Aroop Zutshi Global President & Managing Partner

Frost & Sullivan

Make in India:

Indian Manufacturing in the Age of Industry 4.0

2016

India and Japan: The Background

India and Japan: A Strategic Partnership

Natural Allies (in the current geopolitical context) Strong Economic Cooperation

India – Opportunities for high growth (>6.5%)

India – Japan Relations

The Past The Present The Future

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Key Sectors for Cooperation

Metallurgy 9%

Electrical Equipment

Others Drugs & Pharmaceuticals

4%

28%

Services Sector

28%

15% Automobiles

16%

Import / Export (2000-14)

Japanese FDI into India (2015)

Import / Export (2015)

Priority Sectors

Number of Japanese Companies

$1.6* Bn

Imp

ort

Exp

ort

Infrastructure Manufacturing Services and Skill

Development

2013: 2542

2014: 3961

Factors Favoring Investments

• Domestic market potential • Inexpensive labor • India as an export hub

5 Pillar Strategy (Sectors Favouring investment)

• Infrastructure Development

• Manufacturing • Energy • Skill Development • Business Environment

Improvement

Japan Plus

A unique endeavor of the Govt. of India to fast track Japanese investments, facilitate and assist in removal of bottlenecks $91.5 Bn

$53.2 Bn

$9.9 Bn $5.2 Bn

* Estimated

4th largest FDI contributor @

7.46% (2000 – 2014) $15.97 Bn

Opportunities in India

Infrastructure Manufacturing Railways Science &

Technology

Information and Communications

Technology

• Industrial Cities / Smart Cities

• Industrial / Freight Corridors

• Renewable Power

• Automotive • Electronics and

Semiconductors • Pharmaceuticals

& Chemicals • Defense

• Metro Projects • High Speed Rail

Infrastructure

• Space Research • Maritime

Research • Healthcare

Research

• Cyber Security • Green ICT • ICT – Disaster

Management

Industry 4.0 - The Manufacturing Transformation: Way Ahead for the Make-In-India Initiative

Make in India - Insights behind the Initiative

Source: Make in India, Frost & Sullivan Analysis

High reliance on imports limits holistic growth. Manufacturing in India will increase export opportunities and boost the overall economy.

With nearly 250 million people set to enter the Indian workforce in the next 15 years, manufacturing growth has become an inevitable necessity for large-scale employment

A service-based economy is prone to greater market risks. Manufacturing facilitates stronger and stable growth

Growth Needs

Need for Employment

Import-dependent

Ind

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Make in India Key End-user Industries

Increase FDI in Manufacturing

Minimize reliance on imports

Enhance job opportunities

Expand Infrastructure

Promote “technological evolution”

Automobiles

Defense

Aviation

Biotechnology

Chemicals

Electrical machinery

Electronics

Food processing

Oil & gas

Pharmaceuticals

Frost & Sullivan’s Outlook of Industry 4.0 The Four Functional Facets of the Future

Source: Frost & Sullivan Analysis

Services 2.0 Supply Chain Evolution The Industry 4.0

Business Ecosystem

The cross-pollination of ideas, technologies and processes between the worlds of Information Technology and Operational technology will form the crux of the fourth industrial revolution

Exploring newer avenues for service innovations, such as cloud-based service platforms and evaluating potential for new profit centers. Opportunity analysis for Information and Communications technology in services

The dawn of the future factory is set to disrupt existing supply chain networks. Digitalization and increased connectivity is set to disrupt and realign existing value-chain networks

The advent of advanced Information and Communications technologies will promote new inter-relationships and interdependencies giving way to unexpected business collaborations and partnerships

Industry Convergence: IT-OT-Telecom

With an increasingly globalized manufacturing environment, Industry 4.0/Advanced Manufacturing will become a quintessential part of the manufacturing revolution in India

Make in India - Enabling an Industry 4.0 Vision for India Sowing the Seeds for Advanced Manufacturing in India

Source: Frost & Sullivan Analysis

Key Technology Attributes

Manufacturing Infrastructure

Technology Provision

Skilled Manpower Development

Make in India

Virtual Reality

Mobility Wireless Networks

Cloud Computing

Big Data Analytics

Machine-2- Machine

With new foreign investment, Indian manufacturing will need to compete with global standards for maintaining its competitive advantage

New service models, technological capabilities, dynamic supply chain networks - will come to define manufacturing processes in India

Make-in-India: Manufacturing Implications

The fast growing adoption of additive manufacturing is helping to reduce lead-times and support new product innovation in India.

Make-In-India through Industry 4.0 – An Important Transition in the Manufacturing Sector

Source: Make in India, Frost & Sullivan Analysis

Key Segments Impacted

Key Operations Impacted

Key Technological Adoptions

• Industrial Mobility • Cloud platform • Big-Data Analytics • Industrial Cyber Security

• Production Planning • End-user feedback

management. • Real-time process

optimization

• Strategy • Structure • Financials • Go-to-market Strategy

• Electronics Manufacturing: Includes Electronics products, electronic components, semiconductor design and manufacturing services

• Photonics: Manufacturing of products such as Lasers, LED lights, and fiber optic cables

• Automotive: Automobile and Automotive components for light motor vehicles and commercial vehicles .

• Renewable Energy: Manufacturing of turbine, blades, and solar photovoltaic cells

• Heavy Machine Tools • Aerospace and Defense related products

Ind ia

2015 2025

Potential Implications for Indian Manufacturing

Source: Reserve Bank of India (RBI), Frost & Sullivan Analysis

Expected GDP Contribution by Manufacturing Sector

Import and Exports ratio of manufactured products

% of Global Manufacturing Output

Key Reasons

Less than 15% 25%

3 Imports

2 Exports

5 Imports

4 Exports

Less than 2% More than 4%

• Large-scale Foreign direct investment to build, upgrade and optimize production methods through the industry 4.0 concept

• Increase in demand for basic metals, automotive components, electronics, aerospace and Defense products.

Snapshot of Indian Manufacturing Segments

Source: Make in India, IESA, Reserve Bank of India (RBI), ZVEI Frost & Sullivan Analysis

Automotive Electronics Manufacturing

Photonics Heavy Machine Tools

Renewable Energy Defense

Sales (2020): 6 Million Cars

• India stands at number 6 in the global vehicle sales market.

• Sales of passenger cars is predicted to reach 6 million by 2020

CAGR (2015-2020): 9.1%

• India is positioned at number 10 in the global electronic market.

• The estimated demand for electronics is poised to cross $320 billion by 2020

CAGR (2015-2020): 17% • Limited manufacturing of in-house high-tech

machine tools, 70% of the equipment is imported.

• High Investment in transport and other infrastructure projects to boost growth rate

Defense: 2.8% of GDP

• Defense has grown by 10% since 2004. • Currently, the largest global importer of

defense equipment and arms.

Growth: 3X Times • Segment key to supply components

for High Tech Machinery in medical and life sciences sectors

• The sector is expect to grown 3x times by 2020 in the sub-continent

New Investments: $6.0 Bn.

• Renewable energy is estimated to contribute up to 35% of total power generated in the country by 2025

Advanced Manufacturing in India: Identifying Potential End-user Markets

Source: Reserve Bank of India (RBI), Frost & Sullivan Analysis

The capital goods sector is expected to become the frontrunner in adopting advanced manufacturing concepts followed by intermediate goods, basic goods, and consumer goods.

Indian Manufacturing

Basic Goods Capital Goods Intermediate Goods Consumer Goods

Electricity

Coal

Finished Steel

Fertilizers

Cement

Pipes and Tubes

Aluminum ingots

Auto components

Railway locomotives

Commercial vehicles

Machine tools

Ship building

Tractors

Electric generators

Diesel engines

Electric motors

Boilers

Textile machinery

Petroleum products

Cotton yarn

Tires

Paints

Tin metal containers

Bolts and nuts

Plywood commercial

Sugar

Tea

Tetracycline

Wheat flour

Paper and paper boards

Cotton cloth

Phones

Artificial leather

Cigarettes

Liquor

Penicillin

States Attractive for Make in India; Policy Initiatives Enabling Make in India a Profitable Proposition

• A World Bank report analyzed the implementation of reforms by states in India during the first half of calendar year 2015.

• Gujarat leads with 71.14%

Ease of Doing Business - Indian State Rankings, 2015 Gujarat, Andhra Pradesh, Jharkhand, Chattisgarh and Madhya Pradesh are the Top 5

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Source: Department of Industrial Policy and Promotion, World Bank, Ministry of External Affairs

Gujarat 71.14%

Andhra Pradesh 70.12%

Jharkhand 63.09%

Chattisgarh 62.45%

Madhya Pradesh 62.00%

Rajasthan 61.04%

Odisha 52.12% Maharashtra 49.43%

Karnataka 8.50%

Uttar Pradesh 47.37%

West Bengal 46.90%

Puducherry 17.72%

Telangana 42.45%

Haryana 40.66%

Delhi 37.35%

Punjab 36.73%

Himachal Pradesh 23.95%

Kerala 22.87%

Goa 21.74%

Tamil Nadu 44.58%

Bihar 16.41%

Assam 14.84%

Uttarakhand 13.36% Chandigarh 10.04%

Andaman and Nicobar Islands 9.73%

Tripura 9.29%

Sikkim 7.23%

Mizoram 6.37%

Jammu & Kashmir 5.93%

Meghalaya 4.38%

Nagaland 3.41%

Arunachal Pradesh 1.23%

Best Performing States on Key Industrial Parameters Gujarat, Madhya Pradesh, Tamil Nadu, Jharkhand, Andhra Pradesh, and Maharashtra evolve as Leaders

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Source: State Assessment Report 2015,World Bank, Times of India, DNA India, India Today

Land allotment and

obtaining construction

permit

Madhya Pradesh

Availability of information on industrial land

banks

Gujarat- Robust Geographic Information

System to track industrial land and ensure key

infrastructure such as road and water Tamil Nadu

Online zonal plans for industrial lands

available to aid building plans

Obtaining infrastructural

utilities

Gujarat

Utility connections given within 15

days

Maharashtra

Offers investor friendly services

Madhya Pradesh

Reduction in the number of

documents to two

Labor Compliance

Gujarat

Online labor dept. processes – licensing

and renewal of licenses

Jharkhand

Online portal offering registration,

licensing, and renewals

Andhra Pradesh

Offers factory plan approval processes

Industrial Land Allotment is one of the basic criteria for any manufacturer wanting to set up a facility while obtaining infrastructural Utilities is essential for any manufacturing unit. The fewer and easier the processes are, the more convenient and cost-efficient the unit is. Lastly, labor regulations covering licensing, registration, approval or renewal processes are key to the success of a labor-centric manufacturing sector.

• The Maharashtra Government is likely to release a new electronics policy to attract the industry.

• The Madhya Pradesh Government has announced three Electronics Manufacturing Clusters.

• Setting up Semiconductor Wafer Fabrication (FAB) manufacturing in Uttar Pradesh and Gujarat.

• Automotive Mission Plan II 2016-2026 — cornerstone of ‘Make in India’. • Major Automotive Component Manufacturers (OEMS) are expected to invest

around INR 10,000-15,000 Crore ($1.5 -2.3 billion) in Gujarat. • 100% FDI allowed under the automatic route.

• 121 licenses have been issued for defense manufacturing under this initiative to Gujarat, Maharashtra, Karnataka, Telangana, and Andhra Pradesh.

• FDI allowed up to 49% in the defense sector.

• France to partner India in its next Mars 2 mission –the Indian Space Research Organisation (ISRO) plans to launch this in 2018.

• India-UAE to set up a fund which will have military equipment, space technology, and nuclear energy as some of the focus areas.

Electronics Manufacturing

State Initiatives in Alignment with Make in India Focus Sectors

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Sources: Livemint, Times of India, Business Standard, Fibre2fashion,Make in India, SIAM, Business Standard, IBEF, Economic times, Indian Express, Reuters, Deccan Herald

Automotive Manufacturing

Defense Manufacturing

Space and technology

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2015: A Year of Significant Improvements for Doing Business in India

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Source: World Bank Ease of Doing Business Report 2016

• India stood out among South Asian countries in terms of taking steps to introduce better and more efficient business regulations • Within a year, days required to start a business have been reduced from 34 days to 29 days. • The current Government aims to propel India into the top 50 countries by 2018

• Make in India Campaign: support Manufacturing

• Skill India: Equip Indians with vocational skills

• Digital India: Increase Internet access for everyone in India

• Start-up India: Promote bank financing for start-up ventures to boost entrepreneurship and encourage job creation

Focus Areas

Global Competitiveness Ranking (2014-15): 71

World Bank Ease of Doing Business Ranking: 134 in 2015

Time taken to start a business: 34 days

Required: Paid-up capital of INR 100,000 ($1,629) to start a limited liability company

Time taken for getting electricity: 105.7 days

Jumps 4 places in the ranking to 130 for 2016

Time taken to start a business: 29 days

No paid up capital required

Time taken for getting electricity: 90.1 days

Global Competitiveness Ranking (2015-16): 55

Before Make In India Campaign

After Make In India Campaign

Key Policy Announcements enabling Investment Inflows

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Source: Press Information Bureau of India

• In the past, project sanctioning took about 12-18 months. The singe window clearance system is expected to reduce approval time to 45-60 days.

• The Government has initiated a start-up fund of INR 10,000 Crore ($1.5 billion) to help entrepreneurs in India.

24x7 custom clearance to speed up clearance of goods for import and export (EXIM), reduce dwell time and lower transaction cost

Reduction in number of mandatory documents for EXIM: only three, down from 11

Facility of electronic payment of duty was extended to all Central Excise assessees

Single Window Project as a common platform for EXIM to meet requirements of all regulatory agencies

Setting Up of Customs Clearance Facilitation Committee

Time limit for taking CENVAT credit of duty/tax paid on inputs and input services increased from six months to one year

Adoption of Digital Signature to end physical submission of documents and encourage paper-less working

Rationalization of penal provision in central excise and customs to encourage compliance and early dispute resolution

Application process for Environment and Forests clearances made online through MOEF portal

Factors Favoring India as an Investment Destination for Manufacturing

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Source: IMF, United Nation, Morgan Stanley, PIB

Ind ia

Favourable Demographics

• According to the World bank, India’s population will increase to 1.35 billion by 2020, up from 1.2 billion in 2015

• Nearly 70% (906 million) will be of working age.

• With 356 million in the age group of 10-24 years, India will have the world’s largest youth population.

• University educated workforce expected to rise from 54-56 million to 114 million by 2020.

Growth Story

• According to the IMF, India is expected to grow at an average of 7.6% during 2016-2020, as compared to an average 6.2% growth in China.

• Growth acceleration to be driven by business-oriented reforms and improved investor sentiment

• FDI in India expected to rise by 45% in 2016.

• Foreign investment limits raised in several sectors including private banks, defense, and non-news entertainment media.

Consumption Growth Story

• Consumption accounts for around 68% of the GDP of India.

• Expanding middle class, rising incomes, and increasing spending power along with a large youth population and rapid urbanization will continue to boost consumption.

• India’s middle class, which is about 50 million or 5% of the population, will reach 200 million by 2020.

• India will add more people than China to the global middle class by 2030 creating a huge market for companies.

Manufacturing Hub

• One of the major advantages of manufacturing in India is the low cost for labor. The average labor compensation in the organized manufacturing sector in India rose from $0.68 an hour in 1999 to $1.50 in 2015, whereas the compensation rate during the same period rose to $3 an hour in China.

• According to India’s National Manufacturing Competitiveness Council, an estimated 100 million jobs will move out of China over the next few years in labor-intensive sectors. India could be one of the beneficiaries.

Top 3 Predictions

Source: Frost & Sullivan Analysis

The Make-in-India initiative is poised to transform Indian manufacturing into the age of Industry 4.0

Energy, automotive, and electronics are likely to become first movers into advanced manufacturing , and emerge as substantial contributors to the growth of India’s GDP

The Indian manufacturing space is set to witness the emergence of local micro factories, catering to decentralized manufacturing operations and customized production

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