India-Sweden: Industrial Goods Collaboration

9 Days agoIn the countdown to #IndiaInStockholm, deep dive into Indo-Swedish collaboration in Industrial Goods.

The Capital Goods industry in India


The capital goods sector is a measure of a nation’s engineering prowess. Growth of manufacturing and infrastructure is directly related to the growth of the capital goods sector and is integral to India’s economic development. In addition, Machinery & Equipment – manufacturing industry’s two critical resources – also fall under this sector.

 

With a market size of ~USD 42 billion, the sector contributes 12% to India’s manufacturing output and 1.8% to its GDP1; provides direct employment to ~1.4 million people and indirect employment to ~7 million2.

Over the last 5 years, sector imports have been growing at a rate of 9.8% per annum. The share of imports in the Indian capital goods market increased from 34% in 2009- 10 to 40% in 2014-15, indicating an emerging threat to India's self-reliance. At the same time, it is important to know that the capacity utilization of domestic manufacturers has only been about 60-70% across sub-sectors. This indicates the presence of an immense potential that could be tapped for further development3.

 

Sweden’s Capital Goods sector

 

Sweden is one of the top manufacturing destinations in the world; the country’s manufacturing industry constitutes 18% of the GDP and contributes 77% to exports. This contribution to the GDP has been Sweden’s growth engine during the times of recession as well as during economic expansions. Machinery & Equipment is one of the largest sectors in Sweden, accounting for 12% of the overall manufacturing industry4. Sweden is also one of the top destinations in the world for R&D investment, with 75% of the R&D expenditure dedicated to the manufacturing sector.

 

Why India?

 
  • India’s National Capital Goods Policy

    The government has been hard at work in transforming the manufacturing industry by implementing landmark policy along with the provision of monetary assistance. The National Capital Goods Policy is one such example. The policy anticipates production of capital goods to increase to USD 115 billion by 2025, from the current figure of USD 35 billion. This in turn would lead to an increase in exports from the current 27% to 40% of production, and stretch the share of domestic production in India’s demand from 60% to 80%. To support these objectives, employment figures are also expected to rise to 30 million from the present 8.4 million5.

  • Rapid Urbanization

    Urbanization is on the rise and is expected to create more demand for modern waste-management solutions, water solutions, modern information and communications technology systems, and upgrades to existing urban transport. Moreover, by 2025, India is estimated to have 69 metropolitan cities and USD 15 billion invested in the Smart Cities Mission and Atal Mission for Rejuvenation and Urban Transformation scheme.

  • Increased spend on logistics infrastructure

    Ample opportunities exist for material handling equipment, construction-equipment manufacturers, and engineering, procurement, and construction providers. These arise from the government’s decision to prioritize public spending on infrastructure and transportation.

  • Basic materials requirement

    There’s an immense pool of opportunities for technology upgrades such as high- capacity mining equipment, continuous miners, and automated material handling in the years to come. Farm mechanization and upgradation of agricultural technology has become important to increase agricultural productivity and feed the growing population. This is in sync with India’s emphasis on reducing dependence on imported coal. The oversupplied cement business is anticipated to get a boost from the infrastructure build out. About 80 to 100 metric tons per annum is to be added over the next five years. These investments are expected to generate an estimated opportunity of USD 5 billion for cement-machinery players.

  • Power Generation and Distribution

    A plethora of growth opportunities exist for engineering, procurement and construction companies as well as package and component suppliers; India has massive power capacity addition targets, which will be met by investments in both renewable as well as conventional power generation infrastructure.


     

Why capital goods in India?

 

An attractive investment destination for the capital goods sector, India’s strategic trade location, trade relations and abundance in availability of raw materials only add to the list of advantages. The sector has grown at 8% for the past 5 years and is envisaged to grow at 17% by 2022. The Indian capital goods market is expected to double in size and cross the USD 100 billion mark.

 

Indo-Swedish ventures

 

Swedish companies recognized India as an investment destination two decades ago; the Government of India is aiming to enhance existing opportunities as well as opening doors for new ones. Some of the major Swedish companies operating in India include ABB and SKF (Heavy Electricals), Siemens (Heavy Electricals & Process Plant), Sandvik (Process Plant Equipment, Machine Tools & Earth moving), Alfa Laval and Scania (Earthmoving & Mining machinery).

Being a major importer of capital goods, India has immense scope for import- substitution in the sector. R&D expenditure by Indian companies in the sector is only 0.5% of annual revenue and most technologies are either imported or licensed from global OEMs6. Whereas, R&D capabilities of Swedish companies in the capital goods sector could be valuable in achieving the manufacturing targets set by government of India. Swedish makers with their R&D proficiency, setting up manufacturing units in India, would significantly benefit both the countries.

Source:
1 National Capital Goods Policy 2016
2 http://pib.nic.in/newsite/PrintRelease.aspx?relid=132793
3 https://www.gita.org.in/Attachments/Reports/Accelrating_Growth.pdf
4 https://www.business-sweden.se/globalassets/invest-new/reports-and-documents/manufacturing-operations-in-sweden---sector-overview-2016.pdf
5 http://pib.nic.in/newsite/mbErel.aspx?relid=136430
6 https://www.gita.org.in/Attachments/Reports/Accelrating_Growth.pdf