India and the Global Competitiveness Index 2016

The 2016 Global Manufacturing Competitiveness Index (GMCI), by Deloitte Global and the Council on Competitiveness in the United States  shows the ongoing influence manufacturing has on driving global economies.

China tops the list of manufacturing nations again while India stands 11th. However, by 2020 all three North American nations and five Asia Pacific nations (China, Japan, South Korea, Taiwan, and India) are expected to factor in the top 10 leaving the two remaining spots for Germany and the United Kingdom to represent Europe. India is projected to be ranked 5th.

The five Asia Pacific nations of Malaysia, India, Thailand, Indonesia, and Vietnam (MITI-V aka the “Mighty Five”) are expected to pierce the top 15 nations on manufacturing competitiveness over the next five years. These nations could represent a “New China” in terms of low cost labor, agile manufacturing capabilities, favorable demographic profiles, market and economic growth, with their competitiveness ranking rising in the next five years as China continues to shift its focus towards a higher value, advanced technology manufacturing paradigm.

The 2016 study looked more closely  at six “focus” nations: United States, China, Japan, Germany, South Korea, and India. Collectively, these countries account for 60 percent  global GDP.

Excerpts from India Section

Manufacturing CEOs appear to acknowledge the change in political direction brought on by a new Indian government and foresee an improvement in India’s competitiveness ranking as new initiatives, such as “Make in India” and “Skill India,” take hold over the next five years. Though challenged with poor infrastructure and historical governance issues, India has worked to further enhance its manufacturing competitiveness by setting an ambitious target of increasing the contribution of manufacturing output to 25 percent of its GDP by 2025.

India has a  highly skilled workforce and a rich pool of English speaking scientists, researchers, and engineers.   However, the country remains challenged by poor infrastructure and a governance model that is slow to react which may affect the speed with which it can support higher growth. As 43 percent of its $174 billion in manufacturing exports require high-skill and technological intensity, India may have a strong incentive to solve its regulatory and bureaucratic challenges if it is to strengthen its candidacy as an alternative to China.   The report further notes that in India, growth in middle class populations has led to significant increase in domestic consumer demand which has created attractive new markets and new consumers to penetrate.

India’s manufacturing highlights:

  • India’s manufacturing as percentage of GDP stood at 12.9 percent in in 2013.
  • India contributed 2.1 percent to the global manufacturing output in 2013.
  • India’s manufacturing exports grew by 14.4 percent CAGR over 2010-2013 period and were at $172 billion in 2013.

Advantages to manufacturers:

  • Skilled, low-cost labor force:
  •  India has a rich talent pool of scientists and researchers offering cost-efficient R&D.
  •  India has an abundant availability of engineers and English-speaking workforce aid in the growth of services as well as manufacturing industry.
  • Manufacturing labor costs in India (estimated at $1.72/hour in 2015) are among the lowest in the world.

Higher economic growth:

Real GDP grew 7.3 percent in 2014 and 2015 and is likely to continue to grow at 7.5 percent rate in 2016 and 2017, making India one of the fastest growing economies in the world. On the other hand, Chinese economy slowed down from 7.3 percent growth in 2014 to 6.9 percent in 2015 and will likely moderate further to 6.3 percent and 6 percent in 2016 and 2017, respectively.

To tap this opportunity, global manufacturers are setting up plants in India, bringing the latest technology, and competing with the local manufacturers. Competition between the foreign multinationals and local companies pushes companies to improve productivity and also encourages them to invest more in innovation.

Government support to boost manufacturing:

The new government under Prime Minister Narendra Modi that came to power in May 2014  started “Make in India” campaign to attract manufacturing investments.  The government plans to ease doing business in India by doing away with unnecessary approvals, developing industrial corridors and smart cities, and by allowing higher FDI.

Challenges

Poor infrastructure and governance issues:

  • Large  investments are needed to improve the transport network and power supply in the country. Logistics and transportation cost in India is high at 14.4 percent of GDP compared to less than 8 percent spent by the other emerging countries.
  • Indian government is facing headwinds in passing Land Acquisition Act of 2015, which makes land acquisition easier. Delays in land acquisition and environmental clearances have stalled more than 270 projects across the country.
  • Labor reforms is another contentious issue which the Indian government needs to tackle to attract investments. India has one of the most rigid labor markets in the world, according to World Bank.

High non-performing assets (NPA) stalling credit growth:

Gross NPA’s in the Indian banking system could jump up to 5.9 percent in FY 2016 from 4.4 percent in FY 2015, as restructured loans turn bad. Banks have become more cautious in granting new loans with nonfood credit growth slowing down to just 10.4 percent for the fortnight ended March 06, 2015 from a high of more than 30 percent witnessed in 2006. In addition, many infrastructure projects that were commissioned in the heydays of boom were struggling to repay the loans, depriving the sector of more bank funds. All these are leading to a vicious cycle of poor credit offtake, low manufacturing growth, and muted investments in infrastructure.

Things to watch out

Passage of GST bill:

Goods and Services Tax (GST) unifies the country by having a single taxation system for all goods and services. GST will eliminate multiple indirect taxes, such as octroi, central sales tax, state sales tax, etc., thus simplifying the taxation process. Having a GST instead of multiple taxes is likely to result in lower costs for manufacturing products, making them internationally competitive.

Demographic dividend:

India’s share of global working age population is expected to increase from 17.8 percent in 2015 to 18.8 percent by 2050. However, employability has become a concern as only 5 percent of workers have formal skills training. The Indian government has started the ‘Skill India Initiative’ to address the skills shortage and equip 400 million workers by 2022.

June 9, 2016   No Comments

Boeing Offers to Build Aerospace Capacity in India

In an interview with Hindustan Times in New Delhi, Dennis Muilenburg the CEO of Boeing who joined the plane maker as an engineering intern in 1985, became CEO in 2015, and now becomes chairman on March 1, discussed his plans for Boeing’s investment in India.

More than an investment in money is his vision of investing in skills, capabilities, infrastructure, and partnerships – a long term commitment to build aerospace capacity in India.

Subject to all government-to-government agreements, he thinks that there is a great opportunity for Boeing to bring the F-18 Super Hornet – a twin engine, supersonic, all-weather, multi-role jet fighter that is capable of taking off from an aircraft carrier – to India.

F-18 Super Hornet

F-18 Super Hornet

“We think there is a great opportunity for us to bring Super Hornet to India that will fulfill an operational need, but even more importantly think about it as a capability investment, and architect it as a broad industrial investment. [We will] build up a supply chain that has industrial capability, not only to design but also to manufacture for the full life cycle of the products. We see Super Hornet as an opportunity to do that, to tie directly with the Make in India strategy,” he said. “In terms of our ability to execute the project, ramp up supply chain and skills base, that is something we can move up on fairly quickly,” he added.

When asked about the key hurdles the company foresees, Muilenburg replied, “The key here is making this big step from a buyer of technology to [developing] indigenous manufacturing capability. That is why projects like Super Hornet have the mass and critical size that can accomplish that kind of objective. This requires big investment in skills and technology. Not many countries in the world have that capability to make that big step from supply chain capability to indigenous design and manufacturing capability. We think India has that capability and that’s why we want to invest here.”

February 23, 2016   No Comments

Make in India Exhibition Gets Response

The Make in India week, organized by the Department of Industrial Policies and Promotion and the western state of Maharashtra created avenues for showcasing, connecting and collaborating for manufacturing in India. The response from corporate investors from domestic and international markets was significant , and 2,094 memorandums of understanding were signed during the week between various industry players and state governments. The govrnement claims new commitments  of over $250 billion from local and global industries, reports Business World.

Make in India Week

Key investments announced included

  • An MoU between Sterlite Group company’s TwinStar Display Technologies and Maharashtra Industrial Development Corporation for an LCD manufacturing unit in technical collaboration with Autron of Taiwan
  • BAE Systems  a Briritsh defense vendor and  India ‘s Mahindra & Mahindra  for assembling and testing of M777 Howitzers
  • Gujarat Government and Vestas of Denmark to manufacture wind turbine blades at Ahmedabad, in Gujarat
  • Gujarat Government and Tar Kovacs Systems of France for an offshore platform to develop marine applications in the state

Indian companies annoucements spanned

  • Mahindra and Mahindra’s $1.5 billion expansion plan
  • Raymond Industries’ $225 million  for manufacturing linen yarn and fabric facility
  • JSW Steel’s  investment into $1 billion  Jaigarh Port Ltd.,

February 23, 2016   No Comments

GE Confident on Expanding Footprint in India

Speaking to CNBC-TV18, GE’s vice chairman John Rice said that he had confidence in the economic team put together by Prime Minister Narendra Modi.

John Rice, Vice Chairman of GE

John Rice, Vice Chairman of GE

Excerpts of the discussion from Money Control, follow:

On business outlook in light of the economic disturbances:

Rice: There is certainly a lot of discussion about the price of oil, volatile currency markets and equity markets, but if you get beneath the headlines in our businesses which are concentrated now around technology and infrastructure we still see lots of opportunities for growth.

On the prospects for the Indian economy:

Rice: Definitely we feel good about the new government, the Prime Minister; the team that he has assembled – I have been traveling to India for over 20 years and it is a very competent group of people. They have got hard work to do. Make in India is an important initiative, we and other companies need to be part of it. It needs to be seen to full fruition if you will. The frictional cost of doing business in India, when you move things around between the states, the paper work, the taxes all too complicated, much more complicated than they should be. This is the team that can get at a lot of that.
On which sectors in India look the most promising: 

Rice: We think power generation – both traditional and renewable – if there is the right market prices, so investors need signals. They need signals that they are going to be able to invest and get a reasonable risk adjusted returns. So, you have lots of capital that today is still sitting outside of India waiting to invest in the energy space if they get the right signals. There is a tremendous amount of interest in renewables in India. The thing about renewables is you have got to have land and figuring out where it comes from, how to put it together, getting the permits, figuring out who owns it and how they sell it, it is all far more complicated that it should be.

It is not just power. It is aviation, it is healthcare. We have seen some good growth in our healthcare businesses, as we develop technologies that allow you to take healthcare to places that don’t have it. So, this is where the GDP growth will give you so much but if you are not developing technologies in India that let you go into a rural or remote setting with lower cost, more versatile capabilities you probably won’t sell a lot more. But we have been able to figure out how to do that. We use our engineers in Bangalore to look at the market and design solutions that are for the Indian market. Then we can take it to the other countries elsewhere in the world.

February 16, 2016   No Comments

Attend Regional Convention of Overseas Indians, Los Angeles November 2015

Persons of Indian origin and Indo-philes alike are welcome to attend the 2015 Regional Pravasi Bharatiya Divas  (Overseas Indians) Convention hosted in Los Angeles for the very first time.

Sushma  Swaraj,  India’s External Affairs Minister who also runs the Ministry of Overseas Indian Affairs inaugurates the Convention at 6:00 PM on Saturday evening, November 14 at the Westin Bonaventure Hotel followed by dinner.  Discussions resume next morning, Sunday from 9 am until 5 PM.

Sushma Swaraj & John Kerry , September 2015

Sushma Swaraj & John Kerry , September 2015

Register for just $50 per person or $75 per couple.  Here is the registration link http://www.rpbdla.org/registration

“RPBD Los Angeles 2015”  is subtitled  “The Indian Diaspora: Defining a New Paradigm in India-US Relationship”, capturing the ethos of ongoing US-India relationship and the role played by the Indian diaspora. Amritt’s Gunjan Bagla will moderate one of the sessions.

Morning Discussion on

  • Smart Cities
  • Skill Development
  • Infrastructure Development
  • Waste Management
  • Swachh Bharat (Clean India)
  • Renewable Energy
  • Digital India
  • Cleaning the Ganges River

Lunch at 1 PM

Afternoon discussions on

  • Innovation & Entrepreneurship
  • Education, Skills & Vocational Training
  • Manufacturing

Other details are avaialble at http://www.rpbdla.org/

Note that the OIFC Business Meeting on Saturday, November 14 requires separate registration and is free.

 

November 7, 2015   No Comments