India’s Expanding Economy and Emerging Growth Opportunities

Insiderlogo3India’s expanding economy and emerging growth opportunities

By Rajabahadur V. Arcot,
Independent Industry Analyst / columnist and Automation Consultant with extensive experience in writing industry and technology trend articles, market research reports, case studies, white papers, and automation & manufacturing IT insights
rajabahadurav@gmail.com

India, with a growing economy, has been an important market for global automation supplier companies for the past couple of decades. Resulting from the growth dynamics that are in play in the country, the economic and industrial profiles of the country are undergoing changes. The transformations taking place will further enhance India’s importance for the global automation industry.  Until now, process industry control system suppliers mainly benefitted because of large investments that have been taking place in industries, such as electric power, oil and gas, cement, and steel. With the expected expansion of industries relating to construction & infrastructure development, electronics & semiconductors, and defense in the coming years, the future looks bright for discrete industry automation suppliers as well.

Influenced by global trends, even electric power industry, which presently accounts for a significantly large share of the control and instrumentation market in India, is at an inflexion point. Investments in fossil fired power plants are set to decline. According to industry sources, by 2030, almost 40 percent of the country’s total generating capacity is expected to come from renewable energy sources.  Renewable electricity generation, which presently stands close to 50 GW, is set to rise to 175 GW by the year 2022, with solar power contributing to almost 100 GW. This implies boost to the growth of industries relating to production of solar cells and modules, battery, invertors, and such others. The automotive industry’s plan to switch over to electric vehicles by 2030 will also provide additional impetus for the growth of the battery, charging stations, and other related industries.

After course corrections, India’s economy scales back

India’s economy, as it expands, keeps mutating and evolving with the State initiatives continuing to play a crucial role. Some of these initiatives are major course-corrections and hence have lingering negative impacts in the near-term. Examples of such initiatives are the recent measures to free the economy of the influence of unaccounted money through demonetization of high value currency notes and the introduction of more transparent and efficient Goods and Services Tax (GST). While both these measures are long-term positive for the Indian economy, their near-term impacts have been negative leading to growth slowdown in recent quarters.  The World Bank’s report – Global Economic Prospects – that was released few months after demonetization, foresees GDP growth to scale back. Also, it attributed the initial growth slowdown to the withdrawal of a large volume of currency in circulation and their subsequent replacement with new notes. While responding to questions on the slowdown in India’s growth, World Bank President Jim Yong Kim called the recent slowdown in India’s economic growth as an “aberration” caused by temporary disruptions due to the introduction of GST. He further said that GST will have a positive impact on the Indian economy.

According to the newly released data, India’s economic indicators have turned positive once again and point to economic revival.  The United Nations’ ‘World Economic Situation and Prospects 2018’ report, which states that India will clock a GDP growth rate of 7.2 percent in 2018 and 7.4 percent in 2019, reaffirms this optimism. According to the report, India, driven by robust private consumption, public investment, and government reforms, is set once again to emerge as the fastest growing economy in the world. Other reports are also positive about the country’s growth prospects. Indian economy is expected to witness a sharp recovery in the first quarter of 2018 and its GDP growth is likely to be around 7.5 per cent for 2018, says the recent Nomura report.

Transformations and Initiatives underway augur holistic and sustainable growth

Additional economic and industrial transformations are also underway and they are expected to spur the country’s economy further and contribute to accelerating growth and making the growth more holistic and sustainable. Until now, the service & informal sectors and domestic private consumption largely contributed to the country’s economic growth. The manufacturing sector’s contribution was mainly related to meeting the essential needs of a nascent economy, such as electric power, steel, and cement.  While subsequently it began to encompass industries, such as generic pharmaceuticals, petroleum refining, and automotive, the country continues to depend on large-scale imports to meet the ever-expanding needs for consumer durables, electronic goods, defense equipment, and such others. With imports exceeding exports, the country, already, finds it challenging in balancing its trade account and the deficit is unsustainable in the long run. This situation dictates the growth of a manufacturing industry that caters to the needs and wants of evolving consumers and the country.

The manufacturing industry presently contributes to only 15 percent of India’s GDP. Driven by the fact that the growth of the service industry and private consumption beyond a point can be sustained only when they are backed up by the growth of the manufacturing industry that is broad-based to meet the aspirational wants of consumers, India is making efforts to increase the role of manufacturing both for achieving sustainable economic growth and job creation. The ‘Make in India’ program aims to make the country a manufacturing hub and push the share of the manufacturing industry to 25 percent from the present 15 percent, and in the process create millions of jobs in 25 industry verticals that include electronics and electronic systems, defense equipment, and infrastructure, such as construction of roads & highways, ports and others.

Yet another feature of the Indian economy is that its growth until now has been domestically funded. With limited access to capital, the country had to prioritize its investment. As a consequence, enough funding was not available for the development of infrastructure, such as the construction of roads, highways, ports, cities and others. Wealth generation that the country has witnessed in the last couple of decades has contributed to increased domestic savings, tax collections, and growth of banking & other financial sectors.  In addition, India has become attractive for global institutional investors and has emerged as an attractive investment destination. Investment in physical assets, such as gold has been the traditional means of savings in the country. But that is changing.  More and more domestic savings are finding their way to the banking and financial sectors. This is helping the country to channelize funds for building the country’s infrastructure that include building smart cities, railway networks, highways, waterways, airports, industrial corridors, and such others.

For example, the government has approved plans to develop approximately 84,000 km of roads by 2022, the biggest highway construction plan so far in the country. Other projects that the country has embarked upon are the Smart Cities Mission and Sagarmala. Smart Cities Mission is an urban renewal and retrofitting program by the Government of India with a mission to develop 100 cities and make them citizen-friendly and sustainable with the help of technology. Sagarmala is a series of projects to leverage the country’s coastline and inland waterways to drive industrial development and encompasses modernization and enhancement of port infrastructure, improve port connectivity, create 14 coastal economic zones, and develop skills of fishermen and other coastal and island communities. India needs over $1.5 trillion in investments in the next 10 years to bridge infrastructure gap, said India’s Finance Minister Arun Jaitley recently.

India set to become destination of choice for automation companies

India, apart from working on these catch-up strategies as a latecomer to industrial development, is also focusing on making the country future-ready.  The Digital India program is a flagship program of the State with a vision to transform the country into a digitally empowered society and knowledge economy. It aims to make government services available to citizen electronically through online infrastructure and by making the country digitally empowered.  India has developed a 12 digit unique-identity number, called Aadhaar, based on their biometric and demographic data. With close to 1.1 billion enrolled members already, it is the world’s largest biometric ID system. The Indian State is slowly pushing people to use this biometric ID system as proof of their residence, for opening of bank accounts, for availing social security benefits, and such others. There is also a strong thrust to make people use digital payment systems and thereby wean them away from cash transactions. All these initiatives mean greater reliance on information technology and this will spur the growth of discrete industries, such as semiconductors & electronic systems, smart phones and other communication equipment & gadgets, smart sensors & actuators, and similar others. Perforce, defense is yet another industry which is expected to witness robust growth. Strategic compulsions dictate that India builds a more vibrant domestic information-technology hardware and defense industrial base.

The annual consumption of electronic hardware in India is expected to touch US$ 400 billion by the end of the decade. If the domestic industry’s growth does not accelerate, India may well have to depend on imports to the extent of US$300 billion annually. It is imperative for the electronic industry to robustly expand if India is to avoid the impending import nightmare that can push the country into a spiral of unsustainable imports. This would necessarily entail higher external debt / borrowings and this does not bode well for India’s economy in the long term. India is the fourth largest spender on defense. Due to geopolitical compulsions, India’s defense spending accounts for almost 1.8 percent of the country’s GDP and this is set to increase. Only about 35 percent of the required defense equipment is manufactured in India. If we take into account the import component of materials that go into domestic production, both at the system and sub-system levels, the overall import content may exceed 70 percent. There are clear indications that these hi-tech industries are growing.  Apple has announced its plans to make its iPhones in India, one of the fastest growing markets for smart phones. According to available reports, the company is taking the ‘Make in India’ route. According to the Lockheed Martin’s recent news release, the company has signed an agreement with India’s Tata Advanced Systems to produce F-16 fighter jets in India. The news release goes on to say that “this unmatched U.S.-Indian industry partnership directly supports India’s initiative to develop private aerospace and defense manufacturing capacity in India.” The company is eyeing orders worth billions of dollars from the Indian Air Force. Few months ago Dassault Aviation laid the foundation stone for the Dassault Reliance Aerospace Limited’s manufacturing facility in India. Dassault Aviation is investing over 100 million euros in this a joint venture project to manufacture aircraft components as part of the ‘offset obligation’ connected to the purchase of 36 Rafale fighter jets from France.

With all these exciting developments taking place in India, the country is emerging as a destination of choice for automation suppliers. The party has begun.

This article first appeared in the December 2017 Industrial Automation and Process Control INSIDER. If you liked this type of content, you should consider subscribing to the only magazine in the automation field that is not advertiser supported. Visit http://www.spitzerandboyes.com/insider to subscribe.

 

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