Future of Indian Economy

India’s economy is now beginning to recover and is expected to grow in the coming years.
With new government coming in control with favourable policies and investments, the outlook reflects stronger sentiment.

Positive sentiments reflect through steps taken by government to develop Industrial Corridor, Infrastructure -Roads & Ports, urbanization, building smart cities and restoring investors confidence to enhance (FDI) foreign direct investment.

Contribution To Global GDP : India Vs Developed Economies

CONTRIBUTION TO GLOBAL GDP : INDIA Vs DEVELOPED ECONOMIES

Manufacturing Sector has contributed to 14 -16% of The Indian GDP

  • Over last 20 years manufacturing sector has contributed only 14 –16% of the Indian GDP
  • Exports are the best indicators of success of countries manufacturing and India has shown nominal growth in exports from 0.5 % to 1.7% over last 20 years.
  • Poor perception of India in terms of ease of doing business and lack of proven ability to compete at global scale
  • Performance has been below par compared to other developing economies like Thailand (34%), Malaysia (24%), Indonesia (24%) and Philippines (31%)
  • Number of jobs created by manufacturing sector has also been below par increasing only by 1.8% per year from 37 million to 55 million. Service sector alone cannot address the unemployment concerns in India

Strengths of Indian Manufacturing Sector

There are certain areas where Indian Government has taken steps to improve infrastructure through investments. However there are certain inherent strengths of Indian manufacturing sector which can be capitalised for sustaining the growth.

Low Cost Labour : India has cost advantage in terms of manufacturing wages and easy availability of labour.

Investment in Infrastructure Development : Indian government plans to invest $1 trillion from 2017 to improve infrastructure, logistics and supply chain.

Large Domestic Market : Being a developing nation India offers high potential for growing domestic demand.

Access to Free Trade Agreements : India has free trade agreements with ASEAN nations thus offering great opportunities to access other developing nations in South East Asia.

Based on above strengths India government can build further strengths through economic reforms and policies.

Automotive sector is the highest contributor to manufacturing GDP

Automotive industry constitute nearly 7% of the India’s GDP, and accounts for 27% of the India’s manufacturing GDP

Vision : to reach a Manufacturing GDP of USD 1 Trillion by fy 2025

  • Indian government has laid emphasis on future growth of manufacturing by initiating National Manufacturing Policy with a target to achieve 25% share of GDP and creating 100 million additional jobs in manufacturing sector by 2025.
  • At the traditional growth rate the sector will fall well short of target set by National Manufacturing Policy. Indian government will have to develop specific actions to rejuvenate the manufacturing sector and grow at 14% CAGR for next 10 years to achieve the target.
  • Reforms have been announced. “MAKE IN INDIA” campaign initiated by newly formed government in 2014 provides high impetus to National Manufacturing Policy.
To achieve this target, BDB feels that India has to overcome the major challenges

Competition from developing and developed countries : India’s manufacturing sector is challenged by secondary factors like overall business environment, ease of doing business, logistics performance and corruption perception

Complicated tax structure : India’s tax structure is complex and is ranked 156th out of 189 nations

Skill development : India has to focus on skill development as it’s current Global Talent Competitive Index (78) is much more lower than the developed & developing countries. India has to develop a education system like Vocational Education and Training (VET) in Germany.

Low R&D investments : Overall R&D spending in India is below the international peers. Share of R&D in India’s GDP has to grow from current level of 0.8 % to 2.4% by FY 2030 to achieve the desired growth.

Poor infrastructure

Slowing global economy impacting exports

Few Sectors That Have Potential To Drive The Growth Of Manufacturing Sector

Power sector

  • 300 Million people in India do not have access to electricity
  • 31,000 villages in India had no access to electricity
  • Per capita consumption of power in rural households is estimated to be only 1/3rdof urban consumption
  • Focus on reducing the T&D loss (current 30%)
  • Focus on renewable energy

Food Processing

  • 30 -40% of fruits and vegetables wasted due to lack of cold chain and integrated food processing units
  • Focus on developing the cold chain infrastructure
  • Focus on setting up integrated food processing units

Automotive and auto components

  • Focus on converting India as a global manufacturing hub by leveraging and empowering Tier 1 suppliers, quality labour, availability of steel, plastic, aluminium and electronics

Electronics

  • Focus on ways to have import substitutes by increasing domestic manufacturing
  • Improve investments in R&D and improve skill sets (Corporate Engineering Colleges and Vocational Training Institutes can playa vital role here)
  • India would need to perform imports worth USD 300 Billion over next 5 years (this can be achieved if proper eco system is developed.

Defence & Aerospace

  • Completely dependent on imports
  • Quick action required for encouraging government private participation for manufacturing of tanks, guns, ships etc.

Indian Aerospace Industry is one of the segments to drive the Growth of Manufacturing Sector

  • India’s passenger traffic has been growing at CAGR of 14% over the period from 2004-05 to 2013-14
  • Domestic airlines are expected to double their combined fleet size to 800 in the next 5-6 years. The total investment in the aviation sector is projected at US$ 120 billion in the next 5-6 years
Key Developments in Indian Civil Aviation Industry

  • IndiGo has signed a US$ 2.6 billion agreement with the Industrial and Commercial Bank of China (ICBC) under which the latter will finance the airline's plan to purchase 30 aircrafts
  • Spice Jet Airlines has signed a contract with GE aviation to use GE's Flight Efficiency Services (FES) to support its fleet of 50 Boeing 737 and Bombardier Q400 aircrafts
  • Air Costa has made capital expenditure plan for about Rs 600 crore (US$ 98.04 million) to acquire new aircraft to strengthen its fleet and expand its network
  • Entry of Air Asia, TATA-Singapore Airlines in Indian civil aviation sector
The Civil Aviation sector fuels the developments happening in the Aerospace and Ancillary industries

  • For Bangalore Aerospace SEZ, investment proposal has been received from around 55 companies for a combined investment worth of INR. 5000 Crore.
  • Wipro Infrastructure Engineering is aiming to produce precision engineering parts for flight control systems and auxiliary systems with the partnerships of original equipment manufacturers.
  • Titan Industries is aiming to record a ten fold growth by 2019 in its Precision engineering vertical which is currently in its nascent stage. They are aiming revenue upto INR. 1000 Crore from current INR 100 Crore
  • Tata Advanced Systems Ltd. (TASL) is currently setting up three new facilities in 250 acre SEZ at Adibatla in alliance with Sikorsky and Lockheed Martin for the manufacturing of helicopter cabins, aircrafts and its components
  • The Tata Group, Swiss aerospace and defence firm Ruag Aviation plans to setup an aircraft manufacturing facility in Hyderabad, Telangana
Key Government Initiatives

  • Indian policy for Offset-Related business - Indian policy mandates that foreign companies winning contracts worth over INR 300 Crore must spend at least 30% of the contract value on local procurement of components and services
  • Karnataka government promoting Bangalore as a potential hub for aerospace industry in the country
  • The Telangana government is also setting up a 1000 acre aerospace park close to the existing Adibatla aerospace special economic zone.
  • TIDCO has acquired around 300 acre space in Sriperumbudur, near Chennai, to setup an aerospace component manufacturing SEZ. The government would be looking for a few anchor industries to work in the park, once it is setup
Indian Auto Component Industry is one of the segments to drive the growth of manufacturing sector

Classification of Auto Components Industry

Overview – Indian Auto Components Industry

The Indian auto component industry’s turnover is projected to reach Rs 6325 billion by 2020-21. The industry is estimated to grow at a compound annual growth rate (CAGR) of 14% during 2015-21

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Future Likely Trends in Indian Automobile Industry

  • Growing needs for comfort, safety and style features
  • Use of more aluminium, composites and plastics
  • Investment in R&D, fuel management systems and fuel efficient engines
  • Development of electronic clusters, comfort platforms and safety products for global markets
  • Automatic transmission system for passenger vehicles
  • Sophisticated seating systems for bus segment
  • Higher CC motorbikes –more of inspirational products
  • Segments specific light commercial vehicles (LCVs)
  • IPOs for auto components
  • Manufacturing hub for 2 wheelers and passenger cars for global market
  • Electric cars

Notable Government Initiatives For Indian Automobile & Auto Components Industry

  • Established National Automotive Testing and R&D Infrastructure Project (NATRiP) at a cost of USD 400 million in Manesar
  • Allowed 100% FDI under automatic route
  • Passed Motor Vehicles Amendment Bill 2014 to setup the path for regularization of e-Rickshaws
  • USD 200 million fund to modernize the auto components industry by providing interest subsidy on loans and investment in new plants and equipment
  • R&D incentives for Industry & private partnership research

Initiatives Which Will Drive The Growth

  • Creating 100 million jobs over the next decade
  • FDI cap to 100% in railways (infrastructure), 49% in defence & aerospace
  • Launch of Rs 10,000 crore venture capital fund dedicated to MSMEs
  • Simplifying the tax structure with the introduction of GST in near future
  • Initiating skill development programs to improve productivity in manufacturing sector
  • Support for developing specific industry clusters

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