Manufaturing Sector in indiaa Brief report

Prepared by:

tHe indian inStitute of econoMicS

Compiled for:

MANUFACTURING SECTOR

The make-in India Initiative call given by the Prime

Minister of India shri Narendra Modi has given a

big boost to the Manufacturing sector in India. The

government has identified 25 thrust sectors and

has taken steps for easing of doing business with

India. Although the World Bank report puts us way

behind in the list of countries for ease of doing

business, the government is taking a number of

measures to alleviate the problem. Telangana state

is one of the four states, the others being Punjab,

Gujarat, and Maharashtra as the prime drivers

for boosting the ranking of India in ease of doing

business, because of the proactive governmental

efforts. The governments at both the state and

central levels have rationalized the procedure for

most of the time consuming clearances and this

boosted the investor’s confidence that the projects

can be completed in time and there would not be

unnecessary overruns. The RBI’s industrial outlook

survey indicates that more than 75 percent of the

companies who invested in 2014-15 have planned to

invest more in 2015-16. The major industrial sectors

considered are 15 and they are Pumps & valves,

Textiles, Capital goods, Metals, Chemicals, Cement,

Electronics, Automotive, Leather & footwear,

Machine tools, Food processing, Paper, Tyre,

Ceramics and Textile machinery and others.

Sectoral Growth: The growth potential has been studied from published data and it was observed that from

out of the fifteen sectors studied five sectors are likely to have low growth (less than 5%), six sectors to have

moderate growth between (5 and 10 percent), while the balance four sectors are likely to have a high growth of

over 10%.as shown in the Table below. A small executive summary is made on ten of the important sectors.

Telangana state due to acute power shortage in 2014, while facing the demand of power for agricultural pumpsets which numbered about 1.84 million, has embarked as solar power. This has made necessary the conversion of the existing electric pumpsets into solar pumpsets. Thus creating demand for 1.8million solar pumpsets at a cost of Rs.540 billion. In state of Andhra Pradesh also solar pumpsets are required in huge number as that state also has power problems.

Increasing material prices has put pressure on the export margins of valves companies. The valve sector growth depends on the OEM sector growth. As the OEM sector growth is expected, there is a very bright future for valves sector.

AP & Telanagana

AP & TelanaganaA majority of the auto component units are located

around Nellore and Chittoor districts and the plastic

component units are located in Hyderabad, Ranga

Reddy district and surroundings. The dash board

and other components are supplied from units in

Hyderabad. Around 37 kgs of plastics components

go into an automobile and this is supposed to

increase to 115 kgs in 2015-16. Thus there is a good

scope for manufacture of plastics components for

automobiles.

1) Automobiles The automobiles sector which was showing

a bleak outlook during the last two years has

shown substantial improvement in 2015-16. The

components segment has been experiencing slow

down and there has been virtually no increase in the

levels of production during the last two years and

exports have come down. This sector has registered

a turn over of US $ 38.5 Billion in 2014-15 and a

CAGR of 11%. The revenue grew by 14% and are

likely to achieve their 2020 target of US $ 115 Billion

according to ACMA President. The exports are

expected to touch US $ 16 Billions by 2016. This is

essentially due to 10 to 25 percent lower costs of the

components made in India compared with European

and Latin American Counties.

Tamil Nadu has become the automobile capital

of India. They are acquiring a lot of mechanical

and plastics components from AP. Hyderabad in

Telanagana has been supplying a lot of plastics

components to Tamil Nadu and Pune in Maharashtra.

There is huge scope here.

There are 185 units involved in manufacturing and

sale of maintenance components for motor vehicles

in Telanagana state. Most of them are registered

with various District industries centres in Telanagana

state and almost equal number of them are in the

unorganised sector.

2) Cement There are 188 large cement plants and 365 small and mini cement plants in the

country. The installed capacities are given in the table below:

Table 2: Cement plant

The Indian cement consumption is expected to grow to

324MTS in 2015. The cement industry has been showing

a growth of 15.7% CAGR. The per capita consumption

of cement in India is 190 kg while the world average is

500kg. Since the deregulation of the cement industry

in 1982 many plants have come up and by the year 2025

the cement production is expected to touch 600 MMTS.

The cement consumption is highest in the domestic

housing sector at 67% and in commercial constructions

at 13%, Infrastructure and Industries 11% and the

balance for other works. It is also observed that 70% of

the cement is produced by the top 20 companies and

some of the leading companies are Birla corporation,

Dalmia cements, Ultratech cements, Andhra Cements,

Heromotor corporation, JSW etc..

AP & TelanaganaWhen the policy opened up, Andhra Pradesh and

Telanagana have become the haven for mini cement plants

and scores of units were started. Besides the Andhra

Cements, Dalmia and Bharti Cements in AP, particularly

in Telanagana State, in the khammam, Nalgonda areas,

scores of cement plants have come up. Still there is a huge

demand for setting up cement plants in the Andhra Pradesh

and Telanagana State. Also there is plenty of raw material

available. There are a total number 40 cements plants in

both AP and Telanagana put together including large and

mini cement plants. As the real estate and construction

activity has zoomed up in 2014-15, the demand has

increased. Also the government of Telanagana State is

laying CC Roads and this has increased the demand many

fold. It has plans to extend the ORR to eight lanes and 23

Link roads and sky walks etc.. The capital constructions

in Andhra Pradesh at Amaravati has also triggered the

demand.

AP & TelanaganaThe government of India,. Ministry of Fertilizers an chemicals has sanctioned a plastics park of Telanagana State and the state has identified 100 Acres of site at TIIC industrial area at Tumalur, maheswaram mandal, Ranga Reddy district and is now ready to embark on this project with full vigour.

Recently at the Visakhapatnam conclave, the minster for fertilizers and chemicals, GOI has announced the expansion of HPCL, the setting up for PCPIR in Visakhapatnam- Kakinda industrial corridor and a petrochemical complex at Visakhapatnam with an investment of Rs.500 billion. This would generate employment to more than 50,000 persons.

After Mumbai, Hyderabad is the biggest hub of Pharmaceutical Industries for both Bulk drugs and Formulations. During 2014-15 Pharma exports were $ 15.5 Billion and have registered a growth of 11.9% CAGR. The exports are to Germany, UK, US, Switzerland, Spain, Turkey, Japan and Singapore. In Telanagana State, Reddy Labs, Shanta Biotech, NATCO and Gland pharma are the largest exporters. There is a very huge scope for the pharma industry in Telanagana State it has created necessary infrastructure and special zones for pharmaceutical industries. There is a huge scope for FDI and foreign companies also can enter through M & A in the pharmaceutical sector, besides starting their 100% owned units..

3) Chemicals & Pharma The chemicals sector comprises of petrochemicals, organic and inorganic chemicals, pharmaceuticals and other chemicals. The chemical industries have registered a growth of 13-14% CAGR during the last five years and the petrochemicals have registered a growth of 8 to 9% during the last five years. Except Phosgene and Isocyanates which require compulsory licensing, other chemicals can be manufactured without any hastles.. 100% FDI is permitted in the chemical sector. Most of the FDI is through M & A (Mergers and Acquisitions).

The top ten chemical Industries are Tata Chem. Ltd, United Phosphates Ltd, BASF, India Glycols, Pidilite Ltd, Philips carbon Black, Gujarat Heavy Chemicals Ltd Gujarat Alkali Chemicals Ltd etc.. Among petrochemicals the top industries are Reliance Industries Ltd, GAIL Ltd, Haldia Petrochemicals Ltd. and IOC Petrochemicals Ltd.

Indian Pharma Industry is worth US $ 26 billion and is expect to touch US $ 45 Billion by 2020 and is the third largest globally.

The Indian pumps market is along saga from

pumping water from wells for households to a

plethora of industrial applications and exports.

A large number of international companies engaged

in manufacture of pumps and valves are entering

India with manufacturing bases into Asian market,

particularly India, to take advantage of the low

cost and less expensive but highly skilled labour

available in India. With the LPG (Liberalisation,

Privatisation and Globalisation) effect the Indian

Pumps and valves manufacturers have started

exporting to developed countries for industrial

applications especially the oil refineries, steel mills

etc…

The Indian pumps industry which has a share of

Euro 500 Million in the global market, is poised to

grow at 7% while the global Euro 10 Billion market

is growing at 4%. There are 800 Large, Medium and

small industries manufacturing one million pumps

worth Rs.35 billion. India exports to 70 countries.

The main players in the Indian market for the pumps

are Kirloskar Brothers Ltd, CRI Pumps, Crompton

Greaves, Grundfos KSB, and Texmo, Suguna &

Mahendra pumps. Major valves manufacturers are

Flow serve corporation, Tyco Flow Control, Dresser

Inc., L & T AUDCO, BHEL, Fisher Sanmar, JC Valves,

Koyo , Weir group PLC etc.. The unorgainsed sector

of the valves accounts for about Rs. 5 billion while

the organized sector is about Rs.9 billion. This

sector is growing at 15% CAGR. In addition to the

replacement market, the Virgin market for valves in

power and refinery sectors is expected to be over

Rupees 43 Billion in the next three years.

4) Pumps & Valves

5) Leather & Footwear Industry Footwear industry is one of the fastest growing industries in India and is expected to touch Rs. 38.700 Billion

by the end of FY2015. The per capita consumption of footwear in India is 2.5 shoes per year. Indian Production

is approximately 3000 million pairs. Per annum and exports are approximately 300 million pairs. There are

approximately 4000 units involved in making footwear Apache (Taiwan), Feng Tay (Taiwan) Itares (Italy) have

License to manufacture footwear in India. India with its very high population of buffalos, goats and sheeps is

one of the biggest sources of leather in the world. India is the second largest producer of footwear and leather

garments in the world. The Indian leather trade is 2 Billion sft valued at US $ 12 Billion and is approximately 10%

of the leather produced in the world. Tanning industry has developed new technology called the ZLD (Zero

Liquid Discharge) system to meet environment regulations.

6) Ceramic Industry Crockery, Sanitary ware and tiles are the main products of ceramic industry and are primarily called hygiene

products. China is the largest exporter of Ceramics and it has exported US $ 8 Trillion in 2008 and US is the

largest importer. India occupies eighth place globally with approximately 2.5% of global production and provides

direct employment to 550,000 persons and to 50000 persons indirect employment.

Tiles are the largest and fastest growing market which registered a CAGR of 14% in 2014. The per capita

consumption of tiles in India is 0.54 square metres compared with China (3.07 aqmts), Brazil (4 sq mts) and Iran

(4.84 sq mts). The main impediments of the ceramic industry are the growing power and fuel costs which are

impeding the expansion. Kajaria sanitary ware and the HSIL of Somany group are the two largest manufactures

and exporters of ceramics in India.

AP & TelanaganaThe growth in the leather and

footwear sector is expected to be

very bright. This is concentrated in

Hyderabad and Warangal districts in

Telangana, East Godavari district in AP.

The government has taken a very big

initiative in forming Leather Industries

Development Corporation (LIDCAP)

and this has encouraged many artisans

and footwear manufacturers by giving

them Kiosks and other incentives. It

is also helping them in marketing and

opening sales outlets. Thus there is a

lot of governmental effort in both the

states to develop this sector.

AP & TelanaganaThere is a great potential for ceramic industries in both Andhra and Telanagana. One unit is located near

Kakinada, but that is technically in Pondicherry state. There is ample raw material availability in Andhra Pradesh

for this and so that scope is very high.

7) Tyre IndustryThanks to a number of automobile and motor cycle, scooter industries operating in the country, this sector has been continuously growing in the last few years. The leaders are MRF, Apollo, JK, Ceat and others as the pi diagram below shows.

India exports to 65 countries 3.6% year on year growth is registered in 2014. Rubber price declined 9% in March 2015 to Rs. 134.70 per Kg.

MRF is expanding its capacity at Hyderabad, Trichy and Goa with a Rs. 40 Billion plan MRF produces 1.2 lakh

tyres per day. Ceat is investing Rs. 4 Billion in the first phase to set up a plant at Butibori near Nagpur. JK tyres is

investing Rs.14.3 billion near Chennai to double its capacities.

In a major development in January 2015, the US commerce department’s international Trade Administration

levied preliminary “ADD” (Anti Dumping Duty) on Chinese tyres in the US market, duty rates varying from 19.7%

to 87.99%. This has resulted in Chinese dumping their tyres in India causing 1.5% surge in imports in the first half

of FY 2015. This has led to increase of customs duty to 20% on tyre imports, to safeguard the domestic industry.

AP & TelanaganaThe general outlook for the tyres industry is positive. CEAT and Stallion Tyres are based in Telangana State

besides several MRF outfits which manufacture tyres and they are all on an expansion spree. MRF has invested

more than Rs.10.8 billion during the last two years to double its capacity. In AP Mangalagiri Tyres & Tubes is

producing two wheeler tyres and tubes and is also on an expansion spree.

AP & TelanaganaThe sick National Textile Corporation (NTC) has been revived and its net worth stands at Rs.16020 million as on

31.03.2014. it is one of the biggest textile units in Telangana. Pochampally designs are very well received in

India and abroad and it is one of the most promising silk and handlooms centres in TS. In AP, Guntur, Nellore,

Anantapur have Cotton consumption of approximately 40 million bales (each bale is of 170 kgs) per annum. It

employs 4.33 million persons in handloom sector and 6.09 Million persons in the powerloom sector. There is a

huge export potential, for Indian cottons.

Scheme for integrated textiles parks is under implementation under the SPP. There are eleven export promotion

councils helping the textile sector and by the end of 12th plan i.e. by 2017 the export target has been fixed at US $

64.41 Billion.

8) Textiles The textile sector comprises of cotton fabrics, man made fabrics filament yam, wool and Woolen textiles, seri

culture and silk textiles, Jute and Jute textiles and textiles export.

Indian textiles Industry has an overwhelming pressure in the economy as it contributes about 14%

to Industrial production and 13% of the country’s export earnings. It is one of the largest provider of

employment. The Indian textile industry has a full spectrum panorama of hand spun, hand woven fabrics

at one end and highly sophisticated mill sector at the other end. The ‘Make in India’ programme’s theme

of ‘SabkeSaath Sabkaa Vikas’ has made the development process inclusive and participative. The 2014-15

year is a cotton surplus year and so consequently the prices have declined. To support the domestic cotton

growers cotton corporation of India has planned and coordinated large scale support operations in 11 cotton

producing states. About 315 procurement centres were opened and are operational out of proposed 340.

9) Textile machinery Textile and apparel is a major sector and generates

huge employment and contributes substantially to

the manufacturing output and exports. The world’s

production of textile machinery is over US $ 20

Billion. Major manufacturing countries are Italy,

Germany, Switzerland, France, China and now India.

India is now upgrading in the weaving and processing

sectors. China is now manufacturing entire range

of machineries for the textile industry not only

weaving and processing but also knitting, embroidery

shuttleless weaving and machinery for the non-

woven industry.

Though during the period of economic slow

down there was considerable fall in exports and

manufacture, this sector almost fully recovered by

2012-13 and is now its way for a good growth.

The Indian textile machinery is 1000 units

strong comprising machinery and component

manufacturing units. Nearly 300 units produce

complete machinery while others manufacture

10) Paper SectorPaper Industry Sector is an important one and the

main operators in this sector are JK paper Mill Ltd,

International paper – AP Paper Mills Ltd, BPL Limited,

Ballarpur Paper Industries Ltd, Century Pulp and

paper Ltd, yash Paper Mills Ltd, TN News print Ltd,

Nepanagar Paper Mills Ltd, etc. The paper industry is

mainly private owned.

The paper consumption in India in 2015-16 is

expected to be 15 million tonnes including all

varieties of paper with a turnover of US $ 5.95 Billion.

The news print paper consumption is 2 million tonnes

and out of this 1.2 million tonnes is domestically

produced while 0.8 million tonnes is imported paper.

The demand growth in this sector is 13% while the

general growth in the paper industry sector is 8%.

The total direct employment in this sector is about

120,000 personnel while the indirect employment is

for 340,000.

The other types of paper are the tea bags, filter

paper, tissue paper, medical grade coated paper.

components. The total investment in this sector is

approximately Rs.2 billion.

The machinery comprises of ginning and pressing

machines, spinning and allied equipments, synthetic

filament yam machines, weaving and allied

machine, hosiery/RMG machines, textile equipment,

accessories and components.

A majority of these are located in Tamil Nadu and

Gujarat. AP has several ginning mills, while AP and TS

also have number of handlooms and spinning units.

The big operators are Laxmi Machine Works,

Rieter India, Dhall Group, Yamuna Machine Works,

Shri Bhagwati Textile Industries etc.. The capacity

utilization of Textile machinery has also substantially

increased during the last five years. According to

the office of the textile commissioner, the production

of machines during 2012-13 is worth Rs. 56.5 billion

and is growing at 10% CAGR. In AP and Telanagana,

several textile machinery component units are

located and they supply million of Rupees worth

components to OEMs is Tamil Nadu and Gujarat.

After US imposed ADD (Anti Dumping Duty) on

Chinese imports, there is a good scope for the Indian

paper products in the American market.

Indian per capita consumption is 10 kgs while Europe

has a per capita consumption of 110 kgs and US 337

kgs and china 30 kgs and the world average is 55

kgs. Thus there is a great scope for paper industry to

grow.

In AP International paper Ltd and Bhadrachalam

Paper Boards Ltd. in Telanagana are going is for major

expansions during the current year,

Manufacturing Sector in Andhra Pradesh

Much of the investment growth within the AP state is

expected from the industrial sector which is excepted

to contribute around 25% of GSDP by 2020. It is

excepted to cross Rs. 8 billion by 2015 and touch Rs.

9 billions by 2020 Eighty Two Mega projects (Projects

with investment of more than Rs. One Billion) with

a total investment of Rs. 831.42 billion are under

active implementation. 211 mega projects with an

investment of Rs. 2591 billion are under initial stages

of implementation.

Estimated Mineral resources of AP (Composite)

Source: Economic Survey of AP (Pre- Bifurcation 2014 Feb.)

The huge resources of minerals encourages private

participation. In exploring these minerals, APMDC

has already initiated investment proposals in Bauxite,

Beach Sand and Granite thus sectors with potential

for growth in AP are mineral based industries.

Manufacturing Sector in Telanagana

The government of Telanagana is of the firm opinion

that industrializations holds the key for higher and

sustainable growth leading to growth in exports. The

investor friendly industrial policy (TS-iPASS) is a first

step of the government in that direction. Telanagana

has a huge forest area and nearly 7% of coal deposits

are in the State besides huge deposits of lime stone

that caters to the cement industry. Granite, Bauxite

and Mica are the other minerals.

Telanagana State GSDP at constant prices (Base:

2004-05) for FY15 is estimated at Rs.2174.32 Billion

as against Rs.2064.27 Billion for FY 2014 indicating a

growth of 5.3%. The industry sector growth was 41%

Y-o-Y.

Telanagana is essentially a services driven economy

contributing 62.9% to GSDP. The Telanagana

industrial Sector contribution on to the GSDP is

around 24.6%. New pharma and chemicals city

with well developed infrastructure including waste

management is included in the development

programme. Govt. intend to develop Warangal as

Textile hub and has proposed to setup a mega textile

Park. With the introduction of TS-I pass (Telanagana

State industrial project approval self certification

system) and Telanagana state-Wide Investment

Facilitation Board (T-Swift), the Telanagana state

government is removing all hurdles and making

industrilsation hastle free in the process of ‘Ease

of doing business’. Sector with potential in TS are

Automobile, Plastics, Pharma Industries.

Conclusions

There is very good encouragement from both

Telangana and Andhra Pradesh governments for

the promotion of the manufacturing sector in a big

way. The chief ministers of both the states have been

parleying with many countries and, international

business conglomerates encouraging them to set

up their manufacturing units in their respective

states. They are assuring them of completing of

all government formalities within 30 days and

incentivizing them with several sops. Over and above

the states have highly skilled manpower available at

a relatively low cost compared with other countries.

The infrastructure cost also is relatively low. With the

introduction of GST which the government proposes

to implement from the next Financial Year the

taxes will also be rationalized. Thus there is a huge

scope for foreign investors and companies currently

operating in India in other states, also can gainfully

set up manufacturing units in these two states.

Recently government of Telangana has allotted 100

Acres for Chinese industrialists to start a cluster of

manufacturing units in Telangana.