Status of manufacturing in India present scenario

Presented by Manan Kothari 11120

Manufacturing
Definition Set of activities leading to and including transformation of materials into physical products needed by end-users or intermediaries, using productivity-enhancing tools, machines and methods. Importance Fulfills basic needs, comforts, luxuries; strategic importance Creates productive employment opportunities for the labour force Engine of growth for agricultural and service sectors also Value added in manufacturing is US$ 5 trillion/year Represents 70% of world trade and 22% of world economy.

Manufacturing in Past - World

First wave: 18th century Dominated by Europe (Great Britain, Germany, France) Innovations in textile, steam power and printing From home to workshop to factory towards lower cost. Second wave: 19th century Dominated by North America Steel, automobile, railroads and telephone Industrial engineering towards higher productivity. Third wave: 20th century Dominated by Japan Electronics: robots, NC machines, communication, computers Lower defects, better features: towards higher quality. Common factors Starts in a country ripe for the wave (physical, intellectual, economic) First caters to local need, then leads to export of surplus Immigration: rural to urban, and from less developed countries.

Manufacturing in India post independence

Post-Independence Massive investments in industry (23% of outlay in 1956-79) Strategy: extreme import substitution (others: export led growth) Small sector industry reservations (disincentive for growth) Infrastructure gap and quality (power, transport, communication)
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% Composition (sector-wise) of GDP of India from 1952-53 to 2010-11

SOURCE:- Statistics on the Indian Economy, September 2011, Reserve Bank of India
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Manufacturing Sector in India

GDP Growth rate in %
Industry
Q1 Agriculture Services Industry 3.7 10 5.6 Q2 3.1 8.8 3.7

2011-12
Q3 2.8 8.9 2.5 Q4 1.7 7.9 1.9

2012-13
Q1 2.9 6.9 3.6

Mining & quarrying

Manufacturing Electricity, gas & water supply Construction GDP at factor cost
Source: CSO & FICCI Research

-0.2
7.3 7.9 3.5 8

-5
2.9 9.8 6.3 6.7

-3
0.6 9 6.6 6.1

4.3
-0 4.9 4.8 5.3

0.1
0.2 6.3 10.9 5.5
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 Manufacturing Sector employed nearly 53.5 Million people in 2005 Industrial growth rate: India < 6% (China almost double) World Competitiveness rank ~ 40 (USA, Germany, Singapore among top) India's share in exports witnessed a constant rise, from 0.8 percent in 2003 and 2004 and 1.0 percent in 2005 to 1.1 percent in 2006 and 2007. Exports: $44 b - Agri/Min:25%, Low-tech: 64%, Hightech: 11% Trade deficit: 3% of GDP in 1990-91; 2.6% in 2001-02.
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Sectoral Growth
Sector Cement Paper Steel Textile Mics. Growth Low Low Low Low Low

Chemical Forging
Tyre Machine Tool Automobile Consumer Durables Leather and Footwear Capital Goods

Moderate Moderate
Moderate Strong Strong Strong Strong Strong
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Note : Strong > 10%; 5% < Moderate < 10%; Low < 5% Source: FICCI Survey March 2011

Textile
Average capacity utilization is hovering around 84% in the textiles sector Problems in Textile: High real estate cost making business unavailable Labor Issues Shortage in power Raw material prices of cotton Rising cost of capital Restriction on cotton yarn exports
Source: FICCI Survey March 2011
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Forging Industry
Forging industry is operating at an average capacity utilization of 50%-70%. Plans to increase their capacity further in the next 6 months The forging industry is very confident of growth of Indian manufacturing sector in coming months Problems Power High price of raw material lack of skilled manpower
Source: FICCI Survey March 2011
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Machine Tool Industry

The machine tools industry is operating at a capacity of 90% and above Plans to add further capacity in next six months by around 50% Problems Bottlenecks in the supply chain. Shortage of working capital finance, Competition faced from imports Lack of skilled manpower
Source: FICCI Survey March 2011
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Consumer Electronics
On an average the capacity utilization in this sector stands at around 90% and above most of the firms are not planning any further increase in capacity in next 6 months Problems For electronic industry prices of raw material has been identified as the most significant problem Power Competition faced from imports.
Source: FICCI Survey March 2011
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Lack of Infrastructure
India is still lagging behind in providing proper infra in terms of Roads , Power and Technology Many of the industry has stagnation due to unavailability of Power The Transportation Facilities in India are still not well developed as of other Countries Still India has to import technology from foreign countries
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Lack of Skilled Labour

Studies conducted on the manufacturing industry has concluded that India has a working population of 75%. Out of this, only 600 million have acquired education till middle school. Due to this reason, the manufacturing industry in India has less skilled labour Due to which the productivity of India is approximately 1/5 of USA and of south Korea and Taiwan Brain Drain problems in Research and IT Field
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Lack of Return on Investment

India today faces the key question whether it should in effect vacate the large manufacturing spaces to China, given their strong competitive strengths and concentrate its resources in building a lead in the services sector and small niche of complex technology and design intensive manufacturing products. India can not afford to move away from the entire light engineering and simple manufacturing, simply because if it does so, it will be unable to generate the required number of employment opportunities for the growing working population, including workers moving out of agriculture.
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Low Investment in Research and Development

Cross-country Comparison of Research and Development (2005)
Country Spending on R&D as a percentage of GDP 0.77 1.30 2.5 Amount Spent on Royalties and License Fees as a % of GDP 0.05 0.14 0.57

India China South Korea

Source: Human Development Report 2005 and IMF Balance of Payment Statistics 2006
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Future drivers and enablers

Economic Drivers Globalization - WTO Intellectual Property Rights Need to generate and protect indigenous IPR (eg.

turmeric and neem)

Technological Drivers Artificial Intelligence - capability of a device to perform tasks associated with humans Green materials Direct manufacturing - Material removal & Molding and forming Future Enablers Bionics and Reverse Engineering - Goal: duplication and eventually improvement Knowledge Management - Creation (Brahma), maintenance (Vishnu), recycling (Shiva) Product Lifecycle Engineering - Consider all aspects early, to evolve an optimal design

Will lead to New materials, processes and applications (products) New paradigms of manufacturing and trade.

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