manufacturing: the india value proposition

8/14/2019 Manufacturing: The India Value Proposition

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Manufacturing: The India Value Proposition

October 2006


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IMaCS 2006

Printed 21 Jan 2010

Page 2www.imacs.in

Contents

Market Overview

Government regulations & policy

Business Opportunities and

Advantage India


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Manufacturing has contributed to Indias economic growth

Indias GDP of USD 691 bn makes it the 10th largest economy in the world and 4th largest in terms ofpurchasing power parity

One of the fastest growing economies in the world - growing at over 8 % p.a for the last 3 years

World's second largest small car market

One of only three countries that makes its own

supercomputers

World's largest producer of milk, tea and pulses and the

worlds largest livestock population

Second largest producer of food including fruits and

vegetables

Worlds largest diamond cutting and polishing centre and the

second largest jewellery market

Manufacturing contributes to

79% of FDI investment 27% of India GDP

53% of Indian exports

Source: GoI website, IMaCS analysis


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Indian Manufacturing : A macro perspective

Indian economyexpected togrow at 8% to10% over thenext decade

The quality of Indian work forceis one of Indias key

competitive advantages

Indian manufacturing sector isexpected to grow at 12% to14 % over the next decade

Indian manufacturingcompetitively

positioned for a highgrowth rate era

India is a stabledemocracy withstrong macro-economicfundamentals

The BPOmigration toIndia is gettingreplicated in themanufacturingsector

FDI inflow intoIndia hasdoubled fromUSD 3.4 bn in2001 to USD 8bn in 2005

India is ranked43 in the latest

GCI index (1)ahead of other

BRIC (2)economies

(1) Global Competitiveness Index (2) Brazil, Russia, India,

ChinaSource: National Manufacturing Competitiveness Council, IMaCS analysis


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Key sectors in Indian manufacturing

Auto Industry: The Indian auto industry is a USD

44 bn industry (Automotives is

USD 34 bn and Auto components

is USD 10 bn)

Chemicals: The size of chemical industry in

India (Petrochemicals to Paints) is

USD 30 bn

Electronics: The electronics industry is USD

11 bn (consumer electronics to

electronic components)

Engineering: A USD 22 bn including includingheavy and light engineering

Food Processing: A USD 70 bn industry

growing at 9% to 12%

Gems & Jewellery: A USD 13 bn industry (Gold

growing at 15% p.a and

Diamond growing at 27%

p.a)

Leather: Industry size is USD 4 bn

Machine Tools: Industry Size is USD 225 mn

Textiles: Industry Size is USD 38 bn

These sunrise sectors(1) of Indian manufacturing is enabling higher growth rates for the manufacturing sector

(1) - list illustrative and not exhaustive Source: IMaCS analysis


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Domestic Competitiveness Export Competitiveness

India's manufacturing output is

USD 450 bn

Domestic and Export competitiveness in

manufacturing : Key drivers

Indias liberalization, key policyinterventions, competition andinfrastructure build up have been keydrivers

Indias manpower advantage,indigenous technology advantagehave played a leading role inachieving domesticcompetitiveness

Many Indian sectors (e.g. Textiles,Glass, Automotive, Jewellery, Leather,Agro based, Pharmaceuticals, etc)have achieved export competitiveness

Regional FTAs, FDI in select sectors,stable currency, stable economicregime have been key drivers

This interplay has

enhanced Indiascompetitiveness

Indian manufacturing exports havebeen growing at a CAGR of 14%for the last five years

Source: IMaCS analysis


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A handful of sectors contribute to 75% of

Indias manufacturing exports

Leather Jewellery

TextilesChemicals

75% ofmfg

exports

Engg

Goods

Gems

The balance 25% exports are from sectors like 1)Automotive 2) Cement

3) Food Processing 4) Drugs/Pharmaceuticals5) Telecom equipt 6) IT hardware/Electronics7) Paper 8) Minerals and Metals

Indian manufacturing is forecasted to grow at12%-14% over the next decade and sectors like

Automotive, Food Processing andPharmaceuticals are expected to be the growthdrivers

Source: National Manufacturing Competitiveness Council

India is presently at the cusp of a

Manufacturing take-off


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Where does the advantage arise from.....

dias manufacturing cost advantages vis--vis high-cost locations

) Production design and Savings to the extent of 80% vis--vis plants in developedProcess Engineering cost markets

(due to the low cost, high quality engineering talent in India)

) Capital Cost efficiency Savings to the extent of 30% to 60% vis--vis plants in developedmarkets(due to local fabrication and labour intensiveness)

Higher Asset utilization Many manufacturing units in India follow a 3 shift seven day week(unlike a 2 shift-5 day week in high cost locations)


A sustainable competitive advantage for India in Manufacturing


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Contents

Market Overview


Business Opportunities and Advantage

India


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Regulatory Scenario for Indian manufacturers

1) Government of India offers a five

year tax holiday for

a) Power projects

b) Firms engaged in exports

c) New industries in notified states

d) Units in Electronic hardware,software parks

e) EOUs and Free Trade Zones

2) Tax deductions of 100% on export

profits

3) Deduction of 30% on net income for

10 years for new industries

4) Deduction in respect of certain inter-

corporate dividends

1. Each state & Union Territory (UT)

offers their unique industrial and

sectoral policy and incentives

2. The policies offered relate to

industrial estates, taxes, power

tariff, capital investment subsidies

3. States and UT in India typically

follow a Single Window Clearance

(SWC) mechanism

4. Competition among the states

and UT to attract investment hasproven to be beneficial for

investors

5. Customized packages designed

for capital intensive projects

Regulatoryadvantage

Better project

economics

Central (Federal) Government State (Provincial) Government

Source: GoI website, IMaCS analysis


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Foreign Investment Policy relating to

the manufacturing sector

Indian capital markets are open to FIIs

Decision on all foreign investment proposalswithin 30 days of application

FDI approval are processed through the

automatic route or the FIPB(1) route

FDI (automatic route) => No approval of GoIor Reserve Bank of India reqd

FDI (FIPB route) => Subject to approval ofthe board and the respective sector wiseguidelines

Some of the sectors in which 100% FDI is allowed

1) Airports 10) Mining

2) Coal 11) SEZ / FTZ

3) Agro & allied 12) Rubber

4) Roads 13) Construction

5) Ports 14) Petroleum(2)

6) Coffee

7) Tea

8) Telecom equipment

9) Hazardous Chemicals

(2) Except refining

Source: FDI policy 2006, GoI

(1) FIPB: Foreign Investment Promotion Board

FDI inflow into India has doubled

in the last five years


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Infrastructure improvements are expected to

facilitate manufacturing

Investment in infrastructure is estimated to reach USD 125 bn between 2005 - 2010

Roads

Four laning 6000 kms of

highways that link Indias top 4

metros has been nearly

completed (Golden

Quadrilateral)

The project linking the ten major

ports of the country to the GQ

mentioned above is nearing

completion

FDI investment upto 100%

permitted in the road sector

Ports

Indias long coastline (7517

kms) and the 12 major ports

cater close to 90% of Indias

foreign trade in volume terms

and 70% in value terms


permitted in the port sector 18

port privatization projects

worth USD 1.39 bn are under

way (Private participants are

P&O, PSA, Maersk, Gammon

India, CWC and Dubai PortAuthority)

Airports

India has 450 airports

including 11international

airports

India plans to invest USD5.07 bn in the next five

years


permitted in the port sector

The privatization of New

Delhi and Mumbai airportshave been completed

Emphasis on infrastructure development would support Indian manufacturing to be

competitive



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Contents

Market Overview


Business Opportunities and Advantage

India


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Attractiveness of India as a manufacturing destination

1. Economics and Ease of operations

2. Favourable economic policies,

flexible manufacturing practices in

terms of design, scale and delivery

3. Robust domestic demand for the

manufactured goods

4. Infrastructure support, Favourable

legal systems, Policy framework,

Ancilliary linkages and Services

support

5. Skilled and Productive labour force

Investors expectations

manufacturing locations

Indias manufacturing

competitiveness

1. Economical labour costs and

business transactions costs

2. Many manufacturing companies

have emerged as centres of

manufacturing excellence

3. The aspirational huge Indian

middle class is a readily

available market

4. Competition among states/UTsto attract investments is

addressing these issues

5. Large pool of well qualified

manpower

India has

compelling

advantages


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India is transforming from an attractive labour pool

to a preferred manufacturing destination

Manpower advantage: Over 58 % of the Indian population is under the age of 20 (Approx.564 mn people)

Market advantage: The 300 million aspirational Middle-class is growing at 5% per annum

Technology Advantage: Around 100 Fortune 500 have their R&D base in India


Over the next few decades India can overtake the economic growth rate of

Brazil, Russia, China (the other fast growing economies)@

@ BRIC report by Goldman Sachs


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A conglomerate of 96 operating companies in several sectors with revenues of USD

22 bn (2.8% of India GDP) in 2006. The Tata brand is a household name in India

One of Indias largest private sector enterprise, with interests in downstream

petrochemicals. Group revenues are about USD 20 bn. Reliance Industries Limited is

a Fortune 500 company

Pepsi is one of the biggest FMCG brands in the country. The company plans toinvest around USD 500 Mn in India this year

Ford is one of Indias popular brands in the car market. Ford manufactures around100,000 cars per annum in India

Key players in IndiaIllustrative, not exhaustive


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Coca Cola is one of the largest beverage player in the country. The company has

invested more than USD 1 bn since its entry into India

Wockhardt is one of Indias leading companies with interests in

pharmaceuticals and healthcare with a market capitalization of USD 1.3 bn

and an annual turnover of over USD 300 mn

A US$ 8.3 bn conglomerate, with a market capitalisation of US$ 12 bn, it is

anchored by 82,000 employees belonging to over 20 different nationalities

Present in India for over 50 years. Leading player in the power sector. Employs

over 4,000 people in India; has its global R&D centre in Bangalore

Key players in IndiaIllustrative, not exhaustive


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The India Brand Equity Foundation is a public-private partnership between the Ministry of

Commerce & Industry, Government of India and the Confederation of Indian Industry. The

Foundations primary objective is to build positive economic perceptions of India globally

India Brand Equity Foundation

c/o Confederation of Indian Industry

249-F Sector 18, Udyog Vihar Phase IV

Gurgaon 122015, Haryana, INDIA

Tel +91 124 401 4087, 4060 - 67

Fax +91 124 401 3873

Email [email protected]

Web www.ibef.org
http://www.ibef.org/home.aspx


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ICRA Management Consulting Services Limited

Disclaimer

This presentation has been prepared jointly by the India Brand Equity Foundation (IBEF) and

ICRA Management Consulting Services Limited, IMaCS (Authors) All rights reserved. All copyright in this presentation and related works is owned by IBEF and

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This presentation is for information purposes only. While due care has been taken during the

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manufacturing: the india value proposition

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