Indian Manufacturing Sector

Anubhav Agarwal

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

INDIAN MANUFACTURING SECTOR

8
7.1

6.1

6
5
4.2

3.4
3

2.7

2
1
0
1998-99

1999-00

2000-01

2001-02

Growth of manufacturing(%)

Source: National Accounts

2002-03

Contributes one-fourth of
total GDP
Employs 30% of nonagricultural 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

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%.

LABOUR COSTS
25000

India is
among the
lowest labour
costs per
worker in
Asia

21317
20000

15000
10743
10000

5000

3429
729

1192

2450

1008

Labour cost per worker ($ per year)

2705

MANUFACTURING SECTOR
EXPORTS
20.0
15.4

15.6

1999-00

2000-01

14.8

15.0
10.0
5.0
0.0
-5.0

1998-99
-3.0

2001-02
-2.6

Growth of manufactured exports (%)

2002-03

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.

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.

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 Asias 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

Pharmaceuticals
Worlds 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. Reddys Labarotories and Ranbaxy
pioneering this effort

Steel
Worlds 8th largest producer of steel
Worlds 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

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.

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

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.

Oil & Natural Gas

Current annual crude oil production: 32 million tonnes,
Current demand: 110 million tonnes
Reliance Petroleum Refinery at Jamnagar is the worlds
largest single stream refinery
Strong retail infrastructure comprising over 17,000 petrol
stations; 6,500 kerosene depots and over 5,500 domestic
LPG dealers
Worlds 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)

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 Indias industrial
production and 27% of export earnings
India accounts for 15% of worlds 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

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.

Others
Dairy Products: In spite of being the worlds
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.

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

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.

Thank You!!!