Industry Analysis 'Manufacturing' - Part 2

March 27, 2024 • Estimated Reading Time: 8 minutes

Good Afternoon Otter community! Today’s edition brings to you: Our feature article on seeking opportunities and resolving the foreseeable challenges in Indian manufacturing; new GDP hopes; the liquor scam; Nvidia’s reign under threat; Baltimore bridge falls down; Grok debuts

TODAY’S HIGHLIGHTS

  • S&P upgrades India's growth forecast to 6.8% for FY25 🚀, citing strong economic recovery 💪🏽

  • RBI to re-intervene, continue curbing exchange rate volatility as Rupee falls to record low; Traders on alert ⚠️⚠️

  • Post arrest, Kejriwal set to reveal details of Delhi liquor scam tomorrow 🍺🥃, wife Sunita Kejriwal expected to join

  • Election Update: BJP raises 5 instances of poll panel partiality, seeks ECI action 🗳️📊

  • India's wheat stocks hit 7-year low 🌾🍞, government banking on bumper harvest to replenish reserves

THE BIGGER PICTURE

Unveiling India’s Manufacturing Future: A Look at Trends & Opportunities

Part 2

In yesterday's newsletter, we discussed the ongoing industry trends shaping India's manufacturing journey and the government initiatives driving its progress. Today, in part two, we will explore the opportunities, challenges, and potential solutions in this dynamic landscape.

Intel 8008

Opportunities for Growth:

India's efforts to create a manufacturing-friendly environment are gaining momentum, with major companies like Apple, Nvidia, Foxconn, Cistron, and Pegatron looking to establish factories outside of China. This trend sets the stage for other corporate giants to follow suit and tap into the burgeoning economy's growing manufacturing potential.

Electronics Manufacturing: 🖥️💻📹

India aims to achieve $300 billion in electronic production by 2030, with a third of this fulfilling export demand. Since 2019, electronic exports have tripled, thanks to support provided to component players through schemes like

  • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS); 

  • Modified Electronics Manufacturing Clusters (EMC 2.0) under the National Policy on Electronics, 2019;

  • System Design and Manufacturing (ESDM) 

Electric Vehicles: 🚙🚙🚙
❝

The domestic EV market is projected to grow from USD 2 million in 2023 to USD 10 million by  2030, at 49% CAGR

Schemes like Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) and high domestic and global investments have boosted local production of EVs and parts. India plans to lower import taxes on heavy investments by global auto leaders like Tesla.

Circumventing Challenges with Pre-emptive Solutions:

  1. Managing tariffs to protect domestic manufacturers:

    India has had a protectionist attitude, favoring local manufacturers, through

  • Restrictions on specific product imports,

  • Enforcing upfront capital and threshold sales guarantee on foreign entrants

  • Rising import tariff barriers on priority products, which are higher than its competitors, namely China, Taiwan, and Vietnam

    These measures consequently increased production costs for foreign companies and negated the benefit of PLIs, negatively impacting imports.

Solution:

We could take a leaf from Taiwan’s book, which maintained lower tariffs on global manufacturers, allowing cheap and easy imports of components and sub-assembly parts. Taiwan focused on developing its skill and capacity until it could provide cost-friendly substitutes to these imports.

Strategic partnerships with global firms, through lowered trade barriers, are opportunities to learn from their expertise. To make a more compelling case, offering tax incentives and tax breaks to foreign players would plug the leaks in our current strategy.

  1. No ease of doing business, Declining FDIs:

    Despite improved ranking on the World Bank’s Ease of Doing Business index, most of our bilateral trade treaties have been terminated in favor of Free Trade Agreements.

    The current trade regime and its questionable dispute resolution guidelines have reprieved judicial protection to foreign companies. Another point of tension for foreign investors has been the rampant red tape practices in the country. Coupled with the global slowdown, April-December 2023  saw a 13% dip in FDI inflow. 

Solution:

Developing domestic investment arbitration expertise will ensure fair treatment in disputes between investors and states and concur with global best practices.

Additionally, regulatory reforms will truly improve ease of doing business and strengthen investor confidence for undisrupted investment pipeline.

Plane Airplane GIF by Safran

3. Chinese economy bouncing back: 

India has benefitted from China’s geopolitical tensions and ongoing property crisis by capturing a larger share of global manufacturing exports. Yet, we have a long way to go before we can match manufacturing technology capabilities.

Although China is still battling its real estate, slowed domestic consumption, poor job market growth, and irregular market movements, it is also showing signs of economic recovery by steadying its key growth markers and increasing industrial modernization efforts.

Solution :

As China transitions from being a 'low-cost labor, high-volume' manufacturer to a high-tech-enabled one, India has the opportunity to step in and fill this gap.

- India could capitalize on its competitive advantages by replicating growth-centric clusters (GCCs) like Chennai and Bangalore in other cities. This could be achieved by upskilling the unemployed workforce and providing them with jobs in these capability centers.

- Additionally, to protect against potential widening gaps in competition in the future, India should consider increasing investments in research and development, as well as technology and machinery upgrades.

- Realignment of corporate taxes to match China's 25% rate, reducing infrastructure costs, and focusing on domestic demand could also be strategic moves to enhance India's competitiveness.

  1. Vulnerabilities in Critical Mineral Supply:

    India has identified 30 critical minerals necessary for producing EVs, electronics, and electrical equipment, construction of renewable energy farms, and most importantly, storing stationery energy in Li-ion batteries.

    Applicability of minerals spans across sectors, making them necessary for the development of modern technology and national security, with no known substitutes. At present, limited domestic reserves have necessitated a one-third supply of these minerals to be fully import-dependent. 

Solution:

To fulfil the growing local demand of these critical minerals, India must have seat in the setting up of global value chains.

- Eliminating regulatory constriction over the economic extraction of minerals

- Incentivising private sector involvement in high-risk, high-cost mineral exploration activities

- Rapid lease and license auctioning of strategic and critical minerals for future-oriented technological manufacturing

- Extensively funding to restart mining and separation of rare earths domestically and to develop the tech stack needed for mines-to-high value added products

- Leveraging existing ecosystems to bolster supply chains with different levels of policy support and interventions

Outlook for India's Manufacturing Sector:

India's aspirations to become a global manufacturing hub are supported by its vast potential, geographical proximity to China, strategic location between the East and the West, and ongoing reforms of a pro-business government. However, realizing this dream requires concerted efforts in infrastructure development, skill enhancement, ease of doing business, and technology adoption. 

Addressing these challenges and leveraging its strengths would substantially increase the manufacturing sector’s GDP contribution and could well materialize India’s vision to become a USD 30 trillion economy by 2047.

THE MARKET MOVEMENT

  1. IPO: Chatha Foods debuts with a bang 💥, enters the market with 30% premium ⬆️ on BSE SME platform 🎉

  2. Power: ⚡ Adani Power gets CCI nod to acquire Lanco Amarkantak Power, shares surge 4% 📈⚡

  3. Pharma: Cipla, Sanofi India shares surge on exclusive distribution agreement 🤝🏼 for 6 CNS products 💊

  4. Banking: Standard Chartered bank's exit triggers 6% slump in CDSL; Block Deal was worth Rs 1712.9 Crore 🏦

GEOPOLITICS SPOTLIGHT

  1. Oil Prices Hold Steady as Markets Digest Impact of Russian Supply Disruption 🌎🛢️

  2. 🟡 🟡 Gold Prices Rise 1% as Dollar Weakens, Eyes on US Inflation Data 🇺🇸

  3. Baltimore bridge collapses in US, 6 feared dead; Indian crew manning ship that collided are safe 🌉🚢

  4. Alibaba scraps logistics arm Cainiao IPO ⛔ amid market slump, offers buy-out for $3.75 billion 💰💰💰

  5.  China challenges US EV subsidies at WTO over discriminatory trade practices 🇨🇳🚗💰

TECH NEXUS

  1. Whoops! Apple's China strategy 📲: doubling down as iPhone sales dip 📉

  2. OKAY, Elon Musk to offer 🤖💬 AI chatbot Grok to all premium subscribers on X

  3. Woohoo!! Reddit stock rally: Post-IPO surge continues with 15% jump 🚀💰

  4. Didn’t see that coming! Project Ghostbusters 👻🕵️‍♂️: Facebook's secret project snooped on Snapchat user traffic, reveal documents

  5. This happened… Tech Giants team up, aim to reduce Nvidia's dominance 🦾 on AI Market: Google, Intel, Arm, Qualcomm, and Samsung create “The UXL Foundation” 💻🔥

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