Indian Manufacturing Sector

1. Indian Manufacturing Sector Anubhav Agarwal

2. FIRST & SECOND GENERATION REFORMS • Market liberalization and economic policy reforms aimed at rapid and sustained economic growth with integration into global economy • Elimination of industrial licensing except for certain select sectors • Removal of restrictions on foreign investment and expansion – well defined equity limits for Foreign Direct Investment • Simplification and streamlining of procedures for investment approvals • Establishment of independent regulators for key industries such as telecom, power and roadways • Areas previously reserved for public sector being opened for private sector participation • Rationalization of tax structure

3. INDIAN MANUFACTURING SECTOR • Contributes one-fourth of total GDP • Employs 30% of non-agricultural workforce • Industrial output valued at US$ 65 billion • Rise in growth from 2.7% in 1998-99 to 6.1% in 2002-03 • Significant rise in index of growth for the manufacturing sector from 6.5 % in February 2003 as compared to 2.9% in February 2002 Source: National Accounts

4. With manufacturing showing a growth of 9.3% during the quarter, the overall growth of the industrial sector has been as much as 8.02%, slightly lower than the growth in service sector - 8.25%.

5. LABOUR COSTS • India is among the lowest labour costs per worker in Asia

6. MANUFACTURING SECTOR EXPORTS • Manufacturing sector exports have grown from –3.0 % in 1998-99 to 14.8% in 2002-03 • Transition from largely agro-based raw materials to processed items • Need to increase high value-added component • India's exports of manufactured products currently stand at close to $35 billion.

7. The ratio of manufacturing exports to GDP from the manufacturing sector has gone up from 20.5 per cent in 1987-88 to 52.7 per cent in 2000-01. • India's contribution to world trade remains minuscule. • In 1999, total world exports of manufactured products was $4,224 billion of which India had a share of just 0.7 per cent.

8. Select Illustrations: Chemicals • Indian Chemical industry ranked 12th in the world production of chemicals • Rate of Chemical industry growth over last 5 years has been double that of Asia’s growth & 5 times the world growth rate for the sector • Indian chemical industry valued at Rs. 1200 billion(US$ 28 billion) • Accounts for 1.5% of global chemicals market • Indian trade is 1.3% of total chemicals trade worldwide • India is becoming the laboratory to the world for the global chemical industry • Leading global players like Dow Chemicals, Dupont, General Electric have set up their own laboratory or using national laboratories in India

9. Pharmaceuticals • World’s 4th largest pharmaceuticals producer with share of 8% of global production by volume and 1.5% by value • Production of drugs at 1/20th the cost incurred by developed countries • India is the largest producer of Sulfamethoxole and Ethambutol(anti TB) • GlaxoSmithKline India is to become the hub of clinical research in South Asia • Discovery research has begun in a major way by Indian companies with Dr. Reddy’s Labarotories and Ranbaxy pioneering this effort

10. Steel • World’s 8th largest producer of steel • World’s largest producer of sponge iron • Export of steel (Apr – Dec 2002): 2.75 million tonnes, increase of 21.6% over previous year • Increasing role of private sector in production – increase in share from 51.4% in 1991-92 to 67% in 1998-99 • Indian steel sector has the capability to produce a variety of grades of steel conforming to international quality standards

11. Poor labour productivity, high energy and transportation costs and financial pressures are eroding India's core advantages of cheap raw materials and labour. • On a positive side, however, many steel companies have begun a series of initiatives to streamline operations and propel productivity, even while no major new projects have been planned.

12. Auto Sector • Extensive backward and forward linkages – strongly interwoven with machine tools and metals sectors • Provides employment to 0.45 million directly and 10 million indirectly • High quality of auto components used as original components for vehicles by leading international companies • Distinct cost advantage: labour cost 8-9 per cent of sales as against 30-35 per cent of sales in developed economies

13. Suzuki Motors expects the Indian car market to grow from 1 million a year to 2 million by 2008. So Maruti Udyog Ltd, which has a 55%-plus share in the passenger-car market, has decided to double its own capacity to 1 million over the next four to five years.

14. Oil & Natural Gas • Current annual crude oil production: 32 million tonnes, Current demand: 110 million tonnes • Reliance Petroleum Refinery at Jamnagar is the world’s largest single stream refinery • Strong retail infrastructure comprising over 17,000 petrol stations; 6,500 kerosene depots and over 5,500 domestic LPG dealers • World’s largest gas find in 2002 at Krishna-Godavari basin • Tremendous opportunities for synergies in: - supply of crude oil and gas - LNG import and transportation - setting up refineries, setting up petroleum infrastructure: storage facilities, pipelines etc - marketing petroleum products incl. LPG - retail marketing of transportation fuels - production sharing contracts for oil & gas exploration under New Exploration Licensing Policy (NELP)

15. Textiles • accounts for 5.7 per cent of the production value of world manufacturing output (in US$), 8.3 per cent of traded manufactured goods and more than 14 per cent of world employment. • Sector accounts for 14 % of India’s industrial production and 27% of export earnings • India accounts for 15% of world’s total cotton crop production, largest producer of silk • Large pool of skilled low-cost technologically experienced workers • Major segment: Manmade fibres accounting for 40% share in Indian textile industry

16. 2005 will bring to an end the regimen of quotas which have determined world trade in textiles and clothing so far. This will increase competition among developing countries trying to capture a bigger share of the export market.

17. Others… • Dairy Products: In spite of being the world’s largest producer of milk, India figures nowhere on the international export scene for dairy products. • Gems & Jewellery: In 1966-67, the export turnover of the G&J industry was just Rs 220 m representing a mere 3 per cent of total merchandise exports. However, it has now grown to an export turnover of around Rs 335 bn during 2000-01 and contributing 16.7 per cent of total merchandise exports.

18. FUTURE OF INDIAN MANUFACTURING SECTOR • Base for export to third countries - Hyundai Motors using India as export base for foreign markets, currently exporting to 8 countries and looking at expanding exports to markets in the European Union and Latin America. The company has also set up an R & D center at its Chennai plant • World class R & D facilities • Emergence as global manufacturing hub with presence of MNCs such as LG, Samsung, Hyundai, Pepsi, GE, General Motors, Ford, Suzuki etc • Increased implementation of state-of-the-art IT technologies – current IT usage of 15% • Segments showing high potential: automobiles, steel, aluminium, cement, auto ancillaries, forging and pharmaceuticals

19. Finally… • The share of manufacturing sector accounts for only 17% in our GDP which is very low compared to China, Malaysia and Thailand where manufacturing contributes to 1/3rd or more in their GDP. • Kapil Sibbal asks NRIs to Invest more in the manufacturing sector to create more job opportunities.

20. Thank You!!!