Indian economy : Evolving towards smarter futurebdbipl.com/Indian-Industry-Outlook.pdf · Skill India outlay USD234 million of which USD174 million will be spent on skill training

Indian economy : Evolving

towards smarter future

1

Agenda

1. Indian economy : An overview

2. Infrastructure development in India : Key focus areas

3. Indian power sector : trends and opportunities

4. Manufacturing Sector

BDB India Private Limited 2

"I think there is a significant amount of flair and creativity in the Indian economy. We feel things are turning to the point where we could achieve what we believe is our medium-run growth potential. I think we have still to get to a place where we feel satisfiedHowever In the land of the blind, the one-eyed man is king"Source : Times of India, Apr 16, 2016

1. Indian economy :

An overview

"Among the emerging markets, and compared to advanced economies, India is the bright spot“IMF Chief, Christine Lagarde

3

India – Stable macroeconomic conditions

India - world’s fastest-growing large economy Fiscal consolidation on track

Fiscal deficit as a % of GDP

3.9%

FY 2009

FY 2016

USA

Euro zone

Japan

UK

Russia

China

India

Brazil

7.3%

7.5%

6.3%

2.8%

Upward trend in FDI in India Key challenges remain though….

1st half of fiscal year 2nd half of fiscal year

US

D B

n

USD 16.6 Bn

Projects worth USD160 billion were stalled as of December 2015, due to delays in project approvals and

raw material non-availability issues

The delay in restarting stalled projects has strained infrastructure companies’ ability to meet their debt

obligations, leading to a surge in banks’ gross non-performing assets

India’s exports declined for the twelfth month in a row in November 2015. The exports need to remain

stronger for India to grow at 8 to 10 per cent

The labour reform progress has been slow. Flexible labour reform is key to making India a global

manufacturing hub

India confronts a situation wherein the utilisation rate of power generating firms continues to remain low

despite a sharp increase in coal output. This is because of the poor financial health of power distribution

companies


Index of eight Core Industries : Yearly Index


Sector 2011-12 2012-13 2013-14 2014-15 Apr-Jul 2014-15 Apr-Jul 2015-16

Coal 141.5 148.1 150.0 162.6 140.9 148.8

Crude Oil 112.1 111.4 111.2 110.2 110.6 109.8

Natural Gas 149.7 128.1 111.5 105.7 107.2 102.6

Refinery Products# 133.7 172.5 175.0 175.7 170.3 176.9

Steel 174.0 181.1 201.9 206.7 212.1 215.1

Cement 175.2 188.7 194.5 205.4 212.8 214.9

Electricity 149.3 155.3 164.6 178.1 181.8 185.5

Fertilizers 103.8 100.2 101.8 101.7 97.5 101.4

Overall index 145.3 154.7 161.2 167.6 166.6 170.1

(Base Year : 2004-05 = 100)

Growth in the eight Core Industries : Yearly Growth

(Base Year : 2004-05 = 100)

Sector 2011-12 2012-13 2013-14 2014-15 Apr-Jul 2014-15 Apr-Jul 2015-16

Coal 1.3 4.6 1.3 8.4 6.4 5.7

Crude Oil 1 -0.6 -0.2 -0.9 -0.4 -0.7

Natural Gas -8.9 -14.5 -13 -5.2 -5.2 -4.2

Refinery Products# 3.1 29.0 1.5 0.4 -2.3 3.9

Steel 10.3 4.1 11.5 2.4 5.9 1.4

Cement 6.7 7.7 3.1 5.6 11.2 1.0

Electricity 8.1 4.0 6.0 8.2 11.4 2.0

Fertilizers 0.4 -3.4 1.5 -0.1 4.9 4.1

Overall index 5.0 6.5 4.2 4.0 5.5 2.1

Key policies of the government and their impact on business

Make in India initiativeThe initiative aims at enhancing manufacturing through investment, innovation, and by building best-in-class manufacturing infrastructure

Impact : Revival of Indian manufacturing industry turning India into an attractive investment destination

Smart Cities Mission

Atal Mission for Rejuvenation and

Urban Transformation (AMRUT)

Smart Cities Mission : This mission is expected to improve the efficiency of cities and enable local area development, thereby driving economic growth and improving the quality of lifeAMRUT envisages urban India’s transformation, by aiming to ensure that every household has access to a tap with assured supply of water and a sewerage connection and quality amenities;

Impact : Transformative impact on urban infrastructure and demand for energy efficiencenttechnologies

Power for all by 2019

UDAY (Ujwal DISCOM Assurance

Yojana)

Power for all by 2019 : Launched with an aim of providing 24x7 quality, reliable and affordable power supply to all Indian citizens by March 2019UDAY : Launched to provide financial turnaround for the state-owned power distribution companies (DISCOMs), by helping them overcome outstanding debt of USD64.8 billion, as on March 2015;

Impact : Improving the financial health of the DISCOMs would encourage them to invest in new electrical infrastructure. Invest of ~ USD 45 Bn by the government under power for all initiative

Digital India

Start-Up India & Skill India

Digital India: The vision of Digital India programme is to transform India into a digitally empowered society and knowledge economy.Start-Up India Stand-Up India : This initiative aims at creating an optimal environment to enable both existing and prospective entrepreneurs to carry out business effectively and seamlessly:

Impact : Digital India will bring in total outlay by the government of USD 17.5 Bn by 2019 Skill India outlay USD234 million of which USD174 million will be spent on skill training of 14 lakh youth

Other initiatives include Housing for All by 2022 , Financial and communications inclusivity (JAM number trinity), Revitalising public sector banks

(Indradhanush) and Hygiene infrastructure (Swachh Bharat Abhiyan & National Mission for Clean Ganga)


Competitive federalism : Driving reforms at state level

States aggressively working on attracting investments and

implementing policies of central government

Andhra Pradesh launched Industrial Development Policy (IDP) 2015 to 2020 in April 2015 to support the

development of various industries and provide financial assistance. Around 15 companies from the U.S.

have assured collective investments of approximately USD750 million in Andhra Pradesh; majorly being

pumped in the renewable energy sector.

SoftBank (a Japanese telecom and Internet company) will set up a 20 GW solar plant in Andhra

Pradesh

The new Aerospace and Defence (A&D) Policy of Andhra Pradesh is expected to attract investments

worth USD 3 billion by 2020. The investments are expected from various companies such as Airbus,

Essel Infra, SREI Infra, etc., which have shown interest in setting-up defence and aerospace parks

Setting up Bangalore Aerospace Park (BAP) and Bangalore Aerospace SEZ (BASEZ) at Devanahalli

and Aerospace Parks at potential locations like Mysore, Hubli, Mangalore, Belgaum through PPP model

has made Karnataka an A&D cluster

Faoxconn,Lava, Micromax, Karbonn and Celkon (mobile handset manufacturers) have also signed up

with Andhra Pradesh to set up their manufacturing facilities near Tirupati with a total investment of USD

300 million

Chhattisgarh government would be investing USD1.6 billion in the coming 2 to 3 years (2015-18) to

build the upcoming new capital city of Naya Raipur into a smart city.

Rajasthan Solar Policy resulted in four companies have signed MoUs to develop solar power projects

under the state’s solar policy; the 4 projects combined would contribute about one-fourth (26 GW) of

India’s solar power generation target by 2022. The 4 projects would need an investment of USD24.3

billion

Aspiring leaders

Acceleration required

Jump start required


2. Infrastructure

development in India :

Key focus areas

8

Priority areas in the infrastructure sector

• While the roads sector retains its prime focus, Significant emphasis is on railways, rural infrastructure, urban rejuvenation, solar power and electricity transmission

and distribution

• The government is serious about its mantra of “public expenditure-led investment in infra to kick-start the economy”. Even in a fiscal-deficit challenged situation, the

finance minister has proposed a 23 per cent increase in outlay this year, over and above the 27 per cent increase last year

• Budgetary allocation is being leveraged many times over by off-budgetary funding. The National Investment and Infra Fund epitomises this new line of thinking. Even

individual ministries are being encouraged to increasingly see budgetary support as seed funding. So, the railways sector is set to raise capital from the Life

Insurance Corporation of India and the World Bank. The roads ministry wants to securitise tolls and garner substantive funding under the toll-operate-transfer (TOT)

scheme. Japanese loans are funding the bullet train project

• Rural infrastructure is clearly a much needed political-economic thrust. Not only does Bharat account for the bulk of vote banks, but the current state of despair in

rural India does indeed necessitate a major thrust in this area

Other key takeaways :

Power sector investments :

The budgetary outlay on the power sector does not truly reflect the extent of importance being given here, as the bulk of the funding is from outside the Union Budget.

The massive resetting of discom finances under Ujwal Discom Assurance Yojna (UDAY) is largely being managed by bond placements. The 100 per cent electrification of villages and revamping of urban distribution networks is being done through funding from the Power Grid Corporation of India, REC Power Distribution Company, Power Finance Corporation, et al.

The emphasis has shifted from adding coal-based thermal generating plants to revamping the nation’s transmission and distribution networks. And the 2021 target of 100,000 Mw of solar power has been widely publicised and is getting much traction.


Railways -Key focus area

• The sector allows for 100 per cent FDI under the automatic route.

FDI worth USD12 billion have already been received (major projects

include Mumbai–Ahmedabad high-speed corridor project and CSTM–

Panvel suburban corridor development project)

• China, Japan and Spain have shown interest in technology transfer

and technical cooperation in High Speed Rail, modernisation of

infrastructure and maintenance.

• Japan is expected to sign an MoU to develop 400 stations and assist

in zero-accident mission of the Indian Government

• Locomotive and wagon manufacturing : Indian railways awarded a

10-year contract to GE and Alstom for diesel and electric locomotive

factories, respectively, in Bihar, at a cost of about USD 6.2 billion

• Various metro rail projects are currently being developed across the

cities of Delhi, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata,

Kochi and Jaipur.

• Other cities where metro projects have been approved include

Ahmedabad, Nagpur, Pune and Lucknow

• Dedicated freight corridor (DFC)

Being implemented in phases, the USD12.5 billion project is

expected to be completed in 2019

The railway ministry has earmarked an investment of USD133.5 billion toward development of the railways sector over the next 5 years ending 2019

Initiatives taken to boost railway infrastructure

• Higher FDI limits would encourage more investment. Countries such

as China, France and Japan have shown interest in the sector, to

assist in the development of modern infrastructure and high-speed

rail network

• The government expects the share of private investments toward

MRTS development to grow from 13 per cent during 2007-12 to 42

per cent during 2012-17

• Zero-accident mission of the Indian Government will drive in safety

systems like Train Protection Warning System (TPWS) and Train

Collision Avoidance System (TCAS)

• Upgrade of identified stations to international standards with modern

facilities and passenger amenities will drive investments like centrally

managed Railway display network in over 2,000 stations

• Power generation and energy saving investments to support

modernisation and expansion (2000 stations and railways signalling)

Impact


Industrial corridors : Potential growth drivers

Amritsar Kolkata Industrial Corridor (AKIC)

Delhi Mumbai Industrial Corridor Development Corporation (DMICDC)

would prepare a feasibility report, for which consultants have been

appointed

Bengaluru Mumbai Economic Corridor (BMEC)

- The draft perspective plan has been prepared

- Nodes are being identified alongside preparation of a master plan and

finalisation of the perspective plan

Chennai Bangalore Industrial Corridor (CBIC)

The perspective plan has been finalised. The Phase II Study is in

progress and the draft final report of master planning for industrial

nodes is under consideration in consultation with stakeholders

A pentagon of corridors is being envisaged to facilitate manufacturing and to project India as a global manufacturing destination.

New corridors developed

Development of greenfield infrastructure to support the industry

and satellite cities planned

Multiplier effect on the economy

Investments in the power transmission and distribution network

with the latest technologies in place

Impact

Delhi Mumbai Industrial Corridor (DMIC)

The first node/city level Special Purpose Vehicle (SPV) under DMIC

Project has been incorporated

Work on 5 smart industrial townships in Delhi Mumbai Industrial

Corridor has been initiated (Dholera in Gujarat, Shendra-Bidkin in

Maharashtra, Greater Noida in UP, Ujjain in MP and Gurgaon in

Haryana

Vizag Chennai Industrial Corridor (VCIC)

Four nodes have been finalised; Asian Development Bank has agreed

to prepare the master plans for 2 identified nodes


3. Indian power sector :

Trends and opportunities

12

Power for All : Modernising transmission and

distribution infrastructure in India Launched with an aim of providing 24x7 quality, reliable and affordable power supply to all Indian citizens by March 2019. The Government of India has planned an investment of USD45.2 billion in power transmission and distribution business to achieve its targets under the Power for All initiative

• The Deendayal Upadhyaya Gram Jyoti Yojana and Integrated Power

Development Scheme, worth USD6.5 billion, have already been

initiated by the government to enhance the T&D network

• The above scheme is part of a comprehensive power-infrastructure

up-gradation across India through two schemes: DDUGJY for rural

India and an integrated power development scheme (IPDS) for urban

India

• National Electricity Plan for the next 5 years to outline the sector’s

projections is drafted. The committee entrusted to chart out the

National Electricity Plan, constitutes 11 sub-committees to deal with

different aspects of the sector

• The government has planned to increase solar power capacity from

20GW currently, to 100GW and wind to 60GW, by 2022. The

Renewable Energy Bill is prepared to expedite speedy growth of

clean power generation in the country

• In the Union Budget 2015, the government announced the formation

of a National Investment and Infrastructure Fund (NIIF) to provide

equity

• support to large-scale infrastructure projects

• Micro grids : To make electricity available to every Indian, there is a

need for developing an off–grid solution for areas where conventional

grids are unfeasible, owing to unfavourable internal conditions

Initiatives taken to boost power infrastructure

• Significant opportunities lies in the generation of solar energy, as the

government plans to set up 25 solar power parks in India

• Investments in Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and

integrated power development scheme (IPDS) would benefit companies across

the entire power ecosystem—those that manufacture switchgear, conductors,

transformers, insulators, poles, towers and capacitors—in addition to

construction contractors

• The ‘green-energy corridor’ is a term used for power-evacuation

• infrastructure specially designed and constructed for evacuation of power

generated by renewable sources (mainly wind and solar)

• For the green energy corridor, a Power Grid report says investment of`430bn

would be required to cover intra-/inter-state transmission-system strengthening,

other facilities such as flexible generation, and establishing renewable energy

management centres, etc

• Smart grids – a large opportunity in the long run. Management of

• peak loads, power outages and power quality are not on the priority list of SEBs.

We expect to see more demand for high technology equipment for these

purposes.

• National Investment and Infrastructure Fund (NIIF) allows investment

opportunities for provident funds, endowment and sovereign funds without

buying a direct stake in a project. This model of public private partnership (PPP)

is an effective tool in bringing private-sector investments into the infrastructure

sector

Impact


UDAY – financial turnaround for DISCOMS Launched to provide financial turnaround for the state-owned power distribution companies (DISCOMs), by helping them overcome outstanding debt of USD64.8 billion, as on March 2015

• The scheme is likely to benefit DISCOMs through higher liquidity on

account of immediate reduction in interest burden.

• The central government has linked availability of several central

government funds such as Deendayal Upadhyaya Gram Jyoti Yojana

(DDUGJY) and Integrated Power Development Scheme (IPDS) to

the successful implementation of UDAY

• From FY2016-17, under the scheme, the states would take over the

future losses of DISCOMs, in a categorised manner. The scheme

also includes the following benefits

• a.Access to additional/priority funding for implementation of capital

expenditure schemes

• b.Availability of cheaper linkage coal in substantial quantity and low

cost power from central public sector

• The government would focus on tackling losses as a consequence of

power theft and unsustainable direct subsidies

Initiatives taken under UDAY

• Improving the financial health of the DISCOMs would encourage them to

invest in new electrical equipment

• Due to implementation of UDAY scheme, the power generating companies

would witness an increase in the demand for power

• The renewable energy developers are likely to have more bankable PPAs

with improvement in the financial position of DISCOMs. This is a good

opportunity for domestic as well as foreign companies involved in

renewable energy business

Impact


Solar power : the thrust sector The government has announced the installation of 100,000 MW (or 100 GW) of solar power generating capacity by 2019, of which 20,000MW would be contributed by solar parks and 40,000MW each from roof-top and distributed generation projects. Also The target of 10,000 MW of wind power installations per year has been set

State wise target and current installed solar capacity Proximity of solar rich states with major load centres

~75,000 units of Solar Pump packages have been installed till FY 15Another 120,000 expected to be installed in FY 2016 to FY 2018

15BDB India Private Limited

4. Manufacturing Sector :

Opportunities for companies

16

Manufacturing Sector Overview


As per the Manufacturing Policy, Indian Government aims at raising the contribution of manufacturing sector from 17% to 25%

by 2022

15.3% 14.8%

17.5%

FY 05 FY 10 FY 15

Manufacturing as (%) of GDP

12.4% 11.5% 11.8%

FY 05 FY 10 FY 15

Employment share (%) of manufacturing

75.3%63.4% 66.5%

FY 05 FY 10 FY 15

Manufacturing’s share in India’s total export (%)

56.5

4.2 4.5

2

FY 12 FY 13 FY 14 FY 15 FY 16

Growth rates of Core Industries (%) • The World Bank projected that India

will grow by a robust 7.5% in 2016 and 7.9% in the next two years.

Promising Areas For Manufacturing, Trade And Investments

• Agro and food processing industry

• Auto & Auto component industry

• Drugs & pharmaceuticals

• Engineering

• FMCG industry

• Gems and jewellery

• Defence

• Leather and leather products

• Services sector

• Textile and readymade garments

Auto Components & Automotive Industry

• Seventh largest automobile producer in the world. The growth of the auto industry is critical to increase the share of manufacturing in overall

economy to 25% by 2022

• Accounts for 22% of the manufacturing GDP, thus contributing to national GDP and employment generation

• Emerged as the sunrise sector as India has emerged as the 6th largest vehicle manufacturer in the world

• Automotive industry contributes 21% to country’s excise duty collection, surpassing France, UK and Italy’s excise collection from the sector

• Today India is the largest manufacturer of tractors, second largest manufacturer of two wheelers, fifth largest manufacturer of commercial

vehicles and fourth largest passenger car market in Asia

Manufacturing Sector Overview - Auto & Engineering

Light & Heavy Engineering Industries

• Light Engineering – Low Tech items like Forging, Casting, Pumps, Valves, Process Control Equipment . Heavy Engineering – Heavy Electrical,

Capital Equipment, Machine Tools, Automotive and Transport Equipment

• The Indian engineering industry is increasingly attaining global recognition especially for its low-cost, high-tech frugal innovation technology

• Outsourcing of industrial engineering design by International companies in sectors like semiconductors, automotive hybrid technologies, power

generation equipment, aerospace, and consumer electronics

• Directly or indirectly employs about 4 million skilled and semi-skilled workers

• The $41 bn Indian Capital Goods industry has seen production grow at just 1% CAGR (compound annual growth rate) over the last three years

• Imports have grown at 10% CAGR over the last five years and the share of imports in the Indian Capital Goods market has increased from 34%

in FY10 to 40% in FY15

• Capacity utilization of domestic manufacturers is only 60-70% across sub-sectors

• National Capital Goods Policy 2016 aims at increasing production of capital goods at CAGR of ~12.5% over FY15-25, growing share of exports

from 27% to 40% of production and reducing import share from 40% to 20%

18

Manufacturing Sector Overview - Core Industries

Oil & Gas Industry

• This is among the six core industries

• Fourth Largest energy consumer in the world.

• India accounts for 5.5% of total global trade in LNG (Liquefied Natural Gas)

• Country Gas production is expected to touch 90 BCM by 2040 from 35 BCM currently

• 68% of total oil output is contributed by ONGC – State owned

• IOCL operate 10 out of the total 23 refineries

• Total installed refining capacity 215 MMT ( Million Metric Tonne) . 135 MMT in public sector & 80 MMT in Private Sector

Chemical & Pharmaceutical Industry

• Third largest producer in Asia and 12 largest in terms of volume

• Accounts for 7% of world production of dye stuff and intermediaries

• India is a key manufacturer for generics and drug intermediaries

• Industry likely to grow at 12 % over the next five years

19

Food Processing Sector

• The Indian food industry is expected to grow at a rate of 11 per cent to touch (US$ 64.31 billion) by 2018

• Share of Food processing sector in GDP of manufacturing sector was around 10 -11% in 2014

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Documents

Indian economy : Evolving towards smarter futurebdbipl.com/Indian-Industry-Outlook.pdf · Skill India outlay USD234 million of which USD174 million will be spent on skill training