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MAKE IN INDIA: CHALLENGES
AND OPPORTUNITIES
This report identifies issues related to manufacturing in MSME’S & textile sector and how the government policies and efforts can remove hurdles in their growth
Finalist – Metamorphosis competition Vista Business Fest 2015
Written by: Mohan, Rahul Raja, G Karthick (students of: Team ROCKER’Z15)
Tejas is proud to present the award-winning articles of its flagship whitepaper competition Metamorphosis, conducted during IIMB’s 3-day business fest Vista (2015). Tejas congratulates
the winning teams for their outstanding performance and thanks all participants for their dedicated efforts.
The Metamorphosis challenge: The vision of ‘Make In India’ is holistic development in
infrastructure, manufacturing, renewable energy, and other key sectors. Large conglomerates are in a position to provide strategic impetus to drive domestic growth, as they have huge capital
outlay and managerial talent. At ‘Metamorphosis’, Tejas challenges participants to develop expansion and diversification strategies for a specific company, by capitalizing on Make in India
initiatives. The strategy should consider regulatory framework, government involvement and subsidies, resource outlay, and potential challenges in implementation.
Disclaimer: These articles are participant entries submitted in the Metamorphosis competition.
These have not been edited by Tejas, nor does Tejas endorse the views expressed in these articles. All articles have been published with the express permission of the participants.
TABLE OF CONTENTS
EXECUTIVE SUMMMARY 2
INTRODUCTION 3
TEXTILES 5
COTTON 6
MSME ROLES & OPPORTUNITIES 7
FUND INFLOWS 9
OPPORTUNIES FOR TEXTILE SECTOR IN MSME’S 10
SKILL DEVELOPMENT 10
RECOMMENDATIONS-SKILL DEVELOPMENT 12
-PHYSICAL FACTORS 14
-SOCIAL FACTORS 16
-FINANCIAL FACTORS 17
CONCLUSION 18
EXECUTIVE SUMMARY
Over the past several decades, the globalization of the manufacturing ecosystem
has driven more change and impacted the prosperity of more companies, nations
and people than at any time since the dawn of the Industrial Revolution. Nations
around the world have taken part in and benefited from the rapid globalization of
industry and expansion of manufacturing. Globalization of manufacturing has
been a key driver of higher-value job creation and rising standard of living for the
growing middle class in emerging nation economies.
The Government of India has taken a number of steps to further encourage
investment and improve business climate IN MANUFACTURING. „Make in India‟
mission is one such long term initiative which will help to realize the dream of
transforming India into a „manufacturing hub‟.
This report starts with identifying issues related to manufacturing in MSME’S &
textile sector and how the government’s efforts can remove hurdles to augment
the same. According to the analysis of the secondary data available and author’s
personal views, this report establishes that the Governments efforts at various
levels can lead to resurgence of India as a manufacturing behemoth.
2
INTRODUCTION
The make in India initiative started by government of India helps to facilitate
investment, foster innovation, enhance skill development, protect intellectual
property, build manufacturing infrastructure. For contribution of at least 25% of
GDP by 2022 in manufacturing sector growth should be 12-14% Per annum higher
than the GDP rate.
GDP Contribution - Sectors
17%
57%
AGRICULTURE
INDUSTRY
26%
SERVICES
Manufacturing Output as a % Of World Total
30 28.5
25 26 24.1
20 20.9 21.6
18.9
18.2 17
india 15
us
10 china 8.3
5 3.8
4.8 3
2.2 2.1
0.9 1.1 1.1 1.2
0
1970 1980 1990 2000 2010 2014
The share of manufacturing in India’s GDP has stagnated at 15-16% since 1980
while the share in comparable economies in Asia is much higher at 25 to 34%
3
EMPLOYMENT IN DIFFERENT SECTORS-GLOBAL SCENARIO
120%
100%
12% 13% 17% 18%
28%
2%
80%
19% 9%
60%
54%
manufacturing
38%
85%
agriculture
40%
services
64% 73%
20% 34% 34%
0%
china india us brazil russia
.
MANUFACTURING GROSS VALUE
2500
1923
1856
2000
1500
1000
500 226 282
0
china India us brazil
The advancement of manufacturing capabilities is directly linked to increasing
economic prosperity for a nation and its citizens. Proper positioning and
movement within the product space determines the ability to accelerate
economic development. Emerging nations should focus on directing policy and
investing resources in building capabilities and in product groups
4
TEXTILES
The textile sub-sector in India is characterised by small-scale, non-integrated
spinning, weaving, finishing, and apparel making enterprises. This structure arose
due to policies on tax, labour and other regulations that favoured small-scale,
labour-intensive enterprises, while discriminating against large-scale, capital-
intensive operations. Small-scale ‘unorganised’ players dominate the sector which
lacks stringent regulations. Highlights of the textile sector are as follows:
2nd largest producer in Cotton, Silk, Wool
63% of worlds market share (highest loom capacity)
2nd largest textile manufacturer
24% of the world’s spindles
Synthetic fibre-4th
India’s textile market size (USD billion)
250 223
200 CAGR 10.1%
150 143
100
78 89
70
50
0
2009 2010 2011 2016 2021
INDIA'S TEXTILE MARKET SIZE ( USD BILLION)
5
COTTON
Livelihood of 60 million people depends on cotton cultivation, processing trade and textiles. It has a great potential in manufacturing. Cotton covers around 7% of the total crop coverage and is second to rice in India.
40
30
20
bale
s
10
Inm
illio
n 0
India's production of
raw cotton Yield per hectare-
35.3 36.5 37.5 India vs world
33.9
30.7
28 29 30.5
500
india
750
world
20072008200920102011201220132014
Fiber production - India Cloth production -India
5% 1% 1%
11%
cotton 16%
cotton
100% non-
polyester
cotton
83%
viscose 27%
56%
blended
others
khadi,wool& silk
SOURCE :http://india-itme.com/pdfs/Textile_Machinery_Market.pdf
6
The abundant availability of raw material of cotton has to be utilized such that
the convertibility ratio is high in bringing out the value added products. The
yield per hectare of cotton can be improved by introducing latest Technologies.
the per capita spending on cloth of India is 37usd which is less as compared
with china which has 122USD & brazil which has 387 USD, which has the
greatest potential in unveiling the fabric market in INDIA
MSME – ROLES AND OPPORTUNITIES
The MSME sector is one of the key drivers for India’s transition from an
agrarian to an industrialised economy. MSMEs account for a large share of
industrial units. “According to MSME Act, 2006 the investment made in plant
& machinery is classified as known as Micro (<25 lakh), Small (25lakh- 5 crore),
Medium(>5-10crore) Enterprises. The following are the roles of MSME’S
Ensuring Adequate flow of credit
Skill Up-gradation Promoting Trade Infrastructure
Balanced Regional Development
INDUSTRIAL PRODUCTION
TOTAL EXPORTS
CONTRIBUTION TO GDP
MANUFACTURING
SERVICES
45%
42.38%
7.04%
37.54%
OPPORTUNITIES Economic Drivers
Employment Generators
Sectorial Growth 7
MSME’S –CONTRIBUTION TO MANUFACTURING GDP VS
EMPLOYMENT-GLOBAL SCENARIO
90%
80%
70%
60%
50%
Manufacturing GDP
40% contribution
30%
Employment
20%
10%
0%
India brazil us russia s.sfrica china
MSME’S –CONTRIBUTION TO MANUFACTURING-INDIA
8 Share has to be
improved by providing 7.8 adequate financial,
infra
7.6 assistance
7.4
7.2
7
6.8
6.6
2007 2008 2009 2010 2011 2012 2013
There are approximately 46 million Micro, Small and Medium Enterprise sector enterprises across various industries, employing 106 million people MSME sector can provide comparatively larger employment opportunities at comparatively lower capital cost especially in the rural and remote areas, by becoming part of the industrial ecosystem and act as ancillary units for large enterprises to support the system in growth.
8
FOREIGN DIRECT INVESTMENT 250
190
199 200
160 165
150
140
USD 130
129
MILLIO 90
104
N 100
50 40
9
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
BUDGET PROPOSALS
proposals
Amount in million
rs
Trade facilition center-
500
varnasi
Mega textile clusters(7 2000
places)
Hastkala academy-delhi
300
P-3 programme-j&k 500
9
OPPORTUNIES FOR TEXTILE SECTOR IN MSME’S
Pearls,Gems,Je
wellry,Metals,C oins
37% 35%
Electrical &
Electronic Equipments
6% 8% Textiles&
14% Apparels
Processing & Packaging
Raw fabric and dye production
Setting up of Handlooms/Power looms
SKILL DEVELOPMENT
Employment( no of employees in
2015 2022(projected) millions)
working population in Textile sector
35.4
61.6
Total working population(15-59)
793.6
881
Total population 1280 1370
10
% of working population undergone formal skill training
5%
India
96% 68%
uk
78%
germany
80%
usa
japan
52% skorea
The government along with other agencies should incentivise the students to enrol in higher education and vocational training with increasing demand for skilled labour.
SKILL ECOSYSTEM
The economic growth in the country which has led to a huge requirement of skilled workforce has ensured that the ecosystem has larger participation from all stakeholders which include decision making bodies, enablers, implementing agencies and beneficiaries.
11
GLOBAL COMPETITIVENESS RANKING 2014-15
RECOMMENDATIONS-SKILL DEVELOPMENT
Improving access to education with higher enrolment coupled
with better quality of education.
Provide incentives to factory workers in the form of skills premium
12
COUNTRIES/PAR-
INFRASTRUCTURE
MACRO-ECONOMIC BUSINESS
INNOVATION OVERALL RANKING AMETERS ENVIRONMENT SOPHISTICATION
BRAZIL 76 85 47 62 57
RUSSIA 39 31 86 65 53
INDIA 87 101 57 49 71
CHINA 46 10 43 32 28
S.AFRICA 60 89 31 43 56
Revise design course content in line with the global trends
High percentage of Enrolment for Vocational courses
Enrollment for vocational courses
(persons in millions)
India
5.5
China
90
US 11.3
Use of technology enabled solutions and adoption of the ‘PPP model school’ Format-Government as an Enabler
No. of Industrial Training Institutes has to be increased 13
Split of HR requirement by education
100 78
80
60
40
10
Split of incremental HR IN %
20
4 requirement by education 0
Intake Capacity
Shortage of
INTAKE capacity
1816
industrial training
institutes(1654 nos)
18624
industrial training
centres(887 nos)
31840
apparel training design centers(14 nos)
RECOMMENDATIONS – PHYSICAL FACTORS
Develop infrastructure to bring industry, not vice versa
Allocate 25 per cent of the land available at all Industrial
corridors for MSMEs at different rate slabs and for acquiring models.
Link Msme’s
14
BANKE RS
INVES TRADE
TORS MSM ASSOC.
E
MNC’S R&D
8
7
6
5
4
3
2
1
0
Cotton Demand Vs Supply
Potential for
starting MSME’S
supply
demand
export
2009 2010 2011 2012 2013
15
RECOMMENDATIONS- SOCIAL FACTORS
Complete Stalled projects
Lack of coordination with state entities across states
and central government. Public agencies which are mostly
involved in the project execution has to set practices and
processes to execute and monitor investments in order to
avoid the project delays. PPI (Private Participation in
Infrastructure) should be high.
Improve Ease of Doing Business
INDICATOR/COUNTRY
NEWZEELAND
INDIA
Procedures (number)
1
13
Time (days)
0.5
30
Cost (% of income per
0.3
16.3
capita)
Paid-in min. capital (%
0
111.2
of income per capita)
Growth of unregistered sector leads to lower productivity-it has to be taken into account
Land Acquisition Bill
16
RECOMMENDATIONS - FINANCIAL FACTORS
• The government and the financial Institutions must help to create MSME oriented SEZs, Hubs, clusters in rural areas
AREA-WISE SHARE OF MSMES
44.66%
Urban
55.34%
Rural
Government Should set a platform for FDI investment in MSME
Venture Capital Funds should be made available easily
India
1200 cr
(offshore )
china
3000 cr
Enhance the flow of Start-ups
us
29000 cr
Scheme for Aid during Financial Crisis
17
CONCLUSION
India has the capability to push its manufacturing contribution to GDP to 25% by
2025. Government has to act as the central pivot of aligning industries, private
companies, public sectors and all stakeholders in realizing this vision. Government
has to put policies in place be it sector reforms, labour reforms or the elimination
of business barriers. The Government of India has taken a number of steps to
further encourage investment and improve business climate. „Make in India‟
mission is one such long term initiative which will help to realize the dream of
transforming India into a „manufacturing hub‟. Hon’ble Prime Minister’s call for
„zero defect and zero effect‟ manufacturing resonates well with our industry as we
grow and produce for the world. India’s expanding economy offers equal
investment opportunities to domestic entrepreneurs and international players. It is
our responsibility to leverage emerging economy.
18