india manufacturing sector analysis

1. Yatin Vichare
yatinvichare@gmail.com

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. Manufacturing Sector : An Overview

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. 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. Manufacturing Sector Classification : Use based
Source : RBI

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. 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. Brief History of Policy Developments

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. 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. 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. 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. Performance of India‟s Manufacturing Sector

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. Size Mfg. Sector - Global Benchmarks
Source : Deloitte Analysis

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. 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. 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. 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. 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. 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. 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. Export – Import Data

25. Export - Import Trend
India‟s Share in World Merchandise Exports : 1.6%
Trade Deficit
306
Source : Ministry of Commerce & Industry
300

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. 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. 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. India Trade Basket
Only 20% of Electronic
Goods from Domestic
Sources
Source : Ministry of Commerce & Industry

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. 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. 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. Mfg. Industry – Technology Classification
Source : WTO Studies ‘ 2013

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. 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. 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. Global Competitiveness

38. Drivers of Global Mfg. Competitiveness

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. 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. Key Challenges & Highlights

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. Key Challenges (Contd….)
Land Acquisition
•
Multiple Land Acquisition Policies.
•
Variation in land acquisition and
compensation rules.
Source : PWC Report

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. 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. Key Challenges (Contd….)
Environmental Clearances
•
•
Key Road bolck
Long Delays and Social Hurdles
30th June’2013
Source : PWC Report

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. 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. 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. 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. India Manufacturing Sector SWOT Analysis

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. 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. 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. SWOT Analysis – Mfg. In India

56. National Manufacturing Policy : Overview & Analysis

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. 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. National Manufacturing Policy
Incentives
 For Promoting Technology Acquisition.
 For Promoting Green Manufacturing.
 For Encouraging Skill Development.

60. National Manufacturing Policy
National Investment & Manufacturing Zones – Heart of NMP

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. 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. 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. 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