The booming Indian economy augurs well for automation. But there are binding constraints to growth—India needs funding. India's manufacturing sector will need massive investment of $135 billion over the next five years if it is to support economic growth of more than 8 percent per year, says the country's Commerce and Industry Minister Kamal Nath. And given that the government has targeted 12 percent growth in manufacturing, in support of a 10 percent growth target for gross domestic product (GDP), even this amount may be insufficient.Recently, a government-appointed panel had projected that India required $1.5 trillion—including $72 billion in Foreign Direct Investment (FDI)—of investment in all sectors over a similar period. "FDI, apart from bringing in capital, also brings with it modern technology and business practices, and helps in increasing the competitiveness of domestic industry," Nath says.
The Indian government asked key Ministries to coin policies to help investors fund the country's infrastructure projects. Apart from allowing FDI up to 100 percent in most industries, the government has initiated a slew of measures to boost manufacturing, such as improving infrastructure and developing growth centers.
Big numbersIndia needs to ensure that the foreign direct investment in the country goes up to $84 billion by 2010-2011 from $47 billion at present, government sources agree. This calls for a total investment of $331 billion in the country's infrastructure over the next five years, according to a study on infrastructure done by the Confederation of Indian Industry's (CII) infrastructure council. According to another study by the Ratan Tata-led Investment Commission, there is a need for over $269 billion in funds in the next five years.
So far, the manufacturing sector has attracted $2 billion as FDI in 2005-06, a 75 percent rise over $671.47 million in 2003-04, the minister adds. Nath also says that manufacturing investment regions will be set up for automotive components, leather, footwear, telecom and hardware.
The resurgence of India's manufacturing sector has been seemingly magical. Currently, the manufacturing sector—which accounts for 12 percent of the gross domestic product (GDP)—is growing at a rate of 9.5 percent to 10 percent annually. The aim is to accelerate the growth to 12 percent to 14 percent. India has set a target of a minimum of 12 per cent growth in manufacturing as it seeks to boost gross domestic product (GDP) growth to 10 per cent in the coming years, from 8.4 per cent in 2005-06.
The domestic manufacturing sector reported impressive growth for the April-September period of 2006 compared to the corresponding period in the previous year, says an ASCON-CII survey. Of the total 140 manufacturing sectors in the country reporting production, 27 recorded a growth rate of more than 20 percent, according to the survey. Forty-three sectors recorded a growth rate of 10 percent –to 20 percent and 50 sectors registered growth of up to 10 percent.
United States displacedIndia has already displaced the United States to become the second-most attractive destination for FDI among manufacturing investors, according to AT Kearney's latest FDI Confidence Index rankings.
The story of India's innovative moves in manufacturing is now well poised to grab U.S. market share in certain business sectors. According to the “Fast Track Leadership†survey of business professionals conducted in October 2005 by the IMD MBA business school, Fast Company magazine and human resources firm Egon Zehnder International, India is likely to gain significant market share from the United States in the information technology, automotive and Internet business sectors in the future.
Global manufacturers currently selling their products in India are expected to significantly increase their research and development activity in the country over the next three years, according to a report to be released titled “Innovation in Emerging Markets: Strategies for achieving commercial success,†based on a survey of 418 manufacturing executives from companies spread over 28 countries by business advisory firm Deloitte Touche Tohmatsu (DTT).
Gary C. Coleman, DTT global managing director, manufacturing industries, says the most successful manufacturers allowed local autonomy while utilizing the parent company's governance, business processes and management expertise to offer products at dramatically lower prices that match the lower purchasing power of most buyers in the emerging markets.
About the authorUday Lal Pai is a freelance journalist based in India.
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