also treated as part of manufacturing.
  5. 5. Why Manufacturing (Mfg.) is Important?  Mfg. Has Been Path to Development. - Strategic achievement of rich nations to create high quality Mfg. ~ To develop national wealth & power. - Rise of England in 19th century. Rise of US,Germany,Japan & USSR (Russia) in 20th century. - Newly industrialized countries Korea, Taiwan & China ~ Mfg. key to prosperity.  Mfg. Foundation tobe Great Power. - Most powerful nations are those that control bulk of manufacturing technology . - Nation must know how to make machinery that make goods. - 80% world production of factory machinery control by “Great Powers.”  Global Trade Based on Goods, not Services. - According to WTO, 80% of world trade in merchandise trade and remaining 20% in services. Services are Based on Manufactured Goods. - Exa: Retail and Wholesale – Act of buying & selling manufactured goods. . Health – Act of using medical equipment.
  6. 6. Manufacturing Sector Classification : Use based Source : RBI
  7. 7. India‟s Top Companies Revenue in INR 1000 crores Auto Revenue:59.85 Tobaco & FMCG Revenue:27.33 Heavy Engg Revenue : 49.61 Diversified Revenue : 25.98 Steel Revenue : 137.834 Steel Revenue : 48.773 Two Wheeler Revenue : 23.94 Coal Revenue : 82.64 Metals Revenue : 44.34 Personal Care Revenue : 23.83 Aluminum Revenue : 81.60 Auto Revenue : 39.62 Auto Revenue : 20.20 Diversified Revenue : 65.19 Steel Revenue : 34.44 Steel Revenue : 13.35 Diversified Revenue : 364.695 Auto Revenue : 166.316 Source : ET 500 List
  8. 8. Global Fortune 500 List Company Name Indian Oil 88 Reliance Industries 107 Bharat Petroleum 229 Hindustan Petroleum 260 SBI 298 Tata Motors 316 ONGC 369 Tata Steel Source : Fortune 500 list Global Rank 471
  9. 9. Brief History of Policy Developments
  10. 10. Brief History of Policy Developments 1951-1966 First Three Five Year Plans YOY Growth Rate Average Growth Rate 6.6 %  Emphasis on Heavy Industries – Government Investment  Private Sector Encouraged in Textile , Cement & Jute Source : NMCC Report
  11. 11. Brief History of Policy Developments 1965-1981 YOY Growth Rate Average Growth Rate 3.9 % Not Many Public Sector Units Established except Maruti Udyog Ltd. Private Sector Not Allowed to Build & Expand – MRTP Act Tighter Restriction on Foreign Firms – FERA Act Number of Products – Reserved for Small Scale Industries Tightened Industrial Licensing Policy  Source : NMCC Report (Contd…)
  12. 12. Brief History of Policy Developments (Contd…) 1981 - 1991 YOY Growth Rate Average Growth Rate 5.7 % First Round of Reforms – Liberalization Started in Modest Way Industrial Licensing Reforms Undertaken ~ Eased restrictions & enabled firms to expand  Foreign Investment allowed in Gradual Manner Source : NMCC Report
  13. 13. Brief History of Policy Developments (Contd…) 1991 to date YOY Growth Rate Average Growth Rate 6.75 %  Some Radical Changes Required to Achieve Higher Growth Rate Characterized by „Big Bang Reforms‟ Peak rate of customs duty @ 110% in 1991 , reduced to 7.5% to 10% by 2007 For IT Hardware Sector – Duty down to zero under IT agreement FERA replaced by FEMA  Privatization and Disinvestment began  By 2000 almost all Mfg Sub Sectors Lieralized ~ 100 % FDI (barring few sectors) Source : NMCC Report
  14. 14. Performance of India‟s Manufacturing Sector
  15. 15. Size of Manufacturing (Mfg.) Sector 2012 – Rs 28,156 Bn 1990Rs 1263 Bn India has much higher potential for growth in Manufacturing. Source : World Bank 2012
  16. 16. Size Mfg. Sector - Global Benchmarks Source : Deloitte Analysis
  17. 17. Top 15 Manufacturers India‟s Mfg. Sector can become 3rd largest globally @ 11% p.a. growth rate Ranked 25th in 1980 Source : Mckinsey Global Institute Analysis
  18. 18. Global Population & Mfg. Share Global Population Break Up Chinas share in world Mfg. 2010‟s 1980s 1990s 2000s 3.83% 5.26% 10.82% 13.7% India‟s share in world Mfg. 1980s 1990s 2000s 2010‟s 1.03% 0.98% 1.36% 1.8% Source : Eurostat & NMMC Report
  19. 19. Share of Manufacturing Sector in GDP Share of Mfg. as % of GDP Decreasing in % terms Share of manufacturing sector hovered around 15 to 16% Source : Data.gov.in
  20. 20. Global Comparison – Mfg. Share of GDP % Share of Total GDP Contribution of Mfg. to GDP – Very Low in India Manufacturing GDP as a % GDP 2012 Share of Mfg. in GDP (%) , International Comparison 1970s 1980s 1990s 2000s South Korea 12.3 17.4 19.4 24.7 China 25 27.4 36.0 41.1 India 11.7 13.1 14.4 14.7 Source : United Nations Stats
  21. 21. Performance of Manufacturing Sector So far 1950-1980 Mfg Growth Rate higher than GDP growth rate To attain` 25% share of GDP , Mfg has to grow at 3-4% higher than GDP assuming GDP growth 7-8% Source : BCG Report 1980 Onwards Mfg Growth Rate has been tracking GDP
  22. 22. Sectoral Contribution to GDP % Share of Total GDP Services Agriculture Industry Manufacturing  India has not been able to draw employment from agriculture to Mfg. Mining  India‟s economy has largely been led by Services sector. 75% of working population educated to middle school & below. 600 mn people not equipped to benefit from Knowledge sector – Labor intensive mfg. has the capacity to generate employment. Source : Data.gov.in
  23. 23. Sectoral Employment - Global Comparison Employment Distribution between Mfg., Agriculture & Services  Agriculture still remains highest employment generator.  @ 12% of employment (53 Mn), share is less than other countries.  Mfg should become an engine of growth.  Necessary for Inclusive growth. Source : Euromonitor
  24. 24. Export – Import Data
  25. 25. Export - Import Trend India‟s Share in World Merchandise Exports : 1.6% Trade Deficit 306 Source : Ministry of Commerce & Industry 300
  26. 26. Manufacturing Sector Export Share of Mfg. In India‟s Total Merchandise Exports  Better Performance by India‟s Competitors. 76.1% 61.5% 93% Serious Consequences to Economy Increasing Current Account Deficit. Reliance on Foreign Capital. Growth Slowdown. Source : DGCI S’2012
  27. 27. Manufacturing Sector Export (Contd….) Composition of Mfg. Exports (Source DGCI&S) Item Group 2002-03 2006-07 2007-08 2010-11 Gems & Jewellery 24.01 20.1 20.54 22.19 Engineering Goods 20.44 33.33 34.96 39.8 Ready Made Garments 15.13 11.19 10.04 7.39 Cotton Yarn / Fabrics etc. 8.91 5.31 4.77 3.75 Drug, Pharmaceuticals & Fine Chemicals 7.05 7.48 7.68 6.83 Other Basic Chemicals 5.34 6.31 6.55 5.7 Leather & Leather Products 4.8 3.69 3.52 2.43 Man Made Yarn / Fabrics etc. 3.65 2.77 3 2.77 Electronic Goods 3.33 3.59 3.48 4.88 Plasitc Etc. 3.25 4.09 3.41 3.04 Handicrafts excl Handmade Carpet 2.09 0.55 0.53 0.15 Carpet 1.42 1.17 1.01 0.75 Jute Mfg 0.5 0.33 0.34 0.29 Computer Software 0.11 0.11 0.15 0.03
  28. 28. Manufacturing Sector Export (Contd….) Composition of Mfg. Exports , % Share (2010-11) Engg Goods - 0.8 % of world engg exports RMG – 3.48% of world exports , 5th Largest Electronic Goods - 1.44 % of world market Plasitc etc. - 0.6 % of world market Source : DGCI &S
  29. 29. India Trade Basket Only 20% of Electronic Goods from Domestic Sources Source : Ministry of Commerce & Industry
  30. 30. Capital Goods Capital Goods Sector Broadly comprises of plant machinery required for manufacture or production of goods. Strategic Importance Multiplier effect on economic growth. Provides critical inputs.  Ensures Self Reliance.  Contributes 12% of total Mfg. activity ~ 1.8 % of GDP. Source : BCG Report Nov,2012
  31. 31. Capital Goods (Contd….) Recent Performance – Split of Imports & Exports (2010-11) Increasing dependence on Imports Import accounts for 30% of domestic demand Import proportion high for critical components Source : BCG Report Nov’012
  32. 32. Capital Goods – Share of Global Market Share in Global Exports – India & Five Other Nations (2010) Ranges from 7.7 to 16.3% China USA Germany Ranges from 0.1 to 0.6% Japan Korea Source : BCG Report Nov’2012
  33. 33. Mfg. Industry – Technology Classification Source : WTO Studies ‘ 2013
  34. 34. Manufacturing Export – Technology Classification Percentage India – Technology Intensive Mfg. Exports Medium Low Technology (ML) Low Technology (L) Medium High Technology (MH) High Technology (HT) 1990 Medium Low Technology (ML) High Technology (HT) 2011 34.19% 1990 14.63% 2011 39.70% 45.02% 1990 Low Technology (L) 2011 6.69% 11.89% Weak Performance in HT Exports 27.5% 68% Philippines Source : WTO Studies ‘ 2013
  35. 35. Research & Development Spend R & D Spend – Global Comparison R&D defined as expenditure on creative activity intended to develop stock of knowledge leading to new devices, products or processes Source : BCG Report & NMCC Report
  36. 36. Research & Development Professionals R & D Professionals – Global Comparison R&D Spend by Govt. 60%  R&D Spend by Govt – Mostly on Space & Defense Global Peers (USA,Germany,China, UK) – Industry leads R&D spend “ Globalisation requires being at the forefront of Innovation” Source : BCG Report & NMCC Report
  37. 37. Global Competitiveness
  38. 38. Drivers of Global Mfg. Competitiveness
  39. 39. Country Level Ratings – Key Drivers of Competitiveness Scores on a 10 point scale, where 1 being "Least competitive" and 10 being "Most competitive” Source : Deloitte , U.S. Council on Competitiveness, 2013 Global Manufacturing Competitiveness Index
  40. 40. Country Level Ratings – Ease of Doing Business Investments in Mfg. registered sharp drop in last two years India Ranked 132nd among 185 countries on ease of doing business Source : World Bank Doing Business Report 2013 (Rank / 185 countries) , BCG Analysis
  41. 41. Key Challenges & Highlights
  42. 42. Key Challenges Infrastructure Deficit • 36 checkpoints - “truck carrying goods from Gurgaon to Mumbai has to pass.‟ • 57%- Goods in India are transported by Road – Most inefficient ,expensive mode. • 22%- Comparable number for China. “ Every Dollar of Infra. Spend Generates additional 60 cents in Economic Activity ”US Budget Office Source : PWC Report
  43. 43. Key Challenges (Contd….) Land Acquisition • Multiple Land Acquisition Policies. • Variation in land acquisition and compensation rules. Source : PWC Report
  44. 44. Key Challenges (Contd….) Land Acquisition 19th July’2013 FICCI has been suggesting that the concept of rehabilitation and resettlement (R&R) should not be stipulated when land is acquired by large private sector projects where there is a willing seller and willing buyer. The apex chamber has been questioning the need for R&R in a private transaction involving a willing seller.
  45. 45. Key Challenges (contd…) Land Acquisition 18th July’2013 In the biggest foreign investment pullout, world's largest steel maker ArcelorMittal today scrapped its USD 12 billion (Rs 50,000 crore) steel plant in Odisha over inordinate delays, problems in acquiring land and securing iron ore linkages.
  46. 46. Key Challenges (Contd….) Environmental Clearances • • Key Road bolck Long Delays and Social Hurdles 30th June’2013 Source : PWC Report
  47. 47. Key Challenges (Contd….) Multi-Tier Regulatory & Complex Framework • Prevailing at Central & State Level • “Manufacturer has to comply with‟‟ - 70 regulations & file 100 returns a year Source : PWC Report
  48. 48. Key Challenges (Contd….) World Bank Report 2012 World Bank Report 2005 • 89 days – to start business in India, compared to 41 days in China • 425 days – to enforce contracts in India, compared to 241 days in China • 10 years– to complete insolvency proceedings India, compared to 2.4 years in China The procedures and costs for starting a manufacturing business in India are among the most cumbersome. Source : World Bank Report 2012 , NMMC report
  49. 49. Key Challenges (Contd….) • Higher Interest Rate. • Archaic Labor Laws ~ difficult to fire permanent laborincreasingly hiring contract labor - wage disparity. • Firms focused on Indian demands and never considered India as a base for global supplies. MNC‟s as well as Indian companies always • Coalition politics~ difficult to reach consensus for policy reforms. • Corruption due to inept leadership.
  50. 50. Whats Making The News? 12th Aug’2013 Industry Reactions : “Relaxation in area norms will encourage small IT zones come up in the rural areas and provide employment to locals. It would also help developers downsize their zones and put land to alternative use. But, the norms would not help attract large investments,” said P. C. Nambiar, Chairman, Export Promotion Council for EoUs and SEZs. After Minimum Alternate Tax (effective at 22.5 per cent) and Dividend Distribution Tax (at 15 per cent) were levied by Finance Ministry on SEZs, new applications have reduced significantly and 216 notified SEZs have not started operations. Today, there are 173 operational SEZs in the country.
  51. 51. India Manufacturing Sector SWOT Analysis
  52. 52. SWOT Analysis – Mfg. In India Strength • Sustained availability of quality workforce. • Responsible business houses operating with credibility and professionalism. • Strong consumerism in the domestic market. • Strong technical and engineering capability. • Well regulated and stable financial markets open to FDI.
  53. 53. SWOT Analysis – Mfg. In India Weaknesses • Low employee productivity, high illiteracy. • Volatile governance and regulatory environment – Policy rollbacks. • Poor power and transport infrastructure. • Rising input costs. • Inadequate credit flow and rising cost of credit. • Small firm size, clustering and economies of scale not effectively utilised. • Slow pace of reforms and policy implementation.
  54. 54. SWOT Analysis – Mfg. In India Opportunities • Easing excise restrictions can open up large import and export market. • Global slowdown will trigger opportunities for low cost economies such as India. • Government procurement will boost demand and provide economies of scale. • Role of SMEs in innovating and supplying to large manufacturers. • India emerging as an attractive destination.
  55. 55. SWOT Analysis – Mfg. In India
  56. 56. National Manufacturing Policy : Overview & Analysis
  57. 57. National Manufacturing Policy Key Objectives  Increase manufacturing sector growth to 12-14 per cent over the medium term so that it could contribute at least 25 per cent of the national GDP by 2022 from 16 per cent at present.  Increase the rate of job creation in mfg. to create 100 million additional jobs by 2022.  Creation of appropriate skill sets among rural migrants and urban poor for inclusive growth.  Increase domestic value addition and technological 'depth' in manufacturing.
  58. 58. National Manufacturing Policy Key Provisions for SME‟s Current Scenario NMP Announcement Impact Inclusion of SME‟s as a part of priority sector. Higher Fund Availability. Financial Limited capital / inadequate access to finance for SME‟s. Tax Relief, Incentives & Subsidies High taxes for venture capitalists (VC‟s) looking to invest in SMEs. Tax Pass Through Status for VC‟s with SME focus. Renewed Interest of VC‟s in SME‟s. Setting up Service Entity for collecting statutory dues. More Transparency Speeding up of Procedures. Compliance Compliance burden of laws and regulations, & tedious followup with various government agencies to resolve problems. and Govt.
  59. 59. National Manufacturing Policy Incentives  For Promoting Technology Acquisition.  For Promoting Green Manufacturing.  For Encouraging Skill Development.
  60. 60. National Manufacturing Policy National Investment & Manufacturing Zones – Heart of NMP
  61. 61. National Manufacturing Policy NIMZ‟s - Key Highlights  Integrated Industrial Townships with World Class Infrastructure.  Land Area – 5000 Hectares , Processing area may include one or more SEZ‟s.  State Govt. Responsible For Selection of Suitable Land.  State Govt. to Facilitate Utility Infra.  Master Planning Cost – Central Government.  Financial Support – VGF.  Soft Loans, ECB allowed.  Tax Deductions Provisions.
  62. 62. National Manufacturing Policy Analysis Gap NMP Target *Likely Achievement  To achieve NMP target Mfg. sector will have to grow by more than 16 per cent per year, between 2012-13 and 2021-22. Even China has not achieved such high decadal growth rates in the past. * Likely achievement as per CII – BCG Mfg. Survey Source : CII & BCG Report
  63. 63. NMP Key Success Factors “The implementation of the National Manufacturing Policy during this decade will coincide with a relatively unfavourable global economic scenario. We believe that in such an environment policy support will be pivotal to raise manufacturing growth as well as to generate significant employment gains. Policy measures would have to focus on providing quality infrastructure and reforming labour laws to arrest the pace of decline in employment intensity.”
  64. 64. Wayforward • Emphasis on Domestic R&D • FDI Policy & Technology Development : Incorporate conditions in the FDI in terms of Technology Transfer • Regulation and Procedural Reforms • Raw Material : Acquisition of assets abroad by India companies • Address Infrastructure Issue • Labour Reforms • Improved Co-ordination Between Centre & State

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