Under the Lens: Manufacturing industry – 2019

If the heart of India’s growth engine has to keep beating at its peak, it is necessary for the relevant authorities to work on the most important sector: manufacturing. Manufacturing industry has been the prime focus for Indian government who is keen on restructuring and reworking its systems in order to ignite it for a much-coveted take-off. This short post tries to look at the mentioned industry and state the key trends and opportunities which will fuel the industry towards progress.

Manufacturing, being the heart of Indian economic progress, has been a crucial turning point for the Modi Government to make India a manufacturing epicentre. The Government envisages employment opportunities in the sector to the record of 100 mn which currently running at ~30 mn. In order to make this vision a glaring reality, the manufacturing companies need to leverage on the existing trends and opportunities engulfing the economy. To reduce the current account deficit, India needs manufacturing ecosystem to provide a rapid push to the exports. With Industry 4.0 in sight, manufacturing behemoths should build up on their existing operations with the help of updated data analytical tools, statistical modelling and automation software. They should be ready to undergo rapid digital transformations across various verticals: procurement, logistics, sales and aftermarket industry. Currently, the manufacturing industry appears to be optimistic to chart their future outlook with a much broader brush. It has shown revival signs from its 2-year low in October and showing positive signs of progress. IHS Markit, an analytics firm in London, sends out a metric called as a Manufacturing Purchasing Managers Index (PMI) which represents manufacturing growth in the economy. The PMI for December 2018 in India stood at 52.7 as compared to 51.2 in November. To those unaware, the PMI below 50 represents a contraction of the industry whereas a figure about 50 points to a possible expansion. The ingredients which go into a manufacturing PMI include orders, output, job opportunities, supplier’s delivery time and stock of purchases. Apart from suppliers’ delivery time (which remained unchanged), rest all the numbers showed a modest growth rate. The core sector, which determines 40% of Index of Industrial Production (IIP), showcased deeper cuts with a 1.5% contraction.

The growth is mainly led by consumer durables segment which observed a 10% growth attributable to strong sales of cooling products following harsh summers. The growth trajectory can also be recreated in the 2020 as per the opinion of The Consumer Electronics and Appliances Manufacturers Association, President Kamal Nandi (CEAMA). It is debatable whether the growth will translate into robust numbers for consumer durables segment as well.  Meanwhile, the manufacturing giants are expected to beef up their production activity and create more employment opportunities in the sector. As per Pollyanna de Lima, the chief economist at IHS Markit, the manufacturing industry has observed higher input costs and higher output charges which combined with improved pricing power has generated heightened demand conditions. These demand conditions if sustained can help the industry progress in 2020 as well. However, repercussions by a broader economic conditions and global headwinds are subject to debate.

Having set the table, we should look at the few grey shades to this story. Land acquisition is a major hurdle for the foreign stalwarts to make active investments in India. It has discouraged the companies from initiating manufacturing corridors in the country. Apart from this, high borrowing costs and archaic labour laws add fuel to the fire. With NBFC crisis looming large, stressed sectors have drastically lesser access to loan books of the Indian banks. Ideally, the Government should bring in active land, labour and policy reforms in order to make development of manufacturing, a frictionless process. Since, India has jumped ranks in ease of doing business; the foreign trade is expected to flourish following development of the Indian port ecosystems. With exports asking for an upward push, it is necessary for the government to establish India as a manufacturing enclave in order to facilitate better exports. The government’s INR 102 crore in its infrastructure development plan coupled with a possible deal in US-China trade war may alleviate the likely distress in the manufacturing sector.