Importance of Manufacturing, the world over
The most successful economies globally have at some point in time or the other been manufacturing superpowers. China, US & Japan are all examples of the same (all 3 economies had 25% or higher Mfg as % of GDP for 20 yrs or more). Manufacturing not only contributes to higher economic growth during the Manufacturing success period but also creates sustainable growth for such economies by structurally changing the economy and income structure.
The Manufacturing sector in India
Ø The manufacturing industry in India has gone through various phases of development over time. While manufacturing started picking up initially, it never developed to its full potential for a variety of reasons. With liberalisation and economy opening up, we saw an explosion in services sector and now it contributes about 55% of our GDP. This is clearly unsustainable from a growth & population point of view. India contributes 1 million new workforce additions each month.
Despite the natural bounty of resources, and the abundant skilled & unskilled human resources, India's growth in the manufacturing sector has been moderate due to mainly lack of focus on the same. Manufacturing sector currently contributes about 15% of India's GDP and about 12% of the workforce in 2008. Every job created in manufacturing has a multiplier effect, creating 2–3 jobs in the services sector. In a country like India, where employment generation is one of the key policy issues, this makes this sector a critical sector to achieve inclusiveness in growth.
Ø Despite a focus on these areas per se, Auto & Pharma have been 2 very large success stories for Indian manufacturing. Cost & Quality, have both contributed to India's strong performance and made India a global leader. India is currently the fastest growing Auto market in world with all major MNC manufacturers setting up manufacturing in India for domestic or export opportunity and in Pharma, India owns a 80% volume market share of Generic drugs manufacturing!
Why we think the Manufacturing sector is the next big thing?
We have a very progressive Government with a solid track record of industrial growth and development in place and completely focused on manufacturing. Recently, the govt. launched the "Make in India" campaign which focuses exclusively on developing India as a manufacturing hub. The key growth drivers for the sector will be:
ü Slew of reforms & focus on investment: New investment cycle & opening of FDI in key sectors like Defence & Railways will open floodgates for Indian cap goods while it will also make India a better place to do business for MNCs.
ü Labour Cost & reforms:The cost of labor in India is cheaper than in most other countries, thus providing a competitive advantage to the country's manufacturing sector. At the same time, many states have already started the process of overhauling the archaic labor laws benefitting many of these manufacturing sectors. Textiles is a clear beneficiary.
ü Rise in export and domestic orders:Manufacturing activities have gradually risen due to new export orders and increased domestic demand recently
ü Increasing export competitiveness with currency depreciation:The Indian Manufacturing sector has gained further competitiveness due to currency fluctuations and soaring operational cost elsewhere in world which augur well for growth opportunities in the Indian manufacturing sector
ü Tax reforms:The Interim Indian Budget 2014-15 proposed changes in indirect taxes which include factory gate tax to be reduced to 10% from 12% on some capital goods and consumer durables as well as excise duty cut on small cars, two wheelers and commercial vehicles to 8% from 12%. GST implementation will put the wheels of development in high gear. Annual GDP growth could pick up 1 – 2 % p.a. on GST implementation alone. Consumer Goods, so far the bedrock of Indian economy, will be the biggest gainer from it.
Why invest in BSL Manufacturing Fund NOW?
It is a known fact for all of us that all large business houses are primarily manufacturers to start with and continue to dominate their respective industries. Whether we talk of Tata's, Birla's or Ambani's, all have started the journey from manufacturing and continue to be excited with it,more especially now. With some shining examples of manufacturing successes in new age entrepreneurs like Sun Pharma, Maruti & Avantha Group etc, clearly there is loads of wealth to be created by investing in these businesses.
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