INDIAN ECONOMY - Industry2009

Manufacturing

November 2009

Sector/Market size India is fast emerging as a global manufacturing hub. India has all the requisite skills in product, process and capital engineering, thanks to its long manufacturing history and higher education system. India's cheap, skilled manpower is attracting a number of companies, spanning diverse industries, making India a global manufacturing powerhouse. India with its vast design skills has attracted a lot of outsourcing technological orders. According to a UNIDO analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009, India ranks among the top 12 producers of manufacturing value added (MVA). In textiles, the country is ranked fourth after China, USA and Italy, while in electrical machinery and apparatus, it is ranked fifth. It holds sixth position in the basic metals category; seventh in chemicals and chemical products; 10th in leather, leather products, refined petroleum products and nuclear fuel; twelfth in machinery and equipment and motor vehicles. India's manufacturing sector is on an uptrend with the majority of sectors recording positive trends in the first half of fiscal year 2009-10, as compared with the corresponding period in 2008-09, according to a Confederation of Indian Industry (CII) survey. The buoyant manufacturing growth in the first half is led by a rise in production of basic goods, intermediate goods and consumer durables. Quarterly estimate of GDP for April-June (Q1) 2009-10, according to the Central Statistical Organisation data, for manufacturing stood at US$ 40.85 billion at current prices. According to data, the cumulative growth in the manufacturing index for the period April to September 2009 as compared to the same period last year has been 6.3 per cent. Growth Trends Major indicators Nomura's Composite Leading Index (CLI), UBS' Lead Economic Indicator (LEI) and ABN Amro' Purchasing Managers' Index (PMI), variety of indices that track activity in vital economic sectors, indicate an upward trend in economy owing to growth in the manufacturing sector. The HSBC Markit Purchasing Managers' Index (PMI), an indicator of manufacturing activity in the country based on a survey of 500 companies, rose to 55 in September 2009 from 53.2 in August 2009, indicating growth in the Indian manufacturing industry on the back of strong industrial orders and increased local demand. The new orders index has moved up from 56.2 in August 2009 to 58.3 in September 2009 implicating that domestic demand strengthened considerably in September. In the manufacturing sector, the value of new projects announced in the second half of 2008-09 stood at US$ 13.2 billion. Exports from special economic zones (SEZs) rose 33 per cent during the year to end-March 2009, far outpacing the country's overall exports growth of just 4 per cent, according to the Commerce Department. According to the data, exports from such tax-free manufacturing hubs totalled US$ 18.16 billion last year. Between April to June 2009, exports from SEZs totalled US$ 8.7 billion. LG is looking at making India its global manufacturing hub for its mobile handsets. The company will soon be exporting mobile phones to Europe and the Commonwealth Independent States (CIS) from India. Luxury brands like Louis Vuitton and Frette are looking at India as a manufacturing base for their products. SkodaAuto, a part of the international Volkswagen Group based in the Czech Republic, plans to make India its regional manufacturing hub. It will start producing cars in India by 2010 with a manufacturing target of 50,000 units. Besides the domestic market, these will also be exported to neighbouring countries like Nepal, Sri Lanka, Burma and Bangladesh. Aircraft manufacturer, Airbus is considering India as one of the key centres for design and development of its long haul A 350 plane. Samsung plans to invest US$ 100 million over a period of four years in its manufacturing plant near Chennai and make it its global hub. Hyundai has made India the manufacturing and export hub for its small cars. The i10 is being manufactured only in India and exported to the world. India is Hyundai's largest base outside Korea. Suzuki too is making India its manufacturing hub for small cars. The Ritz is being manufactured solely in India and exported to Europe. Taiwan-based Feng Tay Group which is setting up a US$ 61.5 million footwear manufacturing unit in its own SEZ in Tamil Nadu plans to invest an additional US$ 41 million. Private power equipment makers such as Alstom and Toshiba are planning to set up their power manufacturing base in India by the end of the year. Ingersoll Rand plc has earmarked about US$ 100 million investment in its Indian operations during the next three years and expects to source products and services of an equal amount. Panasonic India plans to invest US$ 100 million in its new plasma TV production facility in 2011. The joint venture between Toshiba of Japan and the JSW Group, which is setting up a US$ 214.99 million power plant equipment manufacturing unit in Chennai, plans to start work on the project by December and commission the first phase by 2011. The Road Ahead The rapid growth of the Indian economy is likely to make India the fifth largest consumer market in the world by 2025 from twelfth in 2005, according to a study by McKinsey Global Institute. Aggregate Indian consumer spending is likewise estimated to more than quadruple to approximately US$ 1.5 trillion by 2025, on the back of a ten-fold increase in middle class population and a three-fold jump in household income. The manufacturing sector is estimated to have a US$ 180-billion investment opportunity over the next five years, according to the Investment Commission of India.