2 years ago

MDA Technologies 5/2016

MDA Technologies 5/2016

Author: Sushen Doshi,

Author: Sushen Doshi, correspondent India for MDA TECHNOLOGIES India: all geared up for a bullish growth cycle Photograph: fotolia NEWS AND MARKETS Sushen Doshi With decisive government reforms, strong bureaucratic support, industry’s appetite to compete globally, the demographic advantage and the ever increasing demand, the short term as well as long term opportunities for growth in India are now more robust than ever. With more than a $ 2 trillion GDP, India is the 7 th largest economy in the world. The country is classified as a newly industrialized country, one of the G-20 major economies and a developing economy with an average growth rate of approximately 7 % over the last two decades. India’s economy became the world’s fastest growing major economy in the last quarter of 2014 replacing the People’s Republic of China. The country of over a billion people has the potential to become the world’s 3 rd largest economy by the next decade and one of the largest economies by mid-century. The country’s long term prospects are surely positive and promising but even the outlook for short-term growth is also good as according to the IMF, the Indian economy is the “bright spot” in the global landscape. India also topped the World Bank’s growth outlook for 2015-16 with the economy having grown 7.6 % in 2015-16 and expected to grow more than 8.0 % in 2016-17. Traditionally, many countries at India’s level of development have had the largest share of GDP being contributed by the manufacturing sector. In India, even though it is a $ 2 trillion economy the manufacturing accounts for around 15 % of the GDP. The services sector has a far more weightage in India’s economy than manufacturing. Therefore India is a services giant, but not a manufacturing power as yet. This is exactly what the Prime Minister Modi led government in India is trying to address. Modi’s objective through his various government schemes and initiatives, particularly the ‘Make in India’ campaign is to drive the manufacturing sector from 15 % to 25 % of GDP, in the process creating millions of jobs and adding real value to the economy. So the question in front of Modi is what is impeding India’s manufacturing growth? The PM and his team has narrowed it down to 3 main issues: infrastructure, regulation and skills. Finding solutions to these problems will be of great advantage to India. On infrastructure, there are enormous new plans already set in motion. Just as an example, we have the Delhi-Mumbai Industrial Corridor that is going to link Delhi and Mumbai with a 1,500 kilometers of six-lane highway, high speed railway freight line, and nine industrial zones; where land will be acquired, infrastructure will be created, power will be assured, and companies can set up operations there. Many similar such projects all over the country will create the infrastructure that a rising India needs. The second is regulation. India needs to reduce the regulatory burden on firms. There are a number of initiatives underway to do this and in these new industrial zones there will be experiments at reducing the regulation enough so that small and medium enterprises can set up without a huge burden. In addition, many government organizations are moving to do more IT (Information Technology), and enabling those processes that will help increase government efficiency and reduce the redundancy. The third element is skills. With 65 % of India’s 1.2 billion people are below 35 years and more than 50 % of India’s population is barely 25 years old. This constitutes an enormous demographic advantage, in terms of labor supply and also for generating demand for all sorts of products and services. But with such a large labor force, what they lack is the skill. In higher education, the expansion has been tremendous in recent years. But India is now keenly focusing on improving the quality of vocational education – of skills like plumbers, electricians, technicians, etc. A combination of engineers, management specialists, etc. with moderate but specialized education in areas like vocations, will help provide the labor force for manufacturing. So in each of the three main issues concerning the manufacturing sector, there is a lot more work to be done. But the work is underway and I think that in the next few years, you will see the fruits emerge. GST: the game changer In the story of modern India, i.e. post liberalization of the Indian economy in 1991, the GST is the biggest reform in the country yet. GST is the “Goods and Services Tax”, a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India. This is now set to replace the various taxes levied by the regional and the central government. The introduction of GST is a significant step for the government as well as the business and industry. This creates a more efficient, neutral and a systematic tax system through out the country. Basically under the GST system, all the taxes from the central government to the state government are amalgamated into one. This would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the MDA Technologies 5/2016

Antriebstechnik overall tax burden on goods, which is currently estimated at 25 to 30 %, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax. The government aims at reducing the overall tax rates through out the country without causing a loss of revenue, it therefore needs to focus on widening the tax base. Modi aims to achieve this goal by creating the tax system that is attractive and hassle free for the tax payer and GST is just the start. GST would replace most indirect taxes currently in place such as: CENTRAL GOVERNMENT TAXES Central Excise Duty Service tax Customs Duty Central Sales Tax Central surcharges Low hanging fruits STATE GOVERNMENT TAXES Value Added Tax Octroi and Entry Tax Purchase Tax Luxury Tax Sales Tax In the short term, India faces different issues as compared to some of the industrial countries. In the west, countries are mostly facing the problem of huge debts and very weak growth, with Germany as an obvious exception. India is currently tackling the issues concerning macroeconomic stabilization like controlling the inflation and bringing the government deficit under control etc, but at the same time, the growth potential is greater than industrial countries by a mile. And if India plays its cards right, then it could even harvest this opportunity not just for the short term but for the next 20 years. In India, the fruits are low hanging in many ways. Just building the infrastructure creates an enormous amount of growth. Add to that the manufacturing that utilizes and benefits from this infrastructure; you will get additional growth. Add to that the young population, which is entering the labor force; you get further more growth. And add to that the capacity to move up the skill chain or the value added chain – all these factors add up to give India multi-dimensional growth. But again, it is important for India’s policy makers and industry personnel to remember that they don’t become complacent and deliver the right policies and good execution to it. If we do the right things at the right times, there is no doubt that in the next 10 years, India will be the largest growth driver for many sectors of industry all over the world. Focus on engineering sector The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India’s economy. This sector in India attracts immense interest from foreign players as it enjoys a competitive advantage in terms of manufacturing costs, technology and innovation. According to the government statistics, FDI in India witnessed an increase of 29 % and reached $ 40 billion during April 2015 – March 2016 as compared to $ 31 billion in the same period last year, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results. India has also overtaken China as world’s top foreign direct investment destination in 2015 including high-value project announcements across the coal, oil and natural gas, and renewable energy sectors. In the recent past there have been many major investments and developments in the Indian engineering and design sector: n Volvo Penta, a marine and industrial power system manufacturer, plans to produce five and eight litre industrial engines at the VE Powertrain (VEPT) plant in Pithampura near Indore from 2017. n Honeywell Turbo Technologies partnered with Tata to develop their first ever petrol turbocharged engine. Honeywell’s engineering teams in Pune and Bangalore leveraged local capabilities and global expertise in petrol turbo technologies to address the specific needs of a local customer. n Leading aircraft maker Airbus announced it has begun sourcing components for almost all its jets from India and it aims to take its cumulative sourcing from India to $ 2 billion by 2020. n E-commerce giant Amazon plans to set up its second largest global delivery centre outside the US, in Hyderabad, which will be 2.9 million square feet in size and employ 13,500 people, compared to 1,000 Amazon employees across different offices currently. n US-based General Electric (GE)’s multi-billion dollar project for Indian Railways to set up a diesel locomotive factory at Marhowra, and French company Alstom’s electric locomotive factory in Bihar. n Foxconn has signed an agreement with the government to invest $ 5 billion over the next 3 years for setting up a manufacturing unit between Mumbai and Pune. n Germany-based ThyssenKrupp group is aiming to double its revenue from India to $ 1 billion in next 3-4 years while the group’s elevator unit, ThyssenKrupp Elevator, plans to invest $ 50 million to set up a manufacturing plant in Pune.z Motion, Drive and Automation 30 Maintenance-free bearings support one of the world’s longest suspension bridges I N T E R N AT I O N A L E D I T I O N 6 September 2013 Click to read previous issues. Inspiration is just one click away. News about the following markets: 16 geared Gravel plant reduces costs and maintenance by using motors 18 26 Winter Standard components are used to drive scraper chain conveyors in Norway Air Springs: keeping things moving at the 2014 Olympic Games in cooperation with Fluidtechnik MDA Technologies 5/2016


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