Thursday, March 3, 2011

Insite of manufacturing sector in India

Introduction :-
The growth rate of manufacturing sector in a country truly reflects its economic potentiality. Most of the developed countries are strong enough in their manufacturing sector.
Encouraged by an increasing presence of multinationals, scaling up of operations by domestic companies and an ever expanding domestic market, Indian manufacturing sector has shown a promising growth. This can be seen by IIP for May, 2010 which is 11.5%.
India is emerging as a global manufacturing hub. Be it automobiles or computer hardware, consumer durables or engineering products, all are being manufactured by multinationals in India. Many MNC has decided to make India as their global manufacturing hub. Some of them are
Companies           Areas/ Product
LG                                 Mobile Handset
Airbus                  A350 plane
Cumins                 Generator set
Ford                     Engine Manufacturing
Suzuki                  Small cars, like A-star

Favourable Factors :-
Some of the factors which look lucrative to the manufacturer to set up a manufacturing plant in India are,
·        Tax structure, which is even much lower than China.
Following is the tax system for India’s “Special Economic Zones”:
  Corporate Income Tax:  15%
  First five years of profitability:  0% tax
  Second five years of profitability:  50% tax (This is assumed to be 7.5%.)
  Third five years of profitability:  50% of tax rate for any invested dividends that are invested back into India

·        Cheap raw materials: India is the lowest cost producer of steel, cement, aluminum, and many other capital goods.

·        Manufacturing quality and skills: India’s manufacturing quality and engineering skills have improved significantly over the year. Ten Indian companies have won the Deming prize for total quality management. Another 18 plants in 10 Indian companies have been recognised by the Japanese Institute of Plant management for excelling in total productive management.

·        low cost of labor per unit of product.
                         Per unit Labor cost of different Nations
·        Software and service support: India’s software skills and information technology (IT) industry provide great complementary advantage in supporting the country’s manufacturing growth.

·        Global supply capability: Many India firms are building up the global supply capability model by accessing the China market for components, acquiring stake in foreign companies to facilitate marketing, servicing, and establishing local assembly and/or manufacturing units abroad (for example, TVS Motors and Bajaj in Indonesia). This is a completely new mindset of globalising Indian companies.

·        Large domestic market advantage: - Companies in India can leverage on  domestic market growth to attain export competitiveness through scaling up capacities. Domestic scale restrictive policies such as the reservation for small-scale industries have been largely removed and are no longer an entry barrier in many labour-intensive industries like garments, toys and sports goods.

Possible Bottleneck :-

Although India seems to be a profitable destination for manufacturing companies but still manufacturing sector is far lagging behind when compare to other countries (currently India is on 12th position) and still it is uncertain that India’s success story can written by manufacturing sector. It may be because of the following reasons, revealed by a survey done by PWC
·        Bribery and corruption are the most common economic crimes that India's manufacturing sector faces, says the PwC Global Economic Crime Survey.
·        Over 25 per cent of Indian manufacturing sector respondents have been victims of economic crime in the past year as against 21 per cent of the global manufacturing sector respondents.
·        Further, 33 per cent of manufacturing company respondents in India cited accounting fraud to have affected their business in the past year.
·        About 17% of respondents from the manufacturing sector in India reported having suffered asset misappropriation.
·        Rationalization to commit economic crime was much higher in manufacturing companies in India (42%) as compared to the global level (15%).
Given the current economic environment and historical trend of actual incidences of fraud, it is likely that the manufacturing sector in India may witness far greater levels of economic crime than perceived by respondents.

The key obstacle for India is its poor infrastructure, especially in ports and shipping facilities and power. These are important entities and India need to invest significantly in infrastructure. Equally important but perhaps less challenging is the need for India to build the reputation of the “made in India” brand label.
The dominating industry rule, whether it is toy cars or real car components, is supply chain management which ensures timely and quality supply. The supplier needs to meet the quality standards set by the buyer. India enjoys the reputation of high quality and delivery in the IT and IT-enabled industries (Business Process Outsourcing). However, it needs to set up a large number of product quality testing laboratories to meet environmental and sanitary standards required to sell in the global market.

Conclusion :-
In India, manufacturing sector is growing at a faster pace still it has failed to some extent with regards to its percentage share in the total GDP. Though the services sector in India has brought faster economic success, still the manufacturing sector plays an important role on the ground of sustainability of India’s economic growth. India’s success to expand its manufacturing industry has yet to be as firmly demonstrated.

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