India Development News & Foreign Investment Opportunities

Export demand to drive future growth of manufacturing

Focus on global value chains key to growth


Focus on global value chains key to growth




India Inc. is optimistic on the prospects of economic growth in the next 12 months, supported by faster sectoral growth and export demand, according to a report.

The prognosis is held out by the “FICCI-PwC India Manufacturing Barometer 2019: Building Export Competitiveness” which was released on 9 Jan 2019.

“As Global trade has changed significantly in the last few years with new trade routes based on Global Value Chains (GVCs), we need to provide Indian exporters the opportunity to contribute to align with these global value chains,” said Puneet Dalmia, Chairman, FICCI Manufacturing Committee and MD, Dalmia Bharat Group, at the report release.

“There are number of sectors where India can be truly global leader,” he said, citing textiles, automotive, chemicals, leather, metals among others.

The Barometer survey, done from July to October 2018, covered chief executive officers, chief financial officers, chief operating officers and heads of strategy from the Indian manufacturing sector.

The survey respondents represent a mix of companies engaged in exports with varied technology and human capital requirements. Large as well as medium-scale organisations were included in order to gain a balanced viewpoint on manufacturing and the export competitiveness of India’s manufacturing sector, said FICCI in a statement.

The sample includes companies that contribute approximately 12% to the manufacturing GDP of the country from various sectors, namely, automobiles and auto components, chemicals, electrical machinery, food processing, leather, pharmaceuticals and textiles.

Most of the respondents were upbeat and confident about India’s positive growth performance. Most also believed that India has the potential to grow at an average rate of 7% or more in the next 12 months. This is aligned with the projections of international development agencies such as the World Bank Group and the IMF.

Fifty-eight per cent of the respondents believe that their sector would grow faster by at least 5% in the coming 12 months.

The respondents contend one of the key reasons for faster growth is the focus on Ease of Doing Business and introduction of reforms such as GST that are opening new vistas for investments across the country.

In the past, the manufacturing sector relied on the domestic market as the primary source of revenue.

The survey reveals the growing importance of exports to manufacturing companies in the future, with a focus on a good mix of parts – component trade along with end product trade, and the imperative to strategies for both types.

Further, India Inc. seems to have begun placing greater emphasis on technology integration, including a renewed focus on R&D and innovation.

To cement India’s status as a global export destination, India Inc expects the Government to focus on business ecosystem reforms and the industry’s integration with global value chains.

Currently, over 65% of the companies whose CXOs participated in the survey have the Indian market as their major source of business.

However, 85% of them believe that their future growth will be driven by export demand.

This is in sync with India’s export performance over the last 12 months. In FY 2017-18, India’s exports grew by 9.8%, the fastest growth in the last five years.

An interesting observation from the survey is that the quality advantage being seen as the reason for driving export growth, ahead of cost advantage as the primary reason for exports. However, imports during the same period also grew by 19.6%.

Non-availability of intermediate products and raw materials and cost and quality advantages in sourcing from other markets were seen as the key reasons for rising imports. But what is encouraging is that most of them believe that over the next 5 years, their dependence on imports will reduce.

The survey notes that to make export growth more sustainable, the industry requires an ecosystem that promotes manufacturing competitiveness and facilitates the production of goods of global quality standards at prices that are competitive.

Stronger economic relations with certain countries in target sectors will enable the development of competitive supply chains beyond Indian borders.

The survey states that to promote export growth in terms of operations, India Inc. expects the Government’s support in:

Capacity augmentation at export gateways to reduce waiting time;

Enhancement of key trade infrastructure at the gateways;

Improvement of soft infrastructure through simplification of processes to reduce procedural delays at export gateways and creation of digital platforms;

Improvement of manufacturing standardisation and safety procedures – specific government focus on manufacturing standards harmonisation, and development of safety protocols for intermediate and final products to ensure compliance with global standards;

Policy measures to aid in ecosystem improvement for the manufacturing industry in India and creating a quality and cost advantage over global competition;

Continuous evaluation of existing policies and schemes along with corrective measures to remove rising constraints to manufacturing and exports on account of the changing global and domestic landscape.

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