Manufacturing: The India Value Proposition

October 2006
 Contents

Market Overview

Government regulations & policy

Business Opportunities and

Advantage India

© IMaCS 2006
Printed 21 Jan 2010
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Manufacturing has contributed to India’s economic growth

 India’s GDP of USD 691 bn makes it the 10th largest economy in the world and 4th largest in terms of
purchasing 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
Manufacturing contributes to supercomputers
 World's largest producer of milk, tea and pulses and the
 79% of FDI investment
world’s largest livestock population
 27% of India GDP
 53% of Indian exports
 Second largest producer of food including fruits and
vegetables
 World’s largest diamond cutting and polishing centre and the
second largest jewellery market

© IMaCS 2006
Source: GoI website, IMaCS analysis Printed 21 Jan 2010
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 Indian Manufacturing : A macro perspective

Indian manufacturing sector is

expected to grow at 12% to
➨ India is a stable
14 % over the next decade
democracy with
strong macro-
economic
fundamentals

➨ The BPO
India is ranked Indian manufacturing Indian economy migration to
43 in the latest competitively expected to India is getting
GCI index (1) positioned for a high grow at 8% to replicated in the
ahead of other growth rate era 10% over the manufacturing
BRIC (2) next decade sector
economies

➨ FDI inflow into

India has
doubled from
USD 3.4 bn in
The quality of Indian work force 2001 to USD 8
is one of India’s key bn in 2005
competitive advantages

(1) Global Competitiveness Index (2) Brazil, Russia, India, © IMaCS 2006
Printed 21 Jan 2010

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Source: National Manufacturing Competitiveness Council, IMaCS analysis Page 4
 Key sectors in Indian manufacturing

Auto Industry: The Indian auto industry is a USD Food Processing: A USD 70 bn industry
44 bn industry (Automotives is growing at 9% to 12%
USD 34 bn and Auto components
is USD 10 bn) Gems & Jewellery: A USD 13 bn industry (Gold
growing at 15% p.a and
Chemicals: The size of chemical industry in Diamond growing at 27%
India (Petrochemicals to Paints) is p.a)
USD 30 bn
Leather: Industry size is USD 4 bn
Electronics: The electronics industry is USD
11 bn (consumer electronics to Machine Tools: Industry Size is USD 225 mn
electronic components)

Textiles: Industry Size is USD 38 bn

Engineering: A USD 22 bn including including
heavy and light engineering

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 © IMaCS 2006
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Domestic and Export competitiveness in
manufacturing : Key drivers

Domestic Competitiveness Export Competitiveness

India’s liberalization, key policy Regional FTA’s, FDI in select sectors,

interventions, competition and stable currency, stable economic
infrastructure build up have been key regime have been key drivers
drivers

This interplay has

enhanced India’s
competitiveness
India’s manpower advantage, Many Indian sectors (e.g. Textiles,
indigenous technology advantage Glass, Automotive, Jewellery, Leather,
have played a leading role in Agro based, Pharmaceuticals, etc)
achieving domestic have achieved export competitiveness
competitiveness

Indian manufacturing exports have

India's manufacturing output is been growing at a CAGR of 14%
USD 450 bn for the last five years

Source: IMaCS analysis

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 A handful of sectors contribute to 75% of
India’s manufacturing exports

➨ The balance 25% exports are from sectors like

➨ 1) Automotive 2) Cement
Gems 3) Food Processing 4) Drugs/Pharmaceuticals
5) Telecom equipt 6) IT hardware/Electronics
7) Paper 8) Minerals and Metals

Leather Jewellery ➨ Indian manufacturing is forecasted to grow at

12%-14% over the next decade and sectors like
Automotive, Food Processing and
75% of
Pharmaceuticals are expected to be the growth
mfg
drivers
exports

Chemicals Textiles
India is presently at the cusp of a

Engg “Manufacturing take-off”

Goods

Source: National Manufacturing Competitiveness Council

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 Where does the advantage arise from.....

ndia’s manufacturing cost advantages vis-à-vis high-cost locations

) Production design and Savings to the extent of 80% vis-à-vis plants in developed
Process 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-à-vis plants in developed
markets
(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

Source: IMaCS analysis © IMaCS 2006

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 Contents

Market Overview

Government regulations & policy

Business Opportunities and Advantage

India

© IMaCS 2006
Printed 21 Jan 2010
Page 9
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Regulatory Scenario for Indian manufacturers

Central (Federal) Government State (Provincial) Government

1) Government of India offers a five 1. Each state & Union Territory (UT)
year tax holiday for offers their unique industrial and
a) Power projects sectoral policy and incentives
b) Firms engaged in exports 2. The policies offered relate to
c) New industries in notified states industrial estates, taxes, power
d) Units in Electronic hardware, Regulatory
software parks advantage tariff, capital investment subsidies
e) EOU’s and Free Trade Zones 3. States and UT in India typically
Better project follow a Single Window Clearance
2) Tax deductions of 100% on export
economics
profits (SWC) mechanism
4. Competition among the states
3) Deduction of 30% on net income for
and UT to attract investment has
10 years for new industries proven to be beneficial for
investors
4) Deduction in respect of certain inter-
corporate dividends 5. Customized packages designed
for capital intensive projects

Source: GoI website, IMaCS analysis © IMaCS 2006

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 Foreign Investment Policy relating to
the manufacturing sector

 Indian capital markets are open to FII’s Some of the sectors in which 100% FDI is allowed

1) Airports 10) Mining

 Decision on all foreign investment proposals
within 30 days of application 2) Coal 11) SEZ / FTZ
3) Agro & allied 12) Rubber
4) Roads 13) Construction
 FDI approval are processed through the
automatic route or the FIPB(1) route 5) Ports 14) Petroleum (2)
6) Coffee
 FDI (automatic route) => No approval of GoI 7) Tea
or Reserve Bank of India reqd 8) Telecom equipment
9) Hazardous Chemicals
 FDI (FIPB route) => Subject to approval of
the board and the respective sector wise
guidelines
FDI inflow into India has doubled
in the last five years
(1) FIPB: Foreign Investment Promotion Board
(2) Except refining

Source: FDI policy 2006, GoI © IMaCS 2006

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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 Ports Airports

 Four laning 6000 kms of
highways that link India’s 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
 India’s long coastline (7517
kms) and the 12 major ports
cater close to 90% of India’s
foreign trade in volume terms
and 70% in value terms
 FDI investment upto 100%
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 Port
Authority)
 India has 450 airports
including 11international
airports
 India plans to invest USD
5.07 bn in the next five
years
 FDI investment upto 100%
permitted in the port sector
 The privatization of New
Delhi and Mumbai airports
have been completed

Emphasis on infrastructure development would support Indian manufacturing to be

competitive

Source: IMaCS analysis © IMaCS 2006

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 Contents

Market Overview

Government regulations & policy

Business Opportunities and Advantage

India

© IMaCS 2006
Printed 21 Jan 2010
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Attractiveness of India as a manufacturing destination
Investor’s expectations
manufacturing locations
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
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India’s manufacturing
competitiveness
1. Economical labour costs and
business transactions costs
2. Many manufacturing companies
have emerged as centres of
India has manufacturing excellence
compelling
advantages 3. The aspirational huge Indian
middle class is a “readily
available market”
4. Competition among states/UT’s
to attract investments is
addressing these issues
5. Large pool of well qualified
manpower
© IMaCS 2006
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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)@

Source: IMaCS analysis @ BRIC report by Goldman Sachs

© IMaCS 2006
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 Key players in India
Illustrative, not exhaustive

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 India’s 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 to
invest around USD 500 Mn in India this year

Ford is one of India’s popular brands in the car market. Ford manufactures around
100,000 cars per annum in India

© IMaCS 2006
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 Key players in India
Illustrative, not exhaustive

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 India’s 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

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

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

© IMaCS 2006
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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
Foundation’s 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 ajay.khanna@ciionline.org
Web www.ibef.org

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 Disclaimer

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