Is India ready to emerge as the next manufacturing hotspot?

OEMs from different sectors highlight the opportunities, challenges, policy and incentive packages available apart from the technological advancements that could act as a key stimulus to ring in industry 4.0.  Factual analysis by Relin Hedly.

Mission Atmanirbhar

The ongoing Covid-19 pandemic and lockdown have put the limelight back on India’s excessive dependence on China, affecting the supply chain to a large extent. This drawback has come as a major blow to several industries, including Construction Equipment. To reduce this supply chain reliance and survive, it is imperative to become self-sufficient. Mission ‘Atmanirbhar’ launched by the Prime Minister, Narendra Modi, during the course of the pandemic, which was reiterated further by the Finance Minister, Nirmala Sitharaman, through various schemes lays ample focus on the theme.

From the Construction Equipment standpoint, more than 90 % of the volume of machines manufactured in India are localized to an extent of 50%. Again, this is an average figure and some manufacturers have a higher degree of localization. These include the equipment sold in the largest volumes such as Hydraulic Excavators and Backhoe Loaders. Sandeep Singh – MD Tata Hitachi and President ICEMA highlights the areas of dependence and the possible factors that could enable India achieve the mission ‘self-reliant’. According to him, “One area where there is dependence on imports is precision components such as valves, certain motors, sensors etc.These can be easily manufactured in India with technology that is already available globally if the industry is sufficiently incentivized. Also, if the right conditions for global investment are created, we can enter into partnerships with global players and service in the Indian market as well as the global supply chain.We will have to grow our competitiveness to attract these opportunities against other countries doing the same.”

The ICEMA President further adds, “Another area where there is still import of some order is in low volume equipment categories as also very high value capital equipment which could be very specialized by nature. The key here is to unlock the potential of the domestic market and grow volumes to a level where it is commercially feasible to manufacture these equipment here as well as growing the export market to enhance volumes further. This will require a boost to the infrastructure plan and accelerated execution.”

The government launched the Make in India campaign which called for in-house manufacturing and selling of products. Due to the current conditions, conversations around this have only reinvigorated. Backing up the Make In India initiative to the core, Puneet Vidyarthi, Brand Leader, CASE Construction Equipment Pvt. Ltd. says, “CASE India supports this probable shift and will continue to lead by example.” A firm believer in the potential of the country, CASE India’s manufacturing plant in Pithampur, Pune, and Noida produces world-class construction equipment range. From CASE’s Pithampur plant, products are being exported to the markets of Africa, South East Asia, Russia, Sri Lanka, Bhutan and Middle East countries.

Talking about the various advantages India has with regards to becoming the next manufacturing hub, Subbiah Kumar, Chief Finance Officer, CEAT Tyres Limited is of the opinion that, “This is indeed a great opportunity, India has various advantages like skilled manpower, large domestic market, stable government. These factors can help India grab a larger share of the global manufacturing. We should target increasing the share of manufacturing in our GDP.”

Opportunity in the making

India is a large market with significant demand for products. Over the past few years, we have seen interest from across the globe in purchasing goods. These include products like Construction Equipment, Automobiles, electronic goods, pharmaceutical products, consumer products and home furnishing. There is a significant opportunity for India to become a part of the global supply chain. This would require more and more business-friendly policies and reforms, world-class infrastructure and availability of resources. Jasmeet Singh, AVP, Corporate Communications & Corporate Relations, JCB India Limited reiterates, “If we aspire to become a world-class manufacturing destination then the focus on local and indigenous manufacturing has to kick-in on ground as well. The customers look for value in products and locally made products must surpass customer expectations.”

Opportunity for India as a manufacturing hub for Construction Equipment always existed for several years, however very few companies have been able to encash on this fully by exporting machines all over the world. Ramesh Palagiri, Managing Director & CEO, Wirtgen India Pvt. Ltd., one of the largest exporters of track mounted screens all over the world from India plans to focus more on exports and are already on the path to progress. “From the perspective of the export, the pandemic situation is an opportunity to aid growth in exports,” adds Palagiri.

In the wake of the lockdown that has put several businesses out of gear, the country has taken an important step to support the ‘vocal about local’ movement, taking the self-reliant mission one step further. Moreover, the Government has also shown clear intent to support manufacturing across different segments. It is now time to seize this opportunity to invest, innovate, create, scale up and export to develop as a potential manufacturing hub. Manufacturing in India has come a long way with most global players already manufacturing in the country. Besides, the government has to bring in the right policies that will stimulate the entire manufacturing supply chain, approached for manufacturing to India. On the other hand, Pavethra Ponniah, Vice President and Sector Head – Corporate Sector Ratings, ICRA Limited opines, “For construction equipment (CE), India is largely a domestic market for high volume products like backhoes and lower HP excavators. Imports are limited to small volume high-tonnage-high-HP equipment and cranes. Given the limited volumes, these equipment will continue to be imported. Regarding components for CE, India has sizable import content given that critical components are imported from global OEMs for manufacture of equipment by their subsidiaries and joint ventures in India. While the Indian companies have been attempting to localise these for some time now, lack of quality supplies, economies of scale and intellectual property has led to these critical component being imported from the parent/parent’s global source.”

“As companies look towards bringing their manufacturing base to India, there will be increased demand for supplier ecosystem development, new vendors and partners, entrepreneurs, skill providers, etc. for end to end supply chain creation. Additionally, it will also have to provide world-class infrastructure, ease of market distribution and seamless exports facilities for companies coming here, adds Jasmeet Singh.”

Supply chain reset

The Covid 19 pandemic has triggered several global organizations to rethink on total supply chain dependency which is primarily concentrated only on China and to diversify the same to new regions. Elaborating on this aspect, Niju Nair, Director – Business Management, ASEAN, Detroit Engineered Products reveals, “The prospect for India compared to other markets like Vietnam, Indonesia & Singapore etc is that India is not only a low-cost manufacturing hub, but also a mass market of 1.2 BN people with high purchasing power parity.  However, India should create high class environment favourable to manufacturing which allows international organizations to look at India as a trusted manufacturing and supply chain partner. The main areas where India should focus to entice global organizations to set up the manufacturing operations should be acquisition of land, corporate tax structuring, policies, labour laws, skill sets & innovation, infrastructure development etc.”

Companies that have been relying on International companies for their raw materials have realised the fragility of their supply chains. These fragile chains will be even more tested in times to come, as it would be safe to assume that there will be more ‘Trade Wars’ coming their way. “To de-risk, they will need to stock extra and also create alternative production sources in India, even if it is at a higher cost. Even politically, we have realised that we as a country our population cannot be dependent on imports in situations like Covid19. All of this together does provide the tailwinds that Indian manufacturing needs to develop as a manufacturing hub. Also, MNCs considering moves out of China would re-look at their decision parameters of choosing the location for their next manufacturing facility. The dilemma they will deal with is – ‘While Vietnam, Thailand or Malaysia’ might be more business friendly, they are much smaller markets than India and also have a much smaller labour pool’, opines Aljo Joseph, Co-Founder & Chief Business Officer, Finovate Capital.

The manufacturing supply chain operates on a foundation built by land, natural resources, and fixed assets all of which have a high gestation period, entail high fixed costs and involve making decisions for the long run. This pandemic calls for a reset to the future of manufacturing and the B2B supply chain. Partha Dash, SVP, Business Operations, Mogli Labs India Pvt. Ltd. feels, “India is well positioned to play a significant role in the manufacturing supply chain of the future – with an ample labour force, healthy track record of attracting investment and increasing ease of doing business. The necessary human capital to provide such cutting-edge supply chain technology, is a thriving democracy, and has a free market economy to welcome large enterprises in the manufacturing sector to set shop and make in India. India’s success in Pharma is a shining example of how India can play a pivotal role in global supply chains.”

From the warehousing perspective, India has been facing a fundamental lack of Grade A warehousing, pre-COVID-19 the industry had already pegged Grade A supply to grow at ~25% Y-O-Y. Anshul Singhal, Managing Director – Welspun One Logistics Parks, puts forth another optimistic picture. “We estimate that with the impact of COVID-19, the Y-O-Y growth rate will need to increase by ~10% to meet additional unmet demands. Companies will prefer Grade A facilities that offer compliance, human safety, hygiene, and enable automation and social distancing and adhere to Global standards and industry best practices.  The warehousing sector is ready and equipped to respond to the increase in demand, with mature policy initiatives- both the GST and State level, 100% FDI allowance in Warehousing, and an increased Government emphasis on trunk infrastructure. The low credit risk of the sector due to the limited NBFC exposure only adds to the attractiveness from an investment lens as well.”

“Warehousing will emerge as the most crucial lifeline for India’s growth over the next 10-year horizon. If India is to remain pursuant to its trillion-dollar economy aim by 2025, the logistics and warehousing industry will serve as the inevitable life raft for its upcoming, rapid growth,” adds Singhal.

GSK Velu, Chairman & Managing Director, Trivitron Healthcare Group believes, “The fiscal stimulus is designed innovatively by giving access to loan and liquidity to businesses and direct cash transfers & freebies to farmers and migrant workers. Only disappointment is nothing specific to private healthcare industry which is fighting the COVID crisis along with state and central government. Contrary to the popular belief data clearly shows conventional revenues of private healthcare players have dropped by 50 to 70% across the country. Hence Private healthcare industry needs some attention, help and motivation by the government too.”

The domestic as well as the International OEMs which use the supply chain partners in China so far will have the opportunity to source components directly from India itself if the supplier in China set up operations in India as a part of the post COVID 19 diversification.  This makes the jobs of OEMs easier as it cuts the waiting time (for import) & a series of other processes and protocols.  “There will also be tremendous opportunities for the MSMEs across India as OEMs might engage them through collaborative partnership model on many of their new innovation programmes as well as face-lifting & Optimization programmes. The diversification of supply chain from China to India is a major opportunity for Indian companies to upgrade its principles & process to the level of Industry 4.0 & Industry 5.0.  It looks like the few Indian companies have started adopting these as of now.  This major shift will enable faster decision making by the International organizations for possible collaboration / partnership with SMEs / MSMEs of India,” says Nair.

Policy Influx

India would have to accelerate its efforts to bolster its manufacturing capabilities. The important thing is to highlight the right policies and offer ample support to companies coming in at the initial stages. Arya feels, “Land acquisition for manufacturing firms should be integrated with local development. The Centre should work with states to develop large self-contained industrial parks and industrial corridors. The states can contribute land while the Centre can provide infrastructure funding.”

In Subbiah Kumar’s opinion, “India needs to step up its overall attractiveness as a manufacturing hub through improvement in policy framework and sector specific sops. Single window clearance must be made available at the State level by respective industries departments. All states of the country need to have attractive industry promotion policies to ensure investment flow. It should start a healthy internal competition to attract companies to set up manufacturing in their State”.

Talking about the policy changes that could attract foreign companies to set up base in India, Gaurav Jalan, Founder, Packman Packaging opines, “Delay in project timelines and elaborate paperwork procedures are some of the few hindrances that global organizations face. To overcome this mindset, the government should introduce investors friendly system that attracts several industrialists to consider India as the most preferred destination.”

On a positive note, Palagiri feels that the required policies are already in place for India to be a potential manufacturing destination and definitely there are lot of things which can still be done by the government like – ease of doing business, in terms of interest costs and making the labour laws more flexible.“Today most of the manufacturers are located within the proximity where good logistics is available, between the place we manufacture and the nearest port and also in close vicinity to the vendors. However, for a country to develop overall, we need more of such locations and the logistics has to improve for this which would also help us in the migrant crisis which we are facing today,” adds Palagiri.

Facilitating technology

According to a study published by ‘Markets and Markets’, the smart manufacturing market is expected to increase from US$214.7 billion in 2020 to US$384.8 billion in 2025, growing at a CAGR (Compound Average Growth Rate) of 12.4 percent. India is an attractive option for Taiwanese companies who have the potential to play a catalyzing role. Also, in the current situation, as industries grapple with loss of migrant labor and in some cases, spread of the Covid-19 through human to human contact, the need for solutions to counter the absence of human supervision is very high. Taiwan’s Automated Smart Machinery with zero human intervention will play a vital role in both the scenario.

The COVID-19 pandemic has impacted manufacturing industry across the world. With machinery being the cornerstone of economic development and progress, countries have realized the need for industry upgradation. “Manufacturing enterprises shall look to leverage innovation in cutting edge technologies like artificial intelligence, machine learning, and deep learning and create early warning and control systems to stay informed of the next steps in the B2B supply chain, compute risk-adjusted values and adjust their position in the market to avoid another round of such disruptions. Countries that have enlightened democracy in both government institutions and economic systems shall be the front runners to be the next manufacturing hub. Technology integration can significantly improve technical and economic efficiency, reduce project overrun costs, and provide visibility into outlay on direct procurement and enable compliance with contractual obligations and transactional behavior in infrastructure projects across both corporate and government sectors in India,” adds Dash.

“We feel that there is a significant scope of digitisation and automation as we move forward. Newer concepts like Telematics, IoT, Big Data and Machine learning have the capability to play a major role in increasing the efficiency of the sector,” reiterates Jasmeet Singh.

India Standpoint

UNCTAD indicates that India’ share in global manufacturing by value is 3% whereas the World Economic Forum has ranked India at the 30th position on its Global Manufacturing Index, way behind China that stands at 5th position and accounts for 19% of the value of global manufacturing. These indicators point to the large potential for India to claim a strong position in the global manufacturing sector.

For India to become a manufacturing hub, a lot of work will have to be done in various areas. New regulations and policies will have to be put in place addressing multiple labour, land and environmental clearances. In the words of Sandeep Singh, some of the inherent common manufacturing disabilities that we have, such as land acquisition, cost of capital and logistics need to be addressed. “In India we can already see a business-friendly atmosphere with the ease of doing business ranking of India in 2019 as 63rd among 190 countries assessed by the World Bank. The Make – in – India initiative is a great example of India’s efforts of developing a world class manufacturing eco-system in the country,” exclaims Vidyarthi.

As far as challenges are concerned, India would have to accelerate its efforts to bolster its manufacturing capabilities. “Stringency of land laws has, so far, prevented the proliferation of commercial activity in the manufacturing sector, and dampened foreign investor sentiment. If few reforms are put in place to entice the foreign investment towards Indian shores, they can highlight Indian potential, capabilities and seriousness of becoming the next manufacturing hub to the global manufacturing fraternity, “adds Arya.

Jasmeet Singh emphasizes on the importance of ‘plug and play’ infrastructure in the existing industrial estates/plots, development of special economic zones as well as digital-ready ecosystem. Palagiri echoes a unique sentiment. Although India has the potential of developing into a manufacturing hub, it may certainly take time to encash on this opportunity and surpass China, the biggest market for construction equipment.

Industry 4.0: The Road Ahead

The pandemic has come as a major setback for several industries with manufacturing units shut for several months. COVID-19 is having a major impact on all aspects of society, including the automotive industry and its supply chain. Industries across the globe are looking for alternative sourcing of automotive components. Hence, India today is in a position to grab the opportunity and become a key manufacturing hub for the global market.

Several Indian locations pose as an attractive investment alternative. For Daimler India, an important point will be attracting companies to further invest in TN by providing lucrative incentive packages apart from creation of dedicated industrial zones catering to the needs of the respective sectors to develop their required eco-system will definitely help here. India has the unique opportunity to plan and develop its manufacturing as well as export capabilities over the next year.  “Realizing the country’s potential to become the next manufacturing hub, we at DICV have been manufacturing components and vehicles from our Indian plant and exporting them globally. DICV is real proof of the Make in India concept and are certain that many players globally will soon recognize the potential of doing business in the country”, added Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles.

Similarly, Schwing Stetter India, which was founded in 1998 in Chennai and is a 100 % subsidiary of Schwing GmBH and a part of XCMG group has its sixth manufacturing facility in 53 acres under construction in Cheyyar on SIPCOT land in Thiruvannamalai district, Tamil Nadu, India. Schwing Stetter India is poised to grow further, by introducing new projects and products in both concreting and construction segment to meet with the needs of today and tomorrow. V.G. Sakthikumar, Managing Director, Schwing Stetter India Private Limited, Member of governing council, ICEMA, Chairman of Mechanisation committee, Builders Association of India shares, “India is chosen globally by many investors to build their manufacturing hubs as the opportunities are immense. Many companies have signed memorandum of understanding (MoU) and are building their manufacturing hubs.”

Odisha is another thriving investment destination that is posing as an attractive investment hotspot. Economic stability, ready availability of land, quality power supply, quality infrastructure setting like ready to move setup for different sectors has set the ball rolling for Odisha. Competitive provisions and policies like single window clearance systems supported by well-developed institutional arrangements helped Odisha gain a prominent position as far as ease of doing business is concerned.US India Strategic Partnership Forum (USISPF) appreciated these business-friendly initiatives of the state and expressed interest in investing in Odisha, the state that shares a lion share of the country’s mineral deposit, mining and industrial base. Investors were from various sectors like energy, agri business, nutrition, aviation, information technology, metals and renewable energy and prominent names like ATC, Avaada Energy, Carirn Energy, CISCO, Exxon Mobil, Herbalife, HP, Mars, Microsoft, Oracle and Paypal are few names that have expressed their intent to invest.

Local advantage

A manufacturing hub in India will bring down the cost of parts which will subsequently lead to low cost of the final product allowing for improved margin on products. “The improved logistics and infrastructure will ensure speedy delivery of parts to the dealers and customers and is going to create better coordination with the local vendors. Local manufacturing will also result in upskilling of labour and will play a huge role in creating a better eco-system,” said Vidyarthi. He further adds, “The MSME & OEMs collaboration will also make the R&D process better and advanced leading to better quality of the products. The government recently announced a huge package for the MSMEs to sustain their businesses in the middle of the pandemic. We are hopeful that we will see these changes in India in the upcoming time and take full advantage of the policies to give our customers products which are best in quality and technology.”

The diversification of supply chain from China to India is a major opportunity for Indian companies to upgrade its principles and process to the level of Industry 4.0 & Industry 5.0. Only a few Indian companies have started adopting these as of now.  This major shift will enable faster decision making by the International organizations for possible collaboration / partnership with SMEs / MSMEs of India.

Sandeep Singh sums it up, “We have the advantages of a young workforce, technical capability and entrepreneurial energy. If we could enhance national competitiveness further by building on gains made in the “ease of doing business’ parameters, there is no reason why we can’t become a major manufacturing hub.”

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