Impressive Indian Industrial Growth Looks Good for Automation

Growth in domestic economy and investment in India should lead to good news for automation suppliers.

Vibrant growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2006-07 so far. Growth of 9 percent and 9.2 percent in 2005-06 and 2006-07, respectively, by most accounts, surpassed expectations. India is well on the path of achieving the 10 percent industrial growth target set by the Planning commission, a development that should bode well for global automation suppliers serving India’s industrial base. 

The Economic Survey of India 2006-07 (the fiscal year ending March 31) carried out by the government has lauded the remarkable growth of the industrial sector, propelled by robust growth in manufacturing, which continued unabated during the current year so far. Year-on-year industrial growth of 10.6 percent in the first nine months of 2006-07 was the highest recorded in the near past.  

Production at factories, utilities and mines increased 10.9 percent from a year earlier, following December's revised 12.5 percent gain, says the Central Statistical Organization. Analysts expected a rise of 10.1 percent. Commerce and industry minister Kamal Nath said “the government is expecting this rate of growth will befurther enhanced in the last quarter of the year, so that during the entire financial year, (2006-07) the growth rate of industry can touch 11 percent and the manufacturing rate of growth go beyond 12 percent.”  

Target in sight 

Given the recent performance, the Eleventh Plan (2007-2012) target of 10 percent annual industrial growth appears to be in sight. The Economic Survey pointed out that the target is “eminently achievable,” owing to growth in automobile production and electricity generation increase. 

A notable feature of the current growth phase is the sharp rise in the rate of investment in the economy. Investment, in general being a forward-looking variable, reflects a high degree of business optimism. “The investment scenario looks quite optimistic, particularly with rising domestic savings rates and foreign direct investment flows,” says the Survey. 

India's $854 billion economy will probably expand a record 9.2 percent in the year ending March 31, following 9 percent growth in the previous year, the government said. That's the fastest pace after China among the world's major economies. 

While the demand for durable goods is rising with economic expansion and easier availability of credit, the country's industrial growth has been rising on the back of higher manufacturing of cars, washing machines and motorcycles. “The production data suggests consumer demand continues to be strong,” said N R Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. 

With the emergence of a vast domestic market and relatively low-cost workers with advanced technical skills, India is on the verge of becoming a manufacturing powerhouse within the next five to 10 years, many believe. 

Multinationals arrive 

More and more multinationals are setting up manufacturing operations in India. Ford, Hyundai and Suzuki all export cars from India in significant numbers. LG, Motorola and Nokia all either make cell phone handsets in India or have plans to start, with a sizeable share of production being exported, according to a new report. ABB, Honeywell, Schneider and Siemens have set up plants to manufacture electrical and electronic products for domestic and export markets. 

The new report, titled “What's Next for India: Beyond the Back Office,” by The Boston Consulting Group and Knowledge@Wharton, says that India has been behind in the manufacturing sector mainly due to poor infrastructure, bureaucratic red tape and restrictive labor laws. 

Companies including General Motors and Reliance Industries are producing more cars and oil products in India as record bank lending and higher salaries spur consumer spending. The pace hinges on the country removing infrastructure impediments such as inadequate power generation, noted a leading publication. Maruti Udyog Ltd, India's biggest carmaker, last month posted its fastest sales growth in three years. 

The President of Honda Motors Co. Ltd. has recently stated that the company would launch a small car in India, and that by the end of 2010, it planned to manufacture and sell more than 150,000 cars in India on an annual basis. In 2006, Honda Motors was one of the several automobile companies that announced investment plans to expand or establish new manufacturing facilities in India. Global automobile majors such as Toyota Motors, General Motors, Volkswagen, Hyundai, and Suzuki were some of the companies keen to make India an export-base for their cars. 

Investment lures 

The strong domestic automobile market, increase in purchasing power of the middle class, consumer credit and financing facilities, a well-developed auto component industry, availability of trained manpower and raw materials at a competitive cost were some of the factors that attracted these global companies to invest in India. 

To take the share of the manufacturing sector in the gross domestic product (GDP) to 22 percent from the present 15 percent by 2015, the Federation of Indian Chambers of Commerce and Industry (FICCI) has asked the Government to reform the labor laws and incentivize innovation and technology.

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