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Manufacturing Sector in India

May, 2014

Manufacturing: Brief Introduction

India’s manufacturing industry could touch US$ 1 trillion by 2025. This is according to a study by global management consulting firm McKinsey and Company. The rising demand in the country and the penchant for establishing low-cost plants in India by multinational companies (MNCs) are two reasons for this possible development. Up to 90 million domestic jobs could be generated by that time, with the sector producing about 25–30 per cent of India’s gross domestic product (GDP). The country’s rapidly expanding economy gives both domestic entrepreneurs and international players opportunities to invest and grow.

Growth Trend

The HSBC Purchasing Managers’ Index (PMI) for India’s manufacturing sector touched a one-year high of 52.5 in February 2014. The index is based on monthly data collated from replies to questionnaires to purchasing executives in about 500 manufacturing companies. The PMI clocked 52 in March 2013 and 51.4 in January 2014; any number below 50 suggests contraction.

The consumer goods segment was the best performing segment of the manufacturing economy, leading the rise in output as well as new orders. Operating conditions showed improvement and new export business also witnessed a rise, according to the survey.

Manufacturing: Key Developments and Investments

Switzerland-based Baumer Group has established an engineering, training and assembly centre at Pune to produce electronic pressure sensors. Baumer India, which has been present in the country since 2007, also plans to source local components. The company has invested US$ 25 million in its Indian operations according to Mr Oliver Vietze, CEO and Chairman, Baumer Group. "In Pune we will ramp up our operations by investing US$ 10 million over next two years and increase the headcount from 30 to over 100 people," he said.

Coca-Cola plans to set up a 1,200 crore facility in Nellore district of Andhra Pradesh, which will be its biggest greenfield manufacturing facility in Asia. "The facility would come up over 150 acres of land in the industrial zones being developed by IFFCO in the region," according to an industry source. The beverage giant’s move to choose the district is to cater to the burgeoning demand for its products in the states of Andhra Pradesh, Karnataka and Tamil Nadu.

Truck manufacturer Daimler India Commercial Vehicles will begin manufacturing buses from its plant near Chennai by the second quarter of 2015. The Rs 425-crore (US$ 70.21 million) factory will help Daimler India to consolidate its entire truck and bus manufacturing operations in the country. The factory will have a capacity of about 1,500 buses a year, which can be increased to 4,000 units. It will manufacture Mercedes-Benz, rear-engine luxury buses and Bharat Benz front engine buses which will cater to intra-city transport and schools.

Cummins, a joint venture between Cummins Inc and Tata Motors, has opened a third manufacturing facility at the Cummins Megasite in Phaltan, which will manufacture diesel engines. The new plant will manufacture the ISL and QSL 8.9 litre engines to serve the global power generation, industrial and automotive markets.

Britannia Industries Ltd has set up its first manufacturing unit for bakery products at the Jhagadia industrial estate in Gujarat. The Rs 75–100 crore (US$ 12.39 –16.52 million) unit has the capacity to manufacture 45,000 tonnes of products per annum. The company has already set up units in Bihar, Orissa and Tamil Nadu. The facility would serve markets in Gujarat, Maharashtra and Madhya Pradesh. Britannia Industries generates annual revenues of more than Rs 6,000 crore (US$ 991.20 million), and has over 35 lakh retail outlets across the country.

Manufacturing: Government Initiatives

India is looking to create as many as 100 million skilled jobs in the manufacturing sector by increasing its share of GDP from 16 per cent to 25 per cent, said India’s commerce and industry minister Mr Anand Sharma at the World Economic Forum (WEF) annual meet. “(Creating 100 million skilled jobs) is a must do," Sharma said while addressing a session on manufacturing. According to the minister, the country has to increase its manufacturing sector to enhance exports and guarantee sustainability.

The Indian government has agreed, in principle, to five National Investment and Manufacturing Zones (NIMZs) outside the DMIC region. The zones are Nagpur in Maharashtra, Tumkur in Karnataka, and Chittoor, Medak and Prakasam in Andhra Pradesh. The state governments have to acquire the land before any investments are made in the approved zones.

Road Ahead

India’s manufacturing sector is vital for its economic progress. The government has realised the importance of this sector to the country’s industrial development, and has taken a number of steps to further enhance the industry. Today, the country’s attractiveness as a manufacturing centre for foreign companies is clear. Overseas mobile phone and automobile companies have manufacturing plants in India, and luxury brands such as Frette and Louis Vuitton are looking to do the same.

Hi-tech exports are also expected to boost the country’s manufacturing industry. Hi-tech exports from India have been witnessing a compound annual growth rate (CAGR) of 26 per cent during the period 2007–2011, with exports touching US$ 20.9 billion, a significant increase from the US$ 8.1 billion in 2007. The electronic goods and pharmaceuticals sectors dominate exports of high-tech products, with the share of electronics almost doubling during the 2007–2011 period, according to an industry study.

Exchange Rate Used: INR 1 = US$ 0.01652 as on March 25, 2014

References: Media Reports, Press Releases, McKinsey publication