Forging industry is poised for a good growth

  • Interviews
  • May 02,18
With lot of forging shops shutting down operations in the developed countries and tier 1 companies closing down their in-house forging operations, India has a huge opportunity to capitalise on.
Forging industry is poised for a good growth

With lot of forging shops shutting down operations in the developed countries and tier 1 companies closing down their in-house forging operations, India has a huge opportunity to capitalise on. S Muralishankar, President of Association of Indian Forging Industry (AIFI), believes that India must position itself as a production hub for innovative, high value-added niche products, instead of becoming a low-cost manufacturing hub. In this interview, Muralishankar throws light on emerging opportunities and roadmap for the Indian manufacturing sector. 
 
How has been the performance of manufacturing sector in India?
For any economy, the manufacturing is the backbone. Even for Indian economy the manufacturing is key and high growth potential sector. Hence, when Prime Minister Narendra Modi launched the ‘Make in India’ program, the aim was to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020. Going by the CSO estimates, the Gross Value Added (GVA) at basic constant (2011-12) prices from the manufacturing sector in India grew 7.9% year-on-year in 2016-17, as per the 2nd provisional estimate of annual national income published by the Government of India. Cumulative foreign direct investment (FDI) in India’s manufacturing sector reached $ 70.51 billion by June 2017.
 
Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022. 
 
What are main hurdles before manufacturers in India?
Even though the increase in the industrial production is only 2.5% for the period of April to September 2017 as compared to 5.8% for the same period last year, the overall sentiments are positive. The industrial production increased by 3.8% year of year in September 2017. The machine tools and capital goods sector is usually the first to react to the upswing or downswing in economy. The capital goods sector witnessed a production increase of 7.4% and same of the companies have reported record production during September. This is a very positive signal for the economy and we can hope for an all-round growth in the coming Quarters.
 
India faces stiff competition from South-East Asian and other South Asian countries which may be smaller in size but are better integrated into global supply chains. Indeed, the Economic Survey 2016-17 sounds a warning here. The space vacated by China is fast being taken over by Bangladesh and Vietnam in the case of apparels; Vietnam and Indonesia in the case of leather and footwear. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia. The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in these sectors.
 
The third challenge is perhaps the most difficult - global technological and geo-economic changes. The former has led to an increasing quantum and quality of automation at every level of the manufacturing process. Robots are fast becoming the norm on factory floors, and it is only a matter of time before they take over today’s labour-intensive sectors. The latter, meanwhile, points to greater trade protectionism and shortening global value chains - both inimical to the sort of manufacturing success China has enjoyed.
 
However, India must not aim to be a low-cost manufacturing hub - the world’s shop floor, as China is sometimes pejoratively called - but the position itself as a hub for innovative, high value-added manufacturing of niche products. 
 
What are the strengths of India? 
After years of trailing in China’s shadow, India last year galloped ahead to become the fastest growing major economy globally. Its GDP crossed the 2015 finish line at a 7.6% expansion rate, according to the World Bank. The most important factor that attributed to the growth is India’s favourable demographic dividends for the next 2-3 decades. In his book, ‘The World Economy: Growth or Stagnation?’ Professor Dale Jorgenson (the Samuel W Morris University Professor at Harvard University) confirmed that India’s more favourable demography pushes up the hours worked and productivity components. It allows sustained availability of quality workforce and lower cost of skilled man power. 
 
The government has been taking initiatives to enhance the skills of the Indian youth. ‘Skill India’ - a multi-skill development programme - has been initiated with a mission for job creation and entrepreneurship for all socio-economic classes. It endeavours to establish an international equivalent of the Indian framework on skill development, creating workforce mobility and enhancing youth employability.
 
Also, there is strong consumerism within the domestic market, making it lucrative for global companies to set up business in India. 
 
The current Government has taken measures to boost the Indian manufacturing sector through sector-specific initiatives (such as, a capital subsidy upto 25% for 10 years for the electronics goods), area-based incentives (for units set up in SEZ/NIMZ or special areas like the North-Eastern states, Jammu and Kashmir and so forth) R&D incentives, because of that we have now claim from 130 spot to 100 in the global ranking. The Government of India in its Union Budget 2014-15, has provided investment allowance at the rate of 15% to a manufacturing company that invests more than $ 4.17 million in any year in new plant and machinery. It has been striving to enhance the country’s ease of doing business. 
 
After much deliberation in the past few years, the Good and Service Tax (GST) was implemented in India on July 1, 2017 with the objective to ease out the Indian taxation system. The process of applying for industrial license (IL) and industrial entrepreneur memorandum 
(IEM) has been made online. There has been an ongoing attempt to create a single window for company registration processes through digitalisation.
 
Even though there are a lot of operational issues with regards to GST, in the long run it will have positive effects on the industries 
and consumers.
 
India is likely to invest $ 40 billion on defence purchases in the next five years. The opening of the strategic defence sector for private sector participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business.
 
Which are the industries, where India has the potential to emerge as a major manufacturing powerhouse by 2020?
To start with, the Indian auto industry is one of the largest in the world. The industry accounts for 7.1%t of the country's Gross Domestic Product (GDP). India has also emerged as a prominent auto exporter and has strong export growth expectations for the near future. In April-March 2017 exports of passenger vehicles and commercial vehicles (CV) registered a growth of 16.20% and 4.99% respectively, over April-March 2016. The domestic market is expected to account for 71% of total sales by 2021 with a total market size of $ 115 billion. 
 
Over the last decade, the automotive components industrhas scaled three times to $ 39 billion in 2015-16 while exports have grown ever faster to $ 10.8 billion. The growth of global OEM sourcing from India & the increased indigenisation of global OEMs is turning the country into a preferable designing and manufacturing base. The Indian auto-components industry is expected to register a turnover of $ 100 billion by 2020 backed by strong exports ranging between $ 80-100 billion by 2026. The government's 10-year Automotive Mission Plan, released in 2016, would like the Indian car industry to jump from $74 billion in size to more than $260 billion, becoming one the world's top three automotive industries. That industry would contribute more than 12% to India's GDP, up from about 7% today.
 
India's electric vehicle (EV) sales increased 37.5 per cent to 22,000 units during FY 2015-16 and are poised to rise further on the back of cheaper energy storage costs and the Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.
 
As a part of the manufacturing sector, forging industry is also poised for a good growth with lot of forging shops having shut operations in the developed countries and Tier 1 companies closing down their in-house forging operations. Indian forging sector has a huge opportunity to capitalise on this.
 
Secondly, the IT sector has been a growing sector for quite some time now. The industry has contributed considerably to changing India's image from a slow developing economy to a global player in providing world class technology solutions. According to the IBEF (India Brand Equity Foundation) figures, the Indian IT industry is set to touch $225 billion by 2020. 
 
Owing to the recent focus on infrastructure by the Government, India's infrastructure growth has been exponential over the past decade. Today, we are the fourth largest and probably the second-fastest growing economy, with infrastructure being one of the cornerstones. The infrastructure industry in India is highly fragmented and hence difficult to gunge its exact size and the jobs it generates each year in absolute terms. However, be it roads and highways, railways, aviation, shipping, energy, power or oil & gas, the Indian government and the various state governments seem to make rapid progress. This has led to significant employment generation, though most it is still in the unorganised sector. Over the next 10 years, the infrastructure sector in India will need to continue its growth momentum and is likely to maintain a growth rate anywhere between 7-10%, a very healthy sign.
 
The Indian textiles industry, currently estimated at around $ 108 billion, is expected to reach $ 141 billion by 2021. The Indian textile industry has the potential to grow five-fold over the next ten years to touch $ 500 billion mark on the back of growing demand for polyester fabric, according to a study by Wazir Advisors and PCI Xylenes and Polyester. The $ 500 billion market figure consists of domestic sales of 
$ 315 billion and exports of $ 185 billion.
 
Last, but not the least, Indian health care industry is likely to create over 40 million new jobs by 2020, as per a report titled 'India's New Opportunities-2020' by the All India Management Association, Boston Consulting Group and the Confederation of Indian Industries (CII). The Indian healthcare industry also has advantages over other developing countries in becoming a global hub for medical tourism. The medical treatment and educational services in India are a fraction of the cost in developed countries. 
 
What role MSMEs can play in making India a global manufacturing hub? 
Small and medium enterprises, not large factories, dominate the Indian economic scenario. About 131.29 million people are employed in as many as 58.5 million establishments, according to the sixth economic census released last year. They contribute 80% of the total number of industries and 8000 value added products. Thus, the role of MSMEs in making of India a global manufacturing hub is irrefutable.
 
This sector accounts for about 95% of the industrial units, 45% of manufacturing output, 40% of exports total exports of the country. MSMEs have greater opportunities to grow as ancillary industries to unleash higher industrial growth. MSMEs being less capital intensive and more employment-friendly have easier access to raw materials, subsidies and other incentives under cluster programs. The country has huge growth potential to create and enhance the capacity of enterprises both in the manufacturing and service sector by using the available resources. There are huge opportunities for the MSMEs to grow as ancillary industries to unleash greater industrial growth. Development of the sector is therefore extremely important as it holds the key to inclusive growth and plays a pivotal role in holistic development of the country
 
How do you foresee the future of India’s manufacturing sector by 2020?
In 2016, the Global Manufacturing Competitiveness Index published by Deloitte Touche and the Council on Global Competitiveness indicated the rise of the ‘Mighty Five’ - Malaysia, India, Thailand, Indonesia and Vietnam (MITI-V). According to the report, this group will emerge as the ‘New China’ by 2020 given its abundant supply of cheap labour, favourable demographic profiles, and market and economic growth. And the World Bank echoed similar sentiments in a 2016 report. The manufacturing sector of India has the potential to reach $ 1 trillion by 2025 and India is expected to rank amongst the top three growth economies and manufacturing destination of the world by the year 2020. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of $ 2 trillion along with a population of 1.2 billion people, which will be a big draw for investors. 
 
However, the effect of e-mobility and autonomous vehicles has to be cached with caution. Being a disruptive technology this can pose a major challenge to the Indian manufacturing sector especially automobile component manufacturing sector. 
 
Even though India has world’s largest younger population too effectively ‘skill them’ and provide them with employment opportunities. If we fail on this front, we will be facing huge socio economic issue.
 
Indian manufacturing sector has huge opportunities & it is posed for a growth. But we should also be cautious with regard to the e-mobility and skilling in youth. Last, but not the least, the government should continue to have policies to help this growth.
 
 
About S Muralishankar
As the President of Association of Indian Forging Industry (AIFI), S Muralishankar is responsible for strengthening the member base, driving strategic alliances and decision making related to various government bodies and other stakeholders. He has also been actively involved with the association for conducting technical sessions, seminars, conferences and managing strategic relations with various stakeholders. Muralishankar is also the Joint Managing Director of Chennai-based Super Auto Forge, a company specialising in forging of ferrous and non-ferrous materials like aluminum and copper. 

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