US$30bn opportunities

India’s capital goods manufacturing sector offers US$30 billion (Rs.2 lakh crore) business opportunities a year, including the global original equipment manufacturing (OEMs), said Abhishek Agrawal, Associate Partner of McKinsey & Company, in Mumbai on 1 December 2016.

“Despite the sector being under-developed, there is a silver lining. Economic reforms rolled out by the government over the years and kick-starting of capex cycle in many end-use sectors have created new opportunities,” said Agrawal.

These opportunities would be in Emission norms regulations; Investments into logistics infrastructure (railways, ports, roads); Thrust on indigenization of manufacturing in aerospace and defence; Urbanization; Meeting India’s energy, material and food demands.

Tapping these opportunities could also accelerate the growth of this sector, add Rs. 40,000–Rs.50,000 crore to country’s GDP, allow import bill to be reduced by about US$20-25 billion.

“It could also create additional 5 lakh direct jobs and 50 lakh jobs in total,” said Agrawal.

Agrawal spoke at the launch of “Accelerating growth in the Indian capital goods sector”, by Federation of Indian Chambers of Commerce and Industry (FICCI) and McKinsey & Company.

While releasing the report, FICCI Secretary General Dr. A Didar Singh added “Capital goods is now the fourth largest import category after crude oil, electronics and gold.

“The future growth trajectory of the sector could be accelerated. Based on the push under the “Make in India” campaign and the trends in key end-use sectors, there are multiple growth opportunities on the horizon in India for capital goods players,” he said.

Though the demand for capital goods in the country has grown by almost two-and-a-half times over the last decade to Rs.3.7 lakh crore in 2015, the sectors’ contribution to India’s GDP is 0.6% as compared to 4.1% for China, 3.4% for Germany and 2.8% for Korea.

Much of the demand was met by imports, thus making it the country’s fourth- largest import category after crude oil, electronics and gold, it said.

For a $2 trillion economy, the sector is still relatively under-developed.

The study reveals that the sector could have been weighed down due to low investments in technology and talent.

In Indian capital good sector, less than 1% of revenue is ploughed back in R&D as compared to 5-6% in Germany.

The sector has attracted an annual investment of Rs.18,000-20,000 crore and has been stagnant at 1.4% growth.

Indian goods sector has also been missing a deep component supplier ecosystem along with limited B2B sales and marketing capabilities. fii-news.com