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Indian Manufacturing Industry: an overview

September, 2013

Brief Introduction

India’s manufacturing segment is a crucial cog in the wheel of economic progress; the sector’s contribution to the gross domestic product (GDP) being 16 per cent. With the passage of time post 1990-economic liberalisation era, India has well realised the importance of manufacturing for the overall industrial development. In this wake, the Government has also been very pro-active, especially during the last decade.

The recent initiative counts back to the Manufacturing Policy that was announced in 2010. It was followed by the introduction of a systematic Manufacturing Plan for the country, designed with extensive involvement of industry. Now India Inc and the Government are focussing their energies on implementation of this Plan.

Growth Trend

The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - stood at 48.5 in August 2013.

Key Developments and Investments

  • The Indian rubber industry has been invited by Vietnam to invest in their dynamic rubber sector. The South Asian nation intends to give a major boost to its rubber segment and has targeted to produce 1.2 million tonnes of rubber. Currently Vietnam consumes only 15 per cent of the more than 9 lakh tonnes of rubber produced in the country and aims to increase this domestic consumption to 40 per cent. Vietnam seeks Indian investments in this regard that would not only help scale up rubber manufacturing there, but will also strengthen bi-lateral business ties.
  • Kerala-based centrifuge latex producing firm St. Mary's Rubber Pvt. Ltd. - has established India’s largest glove manufacturing unit to tap the surging demand of examination and surgical gloves. The new facility, to be fully operational within a couple of years, will produce 500 million pairs of gloves per annum. The total project cost has been estimated at Rs 150 crore (US$ 23.58 million) as of now.
  • Indian surgical glove market is growing at 15 per cent while the demand for examination gloves has been rising by 20 per cent per annum. St Mary’s is the largest supplier of centrifugal latex under the brand Cenex , a crucial raw material for manufacturing rubber dipped goods like gloves, balloons, condoms and rubber bands.

  • Mondelçz International’s Cadbury India, is planning to infuse over Rs 1,000 crore (US$ 157.24 million) in the first phase of a manufacturing plant in Sri City, Andhra Pradesh. The project, to be developed under four phases, is planned for final completion by 2020.
  • The multi-category food facility will be the largest chocolate manufacturing plant in India and once completed, it is claiming to become a benchmark in production efficiency, energy saving, emission reduction and community involvement.

  • Direct marketing company Amway India has initiated work on its manufacturing facility at Nilakottai, near Madurai. The proposed plant, to be Amway’s first owned facility, is scheduled to be completed by mid-2015. Amway is infusing its first major outlay of Rs 400 crore (US$ 62.88 million) in this plant, which will have nine production lines for nutrition, cosmetic and oral-care products.

Government Initiatives

A high-level committee on manufacturing, led by Dr Manmohan Singh, the Prime Minister of India, has stated that sustained growth in manufacturing segment is of highest priority for the economy to grow at 8-9 per cent. In order to boost domestic manufacturing, the committee has approved a proposal to make small civilian passenger aircraft indigenously.

The plan envisages an increase in steel production capacity to 300 million tonnes, a 30 per cent increase in textile exports, and domestic manufacturing capabilities in advanced materials, alloys and composites.

Meanwhile, the State Industries Promotion Corporation of Tamil Nadu (Sipcot) and the Tamil Nadu Industrial Development Corporation (Tidco) will be forming a joint-venture (JV) to set-up an industrial park for high-end plastic components manufacturing units in Chennai.

The total project cost is estimated to be around Rs 243 crore (US$ 38.2 million) and Tidco is seeking Rs 40 crore (US$ 6.29 million) grant from the Department of Chemicals and Petrochemicals, Government of India.

The industrial park will be equipped with infrastructural facilities for investors intending to set up medium and small-scale units for manufacturing high-end engineering plastics, auto components and machines for making such plastic products. Since Chennai is increasingly becoming a hub for such products, the new industrial park is expected to attract significant investments.

Also, in a bid to encourage growth of the electronics manufacturing sector and curb dependence on imported components, the Government has recently approved three projects worth Rs 200 crore (US$ 31.44 million) under the Electronic Manufacturing Clusters (EMC) scheme.

The investment proposals were sent by the Electronic Industries Association of India (ELCINA) and the Madhya Pradesh State Electronics Corporation (MPSEDC).

Road Ahead

McKinsey & Company believes that Indian manufacturers have started operating at par with their international counterparts. The country’s increasing manufacturing exports, coupled with economic expansion (at almost 7 per cent per annum) gives a golden chance to Indian manufacturers to demonstrate their mettle. The sector is well positioned to derive benefits from favourable demographics, supportive Government policies, availability of cost-effective labour and rising income levels.

It is estimated that rising domestic demand in India, along with the multinationals’ desire to enhance their footprint in the sub-continent, could boost the country’s manufacturing sector to grow six-fold by 2025, to US$ 1 trillion, while creating up to 90 million domestic jobs. Also, owing to availability of massive workforce, a robust supply base, and access to natural resources needed in production (such as iron ore and aluminium for engineered goods, cotton for textiles, and coal for power generation), India is definitely poised to become a viable manufacturing alternative to China across the sectors. Not only that, if the resources are efficiently utilised, India might even dominate some skill-intensive manufacturing sectors in the years to come.

Exchange Rate Used: INR 1 = US$ 0.01572 as on September 13, 2013

References: Media Reports, Press Releases, McKinsey publication