India Manufacturing Trends 2020
Over the years we have built up deep expertise in major industries across Asia. We wish to share this with you in the form of interviews with our key people. This interview series starts with manufacturing in India, where Ms. Silva Paananen has been deeply involved, advising mainly international businesses over 10 years.
Indian economy in a nutshell
Agriculture counts for 16% but it provides livelihood directly and indirectly to 53% of the population. Industry accounts for 30% and services 54%.
According to CII (Confederation of Indian industries), India is now the 5th largest manufacturing country in the world.
India is at 3rd position after China and Japan among Asian Countries. India shares around 9% of Asia’s total GDP (nominal).
Government of India launched in 2014 a flagship program “Make in India”, with the purpose to increase the share of manufacturing of the GDP to 25% by 2022 and create 100 million new jobs and make India a lucrative investment destination and a global manufacturing hub.
Despite many efforts, the job creation is lagging badly behind and also the manufacturing GDP target has not been realized.
“What are the main industries in India?“
SILVA PAANANEN: India’s biggest industries are automotive, chemical, electronic goods & equipment industry, construction, healthcare and pharmaceutical, textile and defense industries. Chemical industry is the 3rd largest in Asia.
The automotive industry accounts for almost half of the manufacturing GDP. For the first time, this year the industry has slowed down: the sales of vehicles have slipped over 15% in volumes in the financial year 2019-2020. India is home to most of the international car brands and solid domestic players like Tata Group, Maruti- Suzuki, Mahindra Group, etc. The automotive industry is highly developed as most of the brands have their R&D&I centers in India.
India’s alarming air pollution levels are also driving EV ecosystem building, where several foreign companies are already active.
Indian chemical industry
It is a highly diversified industry, covering more than 80 000 commercial products (bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilizers. The sector has been growing at 4% 2017-18.
India is a large exporter of agrochemicals and fertilizers. Over the last decade, India has evolved from basic a basic producer to an innovative industry with investments in R&D and more environmentally friendly products.
Electronic goods & equipment industry
It’s is a fast-growing industry in India as India is one of the largest consumer electronics markets in Asia Pacific.
In this sector, both automotive electronics and medical devices are strong,
India is an early adopter in technologies, hence this a high growth segment, in which lots of AI and IOT driven R&D and manufacturing is taking place.
India is developing rapidly, which means that lots of construction activities are in the pipeline. Both the government (central government and state governments) and the private enterprises, often in PPP (public-private partnership), have huge plans. For example, 100 new airports are to be built, dozens to be modernized and massive infrastructural projects like improving the road network, railroads, and municipal waste solutions, are in the pipeline.
The construction industry accounts for 8 of GDP growth. The needed investment for just urban infrastructure development is USD 650 billion by 2040.
Healthcare and pharmaceutical industry
Within this sector, the key components are hospitals, pharmaceuticals, diagnostics, medical equipment, and supplies. The industry was in 2017 the 4th largest employer in India. Medical tourism is one of the growth drivers, supported by rapidly growing medical devices, diagnostic industry. In this sector, IOMT and IT and robotic process automation are at a high level in India.
India is among the leading textile hubs in Asia, with high-quality garment and apparel manufacturing, in addition to the traditional handloom and cottage industry.
India has also a strong leather industry for shoes and leatherware.
India has the 2nd largest armed forces in the world and the 5th largest defense budget. India plans to spend USD 130 billion on military modernization in the next 5 years. Achieving self-reliance in defense production is a key target.
The government has opened the defense sector for private sector participation to provide momentum for private sector participation. There is a need for foreign companies to enter strategic partnerships with Indian companies.
India offers already now supply chain sourcing opportunity, IT and high-tech engineering, making it a key sourcing destination for defense systems and equipment.
“What is the outlook for the main industries in 2020?“
SILVA PAANANEN: Construction is growing rapidly. In 2019 the automotive industry has taken a hit, as the car sales dipped for the first time in 5 years (over 15% in volume). The reason behind this is the decreased consumer sentiment, partly created by the lower than estimated GDP growth. The revival of the industry is very critical to India’s economy as it accounts for almost 50% of the manufacturing GDP in India.
The electronics industry and defense industry are growing fast, even if the GDP growth rate has been reduced by the leading banks (WB, RBI, ADB).
“What are the main trends in manufacturing in India in 2020?“
SILVA PAANANEN: India needs to modernize and increase the capacity of its manufacturing industry. The main drivers behind the need are the increasing domestic demand among the rapidly growing middle class but also the large young population needing employment. Skill development is high on the government’s agenda, as a vocational education system struggles to produce enough skilled people for the current needs.
A big trend is the infrastructure development and construction, where the government is investing money and where FDI is also coming.
As India faces energy scarcity, sustainable solutions are needed across industries. The climate change appears to be bringing in significant heat waves, increasing rapidly the need for cooling of spaces. Energy efficiency is a megatrend: there is still not enough understanding of the massive need to create energy-efficient ways of operating. This requires lots of advocacy and education, too.
“What are the main innovations in manufacturing in India?“
SILVA PAANANEN: The Indian workforce is by and large rather unskilled, which is a major obstacle for adopting AI, IoT and other new technologies in manufacturing industries. In most of the states, the electricity supply is also errant, further complicating progress. As said earlier, the automotive industry is leading in this field, with the defense industry moving fast, too.
However, the government of India has introduced measures to improve the situation.
“What are the main challenges in manufacturing in India for 2020?“
SILVA PAANANEN: Challenges in Indian manufacturing for 2020 are partly structural and partly technical. Some of the main challenges include:
- Lack of skilled workforce, vocational education is not up-to-date and available.
- The sheer size and diversity of India (32 states with different incentives and industry concentrations) makes it complicated to understand where to even start one’s research (Asian Insiders can help!).
- India somewhere still struggles with quality, but this is not the whole truth. With right partners, who have a better understanding (have studied, worked abroad, already work with Western/non-Indian companies) it is possible to get very good quality at a reasonable cost if proper induction, quality processes, etc are implemented.
- In some states, the trade unions can be difficult to handle, but this is part of the feasibility study to figure out where they could cause trouble.
“What are the main opportunities in manufacturing in India for 2020?”
SILVA PAANANEN: If looking for sourcing opportunities, medical devices, pharma, electronics, and textile offer good opportunities. Strategic partnerships in the defense industry are needed, on one hand, to help India modernize its equipment and devices, but also offer sourcing opportunities in India.
In many sectors, new technologies are being taken into use, but India still needs foreign expertise in many fields. Technical and technology collaborations are much sought after, and here government-to-government liaisoning comes useful.
“What are the DOs and DON’Ts for those who want to manufacture in India?“
SILVA PAANANEN: There are no low hanging fruits, meaning that any foreign entrant has to come with a long-term commitment and upfront investment. It is fundamentally important to understand which state is the most suited as not only do different states have their own industry-specific hubs, they also offer different sops for investors.
Indian business partners typically propose a Joint Venture, but a word of caution is due: proper due diligence and feasibility are in place to understand whether JV would be the optimal market entry mode.
When a foreign company sets up a manufacturing unit in India, it is very important to have qualified ex-pats in key positions to kick-start the operations. Otherwise, there is a big risk of not understanding the ground realities and have enough control at the parent company.
If sourcing is the case, there, too, the right partners is the main mantra. In this scenario, too, it is important to have a very close follow-up and participation by the foreign company.
Naturally, part of this work can be trusted to a partner like Asian Insiders.
India is an extremely price-sensitive market. For foreign OEMs in India, it is important to understand that the clients in India, whether big Indian companies or MNC companies, will try and push their purchasing prices down as much as they can. For them it does not make a difference if the machinery, processes, quality control, etc are of Western standards: only the price matters.
“What to keep in mind when looking for the right manufacturing partner in India?“
SILVA PAANANEN: Have your partner search done by a professional third party, as identifying the right partners is very important. India is full of very skilled and highly professional manufacturing partners, but there is an equally big number of very aspirational companies who wish to work with foreign companies but are not up to it.
“Does the US-China trade war have an impact on India’s manufacturing industry in 2020?”
SILVA PAANANEN: According to UNCTAD, in the first half of 2019, India gained USD 755 M of extra imports, mainly of chemicals, metal, and ore to the USA, also electronic devices.The Reserve Bank of India (RBI) estimates that India could even benefit in terms of FDI being diverted to India, instead of China, but this is to date more of a wish (News dated Nov 6, 2019).According to an analyst at DBS Bank in Singapore, also pharmaceutical and engineering industry in India could be benefiting from the trade war.