Make in India. Amit Ganeriwalla. 22 August, National symposium on manufacturing & best practices

Transcription

1 Make in India National symposium on manufacturing & best practices Amit Ganeriwalla 22 August, 1

2 The Vision Make in India mn additional jobs Zero defect & zero effect 25% of GDP National Symposium on Mfr_v2.3_Prod_final_2.pptx 1

3 The Need Growth in manufacturing has a multiplier effect... Increase in o/p parameter for one unit value add in industry reflected in a higher share for mfr in developing economies Mfr (as a % of GDP) 13% 33% In comparable years 25% 27% Employment Bio-pharma Auto-parts Steel GD P 5.79 jobs created 1 through consumption effect & supply chain for every direct job in mfr Year GDP per capita ($ PPP) India China South Korea Indonesia,925 5,1 52 5, For steel industry at 3% Productivity growth National Symposium on Mfr_v2.3_Prod_final_2.pptx 2

4 The Gap Manufacturing share in India's GDP ~13% Manufacturing as a % of GDP Only 2% share in World's Manufacturing exports Manufacturing exports as a % of world exports ~12% labour employed in Manufacturing Manufacturing sector contribution to total employment (%) China US A India China Germany India China US A India Source: Central Statistics Office; Euromonitor; BCG Analysis National Symposium on Mfr_v2.3_Prod_final_2.pptx 3

5 The Ask Manufacturing GDP (INR trillion) 15.7% 2x more NMP Aspiration Normal Growth % Share in GDP 32 ~5% 25. % Jobs created (millions) Create 3x more jobs 5 NMP Aspiration 3 Normal Growth 7 Additional Aspiration Invest additional ~5 to 65 Lakh Crore 1 Additions in gross fixed assets (Rs lakh cr) Additional Projection at 3% productivity gain Projection at 5% productivity gain 1. At current market prices; nominal value projections Note: Asset productivity is defined as revenues generated per gross fixed asset. All GDP data at constant ( 5) prices; Likely achievement assumes Manufacturing GDP growth of 6% based on survey consensus; Manufacturing GDP calculated based on Real GDP data from EIU and applying manufacturing % (of GDP) from Euromonitor International; Indian GDP and Manufacturing GDP forecasts are from Oxford Economics database. US$ / INR exchange rate assumed to be 5. NMP target assumes achievement of 25% share in GDP at constant CAGR of 12.5% starting. Source: CII-BCG Manufacturing Leadership Survey 12; EIU, CSO, ASI, Capitaline, ; Euromonitor; Oxford Economics; BCG Analysis National Symposium on Mfr_v2.3_Prod_final_2.pptx

6 However, current performance not in tune with aspiration Manufacturing GDP has stagnated since FY 11 Manufacturing GDP (INR trillion) 11% 2% Share in GDP (%) Note: Manufacturing GDP at factor cost, constant ( 5) prices Source: Central Statistics Office; EIU Data base; BCG Analysis Lowest share in past years National Symposium on Mfr_v2.3_Prod_final_2.pptx 5

7 Manufacturing investments have registered a sharp fall Investments in manufacturing have registered a sharp drop Total investments (INR trillion) Investment/ project (INR billion) % % FY 8 H1 FY 8 H2 FY 9 H1 FY 9 H2 FY1 H1 FY1 H2 FY1 1 H1 FY1 1 H2 FY1 2 H1 FY1 2 H2 FY1 3 H1 FY1 3 H2 Avg. investment per project Investments Source: The World Bank 'Doing Business' Report 13, CMIE, BCG analysis National Symposium on Mfr_v2.3_Prod_final_2.pptx 6

8 The opportunity is large GDP growth rate 1 > 3% < 3% GDP growth 5% ~3 Bn 1. Cut off taken on the basis of forecasted 5 year global GDP rate of 3.% Source : EIU database ; Based on 5 year GDP forecasts (1-19); Where forecasts were unavilable, 2 ear GDP forecasts considered. Blank.potx 7

9 Shifting economics of global manufacturing presents additional opportunity Change in BCG Global Manufacturing Cost-Competitiveness Index 1 from -1 Unchanged or improved Declined 1- points Declined 5-9 points Declined -1 points Declined 15 or more points Outside top 25 exporters 1.Index based on BCG analysis of manufacturing costs for the world s leading economies along four key dimensions: manufacturing wages, labor productivity, energy costs, and exchange rates Note: Chart covers only the world's top 25 exporting nations. These account for nearly 9 % of global exports of manufactured goods. Blank.potx 8

10 US has improved its cost competitiveness Slower increase in wages... Productivity-adjusted manufacturing wages ($)...and electricity costs... Industrial electricity cost (cents per kilowatt hour)... and a decline in naturalgas costs Industrial natural-gas cost ($ per million BTUs) % % % % % % China USA China USA China USA Sources: U.S. Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG. Note: Index covers four direct costs only. No difference assumed in other costs (for example, raw-material inputs, machine and tool depreciation); cost structure calculated as a weighted average across all industries. National Symposium on Mfr_v2.3_Prod_final_2.pptx 9

11 The UK is the cheapest manufacturing location in Western Europe Several initiatives undertaken... Cheapest manufacturing location in Western Europe >% cheaper than W European countries Labour flexibility highest among Europe 1 Corporate taxes lowest in Europe Ancillary hubs developed Auto Midlands, Oxfordshire Aerospace Bristol Hi-Tech Manufacturing East London, Warwickshire Auto cos. invested $17 bn since Expansion by Nissan, Honda, BMW, Jaguar Land Rover UK auto output up by 5% 8% cars built in UK exported 11% of SMEs have brought back production from overseas in last 12 months & More positively impacting manufacturing Industry 1. Fraser Institute Canada; BCG Analysis National Symposium on Mfr_v2.3_Prod_final_2.pptx

12 Mexico is more cost competitive than China! Developments during the decade 1 + 6% than China Factors Mexico Top 25 Mfg. Countries Wages Absolute Productivity Currency Natural Gas Cost Electricity Cost FTA with Countries Longer working hours than other OECD countries Fewer Industrial disputes - % than China Electronics exports tripled from 6 to 13 (US $ 78 Bn) National Symposium on Mfr_v2.3_Prod_final_2.pptx 11

13 China Germany United States Japan South Korea France Italy Netherlands Belgium United Kingdom Canada Russia Mexico Taiwan India Switzerland Australia Spain Brazil Thailand Indonesia Poland Sweden Austria Czech Republic... and so is India! Manufacturing-cost index, 1 (U.S. = ) Labor 1 Electricity Natural gas Other Size of exports (highest to lowest) Sources: U.S. Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG. Note: Index covers four direct costs only. No difference assumed in other costs (for example, raw-material inputs, machine and tool depreciation); cost structure calculated as a weighted average across all industries 1. Productivity-adjusted. National Symposium on Mfr_v2.3_Prod_final_2.pptx 12

14 However, Total Cost of Doing Business offsets direct cost advantages Countries Competitiveness of countries with low cost is weakened by Manufacturing cost relative to US Overall business environment ranking 1 Ease of doing business ranking 2 Logistics Performance ranking 3 Corruption Perception ranking Indonesia India Thailand Russia Sources: US Economic Census; US Bureau of Labour Statistics, US Bureau of Economic Analysis, International Labour Organization, Euro monitor, Economist Intelligence Unit, BCG Analysis Note: Includes a selection of economies ranked from 11 to 25 on total export size 1. Economic Intelligence Unit ranking is based on separate criteria of categories covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market, and infrastructure 2. Work Bank Ease of Doing Business Index 3. World Bank Logistics Performance Index. Transparency International 13 Corruption Perception Index National Symposium on Mfr_v2.3_Prod_final_2.pptx 13

15 Need to focus on multiple topics to spur growth 1 Plug skill gap 5 Promote better business environment Harness the power of the ecosystem 2 Focus on Promote 3 total costs innovation National Symposium on Mfr_v2.3_Prod_final_2.pptx 1

16 1 Plug Skill Gap Increase availability of skilled labour Low proportion of skilled workers entering workforce in India % of skilled to total workers entering workforce anually 1,2 5 Skilled labor availability (EIU rating) best and 1- worst Vocational Edu Higher Edu Gap of skilled workforce widening Annual skilled workers Demand/ Supply (Mn) Blank.potx % % 2 5 Annual Demand Supply 1. 9 data, All graduates counted as skilled 2. Only formally skilled workers are considered for all countries except India, 3. Includes construction material, building hardware, electronics & IT hardware, pharma, furniture, chemical & petrochemicals Source: EIU data on educational enrolment ; Skill Development in Manufacturing: Strategic Recommendations for the 12th Five Year Plan, HRM report; NSDC sector reports on skill gaps ; Skill mapping in Indian labor - labor & development department, ; EIU data on skilling & vocational enrolment ; Skilling a billion people, CRISIL ; FICCI report on skilling landscape, ; BCG Analysis.1

17 2 Harness the power of the ecosystem Strengthen the SME ecosystem SME's critical to India's prosperity.. No of MSME Enterprises is 7.73 Lakhs Contribute to 5% of India's Manufacturing output Contribute to % of the exports SME defaults are highest amongst all credit classes......and have risen progressively in the past two years Gross NPA (%) Percentage of total loans MSME Agri Corporate Retail Car LADS Home 5 SME Gross NPA (%) bps Source: Ministry of Micro, Small and Medium enterprises Annual report (12-13); Source: FIBAC Productivity Survey 11; FIBAC Productivity Survey 13; BCG analysis. National Symposium on Mfr_v2.3_Prod_final_2.pptx 16

18 2 Harness the power of the ecosystem Case Study: Germany's robust economy driven by 3.5 Mn SMEs (Mittelstand) Mittelstand consists mainly of family-owned firms Mittelstand are the backbone of the German economy.. Niche market players Technology driven innovators % Others Mittelstand Cluster around big manufacturers Develop close ties to local region 75 39% 8% Concentrated in machinery, auto parts, chemicals & electric equipment % 52% Employee s GD P Note: Source: German Trade & Invest Website National Symposium on Mfr_v2.3_Prod_final_2.pptx 17

19 2 Harness the power of the ecosystem Mittelstand supported by efficient business model and strong ecosystem Success attributed to core philosophies... Razor-sharp focus & efficiency by learning to do 1 thing well Modern Mgt Outside prof mgt, lean mfg & TQM Diversify internationally to enjoy economies of scale Collaborative spirit Employee-employer collab; Apprenticeship system...and surrounding support systems Innovation local university tie ups & central Innovation scheme Financing through debt instrument issues & SME funds National Symposium on Mfr_v2.3_Prod_final_2.pptx 18

20 3 Promote Innovation Invest in R&D and innovation India's R&D spend to GDP ratio 1 ~ 1/2 of China's only Patent applications 2 growing rapidly, yet contribute <2% R&D spend as % of GDP Israel 3. Japa n 2.8 US A 1.8 UK 2. China.9 India Patents filed by country as % of total filed worldwide % National Symposium on Mfr_v2.3_Prod_final_2.pptx % Germany % Growth rate ('11 '12) 1. Represents data for 1 2. For 12 Source: World International Patent Organization, Office of the controller general of Patents, Designs, Trademarks, Geographical indications, Intellectual property training institute and patent information system Statistics Database, 1, The Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications Annual Report (12-13) Japa n US A 3% 2.6 China 1.9 India 6% 1.3 Brazil 25% % 15% % 5% %

21 Focus on total costs De-bottleneck infrastructure Large ports at high utilisation Port turn around time nearly 5 times that in Sri Lanka Average truck speed in USA nearly twice that in India Cochin Ennore Haldia Mangalore Chennai Paradip Kolkata Tuticorin Kandla Mormugao Vizag JNPT Mumbai Overall Turn around time (hrs) 5 8 India 17 Sri Lanka Thailand Average speed (km / hr) India China 8 US A Source: IEA Statistics 8, IBP Statistical Tables 9, Office of Freight Mgmt & Operations, Performance Measurement Programs 8 and Federal Highway Admn, NHAI; Port utilisation data for National Symposium on Mfr_v2.3_Prod_final_2.pptx

22 5 Promote better business environment Reduce the indirect cost of doing business No. of procedures # of days taken to start a business 3 3 Cost (% of GNI per capita) India OEC D India OEC D India OEC D Note: Cost of starting a business, is the incremental costs incurred in starting business like fees paid for legalities and procedures Source: 'Doing Business' database 9: a World Bank Group database National Symposium on Mfr_v2.3_Prod_final_2.pptx 21

23 In Summary Aspiration is to lead next wave of industrialization Make in India th Largest Manufacturer Manufacturing to become 25% of GDP by 25 However, starting position is weak Share of manufacturing stagnated at 15% of GDP Several structural constraints (infra, labour, power, policy) Potential is there Improved cost competitiveness Located in Arc of Opportunity And, competition in intensifying Return of USA, UK Other developing countries e.g. Mexico "Potential, too, has a shelf life" National Symposium on Mfr_v2.3_Prod_final_2.pptx 22