Make in India: Sectors in Focus - Part 1

7 Months agoThe stage has been set. The world is watching. The global spotlight is on India's economic growth.

This article is part 1 of the ‘Make in India: Sectors in Focus’ series that looks into the specific sectors that have most potential to grow and the ways in which the government is supporting it.

The stage has been set. The world is watching. The global spotlight is on India's economic growth.

It is a growth that will be measured and defined by the development of its manufacturing sectors. Under Make in India initiative, the government has identified 25 sectors of various industries that show tremendous potential to grow. This article highlights some of the key sectors that will be in focus in immediate future.

 

AUTOMOBILE

 

What is the Potential?

The automobile and auto component sector in India is the 6th largest in the world, having over 29 million people employed. Over the course of last six years, the annual automobile production has jumped by nearly 1.4 times while turnover of the automobile industry has risen by 1.3 times.1 India's geographical proximity to automotive markets in Japan, Korea, Europe and members of Association of Southeast Asian Nations (ASEAN) is a key factor in it becoming a global hub for sourcing automobile components.

In fact, while several Original Equipment Manufacturers (OEMs) are keen to enter the market, some are already setting up their Research and Development (R&D) base in India. Ford is investing USD 676.412 million in an R&D centre in Chennai, which soon to be one of the biggest centres in the entire Asia Pacific region. This set up would help in cost reduction by reducing the dependency on imports.2

Ford is also increasing the production capacity of its Chennai manufacturing plant. The global engineering and technology center will be set up by the company in India. This centre spread across 28 acres, will include a research & development unit and also a product testing centre. The automobile manufacturer will invest Rs.1300 crore & plan to get it ready by the first quarter of 2019. Vehicles and engines produced at Ford’s facilities in India get exported to as many as 50 countries, according to the Mint.3

What is the Government doing about it?

Since the Government allowed 100% FDI through an automatic approval route to the automobile sector that is already contributing 7% to the Gross Domestic Product (GDP), it seems natural to expect the sector to grow significantly.

While allowing investment will boost the economy, the success of sector lies in the number jobs that are created and sustained. The government through 'The Automotive Mission Plan 2026' envisions that the Indian automotive industry will grow from USD 260 to 300 billion by 2026. It is expected to create 65 million additional jobs and contribute over 12% of India’s GDP.4

The foresightedness of the administration does not stop here. Addressing the concerns raised by the depleting fossil fuel reserves and the increasing carbon dioxide emissions, the government has launched National Mission for Electric Mobility (NMEM) 2020 to foster adoption of electric and hybrid vehicles while encouraging their manufacturing in India.5

 

FOOD PROCESSING

 

What is the Potential?

The Indian food processing industry accounts for 32 per cent of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. It contributes around 14 per cent of manufacturing Gross Domestic Product (GDP), 13 per cent of India’s exports and 6 per cent of total industrial investment. Indian food service industry is expected to reach US$ 78 billion by 2018.

According to the data provided by the Department of Industrial Policies and Promotion (DIPP), the food processing sector in India has received around US$ 6.70 billion worth of Foreign Direct Investment (FDI) during the period April 2000-December 2015. The Confederation of Indian Industry (CII) estimates that the food processing sectors have the potential to attract as much as US$ 33 billion of investment over the next 10 years and also generate employment of nine million person-days.6

Therefore, the market presents ample opportunities for investors. Additionally, a shift toward high-protein, low-fat and organic food diet among consumers offers growth opportunities.

What is the Government doing about it?

Food Processing is another sector where the government allows 100 per cent FDI through the automatic approval route. Due to this, many foreign companies are now looking to enter and expand their markets in India. For instance, Mars Inc. plans to invest about USD 160 million in a manufacturing plant in Pune, India. The investment is expected to generate 200 direct and 1000 indirect jobs.6

Ministry of Food Processing Industries envisages trebling the size of investment in the processed food sector by increasing the level of processing of perishables from 6 per cent to 20 per cent, value addition from 20 per cent to 35 per cent and share in global food trade from 1.5 per cent to 3 per cent by 2015. According to the Ministry, an investment of Rs 100,000 crore (US$ 14.67 billion) would be required in 2015 to achieve these targets.

  1. Union Budget 2016-17 has proposed 100 per cent FDI through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India.
  2. All of the ration cards in India have been digitised and 42 per cent of the digitised ration cards are now linked to Unique Identification (UID) or Aadhaar cards.
  3. Government of India plans to allow two Indian dairy companies, Parag Milk Foods and Schreiber Dynamix Dairies, to export milk products to Russia for six months, after these companies got approval for their products by Russian inspection authorities.
  4. Ms Harsimrat Kaur Badal, Union Minister for Food Processing Industries, Government of India inaugurated the first of its kind Rs 136 crore (US$ 20 million) mega international food park at Dabwala Kalan, Punjab. She has also expressed confidence that the decision to allow 100 per cent Foreign Direct Investment (FDI) in multi-brand retail with 100 per cent local sourcing condition, will act as a catalyst for the food processing sector, thereby controlling inflation, uplifting the condition of farmers, and creating more jobs in the country.
  5. The Food Safety and Standards Authority of India (FSSAI) has issued new rules for importing products, to address concerns over the entry of sub-standard items and simplify the process by setting shelf-life norms and relaxing labelling guidelines.
  6. The Ministry of Food Processing Industries announced a scheme for Human Resource Development (HRD) in the food processing sector. The HRD scheme is being implemented through State Governments under the National Mission on Food Processing. The scheme has the following four components:
    • Creation of infrastructure facilities for degree/diploma courses in food processing sector
    • Entrepreneurship Development Programme (EDP)
    • Food Processing Training Centres (FPTC)
    • Training at recognised institutions at State/National level
  7. The Food Safety and Standards Authority of India (FSSAI) under the Ministry of Health and Family Welfare has issued the Food Safety and Standards (Food Product Standards and Food Additives) Regulations, 2011 and the Food Safety and Standards (Contaminants, Toxins and Residues) Regulations, 2011 which prescribe the quality and safety standards, respectively for food products.
  8. The Ministry of Food Processing Industries has taken some new initiatives to develop the food processing sector which will also help to enhance the incomes of farmers and export of agro and processed foods among others.
  9. Spices Board, set up by the Ministry of Commerce to develop and promote Indian spices worldwide, aims spice exports of US$ 3 billion by 2017.
  10. The Spices Board India has decided to sell around 30 of the choicest spices and value added products globally under the brand names ‘Spices India’ and ‘Flavourit’ by opening premium retail outlets abroad in partnership with private investors.
  11. The Government of India has approved the setting up of five numbers of Mega Food Parks in the states of Bihar, Maharashtra, Himachal Pradesh and Chhattisgarh. The Government plans to set up 42 such mega food parks across the country in next three to four years.
  12. In the Budget 2015-16, a corpus of Rs. 2,000 crore (US$ 293.44 million) was created under National Bank for Agriculture and Rural Development (NABARD) to provide cheaper credit to food processing industry. Excise duty on plant and machinery for packaging and processing has been brought down to six per cent from 10 per cent.
  13. The Government of India has planned to set up 37 mega food parks across the country in next Furthermore, the Ministry of Food Processing Industries is operating a Central Sector Scheme of Cold Chain, Value Addition and Preservation Infrastructure that aims at providing integrated and complete cold chain and preservation facilities without any break from the farm gate to the consumer. The government has further provided financial assistance for setting up these facilities, which can be set up by individuals, entrepreneurs, cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs) and Non-Governmental Organizations (NGOs).6

Recently, 100% FDI has been permitted under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India. Food processing sector in India offers ample investment opportunities in food processing equipment, cold storage units & warehouses, contract farming, mega food parks etc.

 

CHEMICALS

 

What is the Potential?

India is currently the third largest producer of chemicals in Asia while being sixth globally. The chemicals industry accounts for 2.1% of the nation’s GDP with estimated revenues of USD 144 billion.7 Major companies are expanding their business in the sector. Asian Paints is already investing USD 300.63 million to build the world's largest paint manufacturing plant at Mysore, Karnataka. The proposed plant will have the capacity of 600,000 kilolitres per annum, employing 900 people directly and 4,500 people indirectly.8

The reason this sector is in focus is that its welfare can potentially affect the growth of many other sectors such as pharmaceuticals, food processing, construction and automobile. For instance, Videocon Group is planning to set up a 60,000-tonne per annum fibreglass plant in Gujarat with an investment of USD 300.63 million. The fibreglass plant will look to tap the growing wind energy sector in the country.9

What is the Government doing about it?

Like automobile and food processing sector, the government has permitted 100% FDI under the automatic approval route for chemical sector too. It is also continuously reducing the list of reserved chemical items for production in the small-scale sector, thereby facilitating greater investment in technology up-gradation and modernization. Furthermore, the government has launched the Drafts National Chemical Policy, which aims to increase chemical sector’s share in country’s GDP.10

But the quality of production is only as good as the quality of the people working. Particular care must be given to training and dealing with chemicals. For this, steps are being taken for augmenting education infrastructure to create a skilled employee base for the sector.

There is also a dedicated focus towards innovation and R&D as the government is trying to support chemical sector’s movement up the value chain from bulk chemicals to more value-added chemicals. For this, there are special incentives offered for setting up Special Economic Zones (SEZs) and National Investment Manufacturing Zones (NIMZ) in designated areas of Jammu & Kashmir, North East Region, Himachal Pradesh and Uttarakhand. The government has also approved 4 Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs) in the state of Andhra Pradesh (Vishakhapatnam), Gujarat (Dahej), Odisha (Paradeep) and Tamil Nadu (Cuddalore and Naghapattinam) to promote investment and industrial development in these sectors. The PCPIR is envisioned to reap the benefits of co-siting and networking through the use of shared infrastructure along with its support services. Once fully established, these PCPIRs are expected to attract investment of USD 114,673 million approximately.11

This list is by no means an exhaustive one. While the sectors mentioned above have a been agreed upon by many studies as being in focus for the coming years, other sectors – like Construction, Renewable Energy, Railway, Electrical System, Electrical Machinery, Defence and Mining – are contending to get noticed too in the immediate future. These shall be explored over the next part of the series.

One thing is for certain: The potential future trajectory for each sector is high enough to pull India in directions that could define the nation's economic status for the next decade.

Citations:
1 http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=13
2 Select Marquee investors doc for SIPP v3
3 http://www.livemint.com/Companies/FqPH3ePE8vLnsoEwQX8OcI/Fords-Rs1300-crore-global-business-centre-to-start-operati.html
4 Automotive Mission Plan: 2016-26 (A Curtain Raiser)‘, SIAM, 8 September 2015
5 Press Information Bureau, Government of India, accessed 5 December 2015
6 http://www.ibef.org/industry/indian-food-industry.aspx
7 http://nationalherald.net/?p=8238
8 http://www.makeinindia.com/sector/chemicals
9 Select Marquee investors doc for SIPP v3
10 http://www.ibef.org/industry/chemicals-presentation
11 http://www.indiachem.in/pcpir/