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  • MAKE IN INDIA: CHALLENGES

    AND OPPORTUNITIES

    This report identifies issues related to manufacturing in MSMES & textile sector and how the government policies and efforts can remove hurdles in their growth

    Finalist Metamorphosis competition Vista Business Fest 2015

    Written by: Mohan, Rahul Raja, G Karthick (students of: Team ROCKERZ15)

    Tejas is proud to present the award-winning articles of its flagship whitepaper competition Metamorphosis, conducted during IIMBs 3-day business fest Vista (2015). Tejas congratulates

    the winning teams for their outstanding performance and thanks all participants for their dedicated efforts.

    The Metamorphosis challenge: The vision of Make In India is holistic development in

    infrastructure, manufacturing, renewable energy, and other key sectors. Large conglomerates are in a position to provide strategic impetus to drive domestic growth, as they have huge capital

    outlay and managerial talent. At Metamorphosis, Tejas challenges participants to develop expansion and diversification strategies for a specific company, by capitalizing on Make in India

    initiatives. The strategy should consider regulatory framework, government involvement and subsidies, resource outlay, and potential challenges in implementation.

    Disclaimer: These articles are participant entries submitted in the Metamorphosis competition.

    These have not been edited by Tejas, nor does Tejas endorse the views expressed in these articles. All articles have been published with the express permission of the participants.

  • TABLE OF CONTENTS

    EXECUTIVE SUMMMARY 2

    INTRODUCTION 3

    TEXTILES 5

    COTTON 6

    MSME ROLES & OPPORTUNITIES 7

    FUND INFLOWS 9

    OPPORTUNIES FOR TEXTILE SECTOR IN MSMES 10

    SKILL DEVELOPMENT 10

    RECOMMENDATIONS-SKILL DEVELOPMENT 12

    -PHYSICAL FACTORS 14

    -SOCIAL FACTORS 16

    -FINANCIAL FACTORS 17

    CONCLUSION 18

  • EXECUTIVE SUMMARY

    Over the past several decades, the globalization of the manufacturing ecosystem

    has driven more change and impacted the prosperity of more companies, nations

    and people than at any time since the dawn of the Industrial Revolution. Nations

    around the world have taken part in and benefited from the rapid globalization of

    industry and expansion of manufacturing. Globalization of manufacturing has

    been a key driver of higher-value job creation and rising standard of living for the

    growing middle class in emerging nation economies.

    The Government of India has taken a number of steps to further encourage

    investment and improve business climate IN MANUFACTURING. Make in India

    mission is one such long term initiative which will help to realize the dream of

    transforming India into a manufacturing hub.

    This report starts with identifying issues related to manufacturing in MSMES &

    textile sector and how the governments efforts can remove hurdles to augment

    the same. According to the analysis of the secondary data available and authors

    personal views, this report establishes that the Governments efforts at various

    levels can lead to resurgence of India as a manufacturing behemoth.

    2

  • INTRODUCTION

    The make in India initiative started by government of India helps to facilitate

    investment, foster innovation, enhance skill development, protect intellectual

    property, build manufacturing infrastructure. For contribution of at least 25% of

    GDP by 2022 in manufacturing sector growth should be 12-14% Per annum higher

    than the GDP rate.

    GDP Contribution - Sectors

    17%

    57%

    AGRICULTURE

    INDUSTRY

    26%

    SERVICES

    Manufacturing Output as a % Of World Total

    30 28.5

    25 26 24.1

    20 20.9 21.6

    18.9 18.2 17

    india

    15

    us

    10 china 8.3

    5 3.8

    4.8 3 2.2 2.1

    0.9 1.1 1.1 1.2

    0

    1970 1980 1990 2000 2010 2014

    The share of manufacturing in Indias GDP has stagnated at 15-16% since 1980

    while the share in comparable economies in Asia is much higher at 25 to 34%

    3

  • EMPLOYMENT IN DIFFERENT SECTORS-GLOBAL SCENARIO

    120%

    100%

    12% 13% 17% 18%

    28%

    2%

    80%

    19% 9%

    60%

    54%

    manufacturing

    38%

    85%

    agriculture

    40%

    services

    64% 73%

    20% 34% 34%

    0%

    china india us brazil russia

    .

    MANUFACTURING GROSS VALUE

    2500

    1923

    1856

    2000

    1500

    1000

    500 226 282

    0

    china India us brazil

    The advancement of manufacturing capabilities is directly linked to increasing

    economic prosperity for a nation and its citizens. Proper positioning and

    movement within the product space determines the ability to accelerate

    economic development. Emerging nations should focus on directing policy and

    investing resources in building capabilities and in product groups

    4

  • TEXTILES

    The textile sub-sector in India is characterised by small-scale, non-integrated

    spinning, weaving, finishing, and apparel making enterprises. This structure arose

    due to policies on tax, labour and other regulations that favoured small-scale,

    labour-intensive enterprises, while discriminating against large-scale, capital-

    intensive operations. Small-scale unorganised players dominate the sector which

    lacks stringent regulations. Highlights of the textile sector are as follows:

    2nd largest producer in Cotton, Silk, Wool 63% of worlds market share (highest loom capacity)

    2nd largest textile manufacturer

    24% of the worlds spindles

    Synthetic fibre-4th

    Indias textile market size (USD billion)

    250 223

    200 CAGR 10.1%

    150 143

    100

    78 89

    70

    50

    0

    2009 2010 2011 2016 2021

    INDIA'S TEXTILE MARKET SIZE ( USD BILLION)

    5

  • COTTON

    Livelihood of 60 million people depends on cotton cultivation, processing trade and textiles. It has a great potential in manufacturing. Cotton covers around 7% of the total crop coverage and is second to rice in India.

    40

    30

    20

    bale

    s

    10

    Inm

    illio

    n 0

    India's production of

    raw cotton Yield per hectare-

    35.3 36.5 37.5 India vs world

    33.9

    30.7

    28 29 30.5

    500

    india

    750

    world

    20072008200920102011201220132014

    Fiber production - India Cloth production -India

    5% 1% 1%

    11%

    cotton 16%

    cotton

    100% non-

    polyester

    cotton

    83%

    viscose 27%

    56%

    blended

    others

    khadi,wool& silk

    SOURCE :http://india-itme.com/pdfs/Textile_Machinery_Market.pdf

    6

  • The abundant availability of raw material of cotton has to be utilized such that

    the convertibility ratio is high in bringing out the value added products. The

    yield per hectare of cotton can be improved by introducing latest Technologies.

    the per capita spending on cloth of India is 37usd which is less as compared

    with china which has 122USD & brazil which has 387 USD, which has the

    greatest potential in unveiling the fabric market in INDIA

    MSME ROLES AND OPPORTUNITIES

    The MSME sector is one of the key drivers for Indias transition from an

    agrarian to an industrialised economy. MSMEs account for a large share of

    industrial units. According to MSME Act, 2006 the investment made in plant

    & machinery is classified as known as Micro (5-10crore) Enterprises. The following are the roles of MSMES

    Ensuring Adequate flow of credit

    Skill Up-gradation Promoting Trade Infrastructure

    Balanced Regional Development

    INDUSTRIAL PRODUCTION

    TOTAL EXPORTS

    CONTRIBUTION TO GDP

    MANUFACTURING

    SERVICES

    45%

    42.38%

    7.04%

    37.54%

    OPPORTUNITIES Economic Drivers

    Employment Generators

    Sectorial Growth 7

  • MSMES CONTRIBUTION TO MANUFACTURING GDP VS

    EMPLOYMENT-GLOBAL SCENARIO

    90%

    80%

    70%

    60%

    50%

    Manufacturing GDP

    40% contribution

    30%

    Employment

    20%

    10%

    0%

    India brazil us russia s.sfrica china

    MSMES CONTRIBUTION TO MANUFACTURING-INDIA

    8 Share has to be

    improved by providing 7.8 adequate financial,

    infra

    7.6 assistance

    7.4

    7.2

    7

    6.8

    6.6

    2007 2008 2009 2010 2011 2012 2013

    There are approximately 46 million Micro, Small and Medium Enterprise sector enterprises across various industries, employing 106 million people MSME sector can provide comparatively larger employment opportunities at comparatively lower capital cost especially in the rural and remote areas, by becoming part of the industrial ecosystem and act as ancillary units for large enterprises to support the system in growth.

    8

  • FOREIGN DIRECT INVESTMENT 250

    190

    199 200

    160 165

    150

    140 USD 130 129 MILLIO

    90 104

    N 100

    50 40

    9

    0

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    BUDGET PROPOSALS

    proposals

    Amount in million

    rs

    Trade facilition center-

    500

    varnasi

    Mega textile clusters(7 2000 places)

    Hastkala academy-delhi

    300

    P-3 programme-j&k 500

    9

  • OPPORTUNIES FOR TEXTILE SECTOR IN MSMES

    Pearls,Gems,Je

    wellry,Metals,C oins

    37% 35%

    Electrical &

    Electronic Equipments

    6% 8% Textiles&

    14% Apparels

    Processing & Packaging

    Raw fabric and dye production

    Setting up of Handlooms/Power looms

    SKILL DEVELOPMENT

    Employment( no of employees in

    2015 2022(projected) millions)

    working population in Textile sector

    35.4

    61.6

    Total working population(15-59)

    793.6

    881

    Total population 1280 1370

    10

  • % of working population undergone formal skill training

    5%

    India

    96% 68%

    uk

    78%

    germany

    80%

    usa

    japan

    52% skorea

    The government along with other agencies should incentivise the students to enrol in higher education and vocational training with increasing demand for skilled labour.

    SKILL ECOSYSTEM

    The economic growth in the country which has led to a huge requirement of skilled workforce has ensured that the ecosystem has larger participation from all stakeholders which include decision making bodies, enablers, implementing agencies and beneficiaries.

    11

  • GLOBAL COMPETITIVENESS RANKING 2014-15

    RECOMMENDATIONS-SKILL DEVELOPMENT

    Improving access to education with higher enrolment coupled

    with better quality of education.

    Provide incentives to factory workers in the form of skills premium

    12

    COUNTRIES/PAR-

    INFRASTRUCTURE

    MACRO-ECONOMIC BUSINESS

    INNOVATION OVERALL RANKING AMETERS ENVIRONMENT SOPHISTICATION

    BRAZIL 76 85 47 62 57

    RUSSIA 39 31 86 65 53

    INDIA 87 101 57 49 71

    CHINA 46 10 43 32 28

    S.AFRICA 60 89 31 43 56

  • Revise design course content in line with the global trends

    High percentage of Enrolment for Vocational courses

    Enrollment for vocational courses

    (persons in millions)

    India

    5.5

    China

    90

    US 11.3

    Use of technology enabled solutions and adoption of the PPP model school Format-Government as an Enabler

    No. of Industrial Training Institutes has to be increased 13

  • Split of HR requirement by education

    100 78 80

    60 40

    10

    Split of incremental HR IN %

    20 4

    requirement by education 0

    Intake Capacity

    Shortage of

    INTAKE capacity

    1816

    industrial training

    institutes(1654 nos)

    18624

    industrial training centres(887 nos)

    31840

    apparel training design centers(14 nos)

    RECOMMENDATIONS PHYSICAL FACTORS

    Develop infrastructure to bring industry, not vice versa

    Allocate 25 per cent of the land available at all Industrial

    corridors for MSMEs at different rate slabs and for acquiring models.

    Link Msmes

    14

    BANKE RS

    INVES TRADE TORS MSM ASSOC.

    E

    MNCS R&D

  • 8

    7

    6

    5

    4

    3

    2

    1

    0

    Cotton Demand Vs Supply

    Potential for

    starting MSMES

    supply

    demand

    export

    2009 2010 2011 2012 2013

    15

  • RECOMMENDATIONS- SOCIAL FACTORS

    Complete Stalled projects

    Lack of coordination with state entities across states

    and central government. Public agencies which are mostly

    involved in the project execution has to set practices and

    processes to execute and monitor investments in order to

    avoid the project delays. PPI (Private Participation in

    Infrastructure) should be high.

    Improve Ease of Doing Business

    INDICATOR/COUNTRY

    NEWZEELAND

    INDIA

    Procedures (number)

    1

    13

    Time (days)

    0.5

    30

    Cost (% of income per

    0.3

    16.3

    capita)

    Paid-in min. capital (%

    0

    111.2

    of income per capita)

    Growth of unregistered sector leads to lower productivity-it has to be taken into account

    Land Acquisition Bill

    16

  • RECOMMENDATIONS - FINANCIAL FACTORS

    The government and the financial Institutions must help to create MSME oriented SEZs, Hubs, clusters in rural areas

    AREA-WISE SHARE OF MSMES

    44.66%

    Urban

    55.34%

    Rural

    Government Should set a platform for FDI investment in MSME Venture Capital Funds should be made available easily

    India

    1200 cr

    (offshore )

    china

    3000 cr

    Enhance the flow of Start-ups

    us

    29000 cr

    Scheme for Aid during Financial Crisis

    17

  • CONCLUSION

    India has the capability to push its manufacturing contribution to GDP to 25% by

    2025. Government has to act as the central pivot of aligning industries, private

    companies, public sectors and all stakeholders in realizing this vision. Government

    has to put policies in place be it sector reforms, labour reforms or the elimination

    of business barriers. The Government of India has taken a number of steps to

    further encourage investment and improve business climate. Make in India

    mission is one such long term initiative which will help to realize the dream of

    transforming India into a manufacturing hub. Honble Prime Ministers call for

    zero defect and zero effect manufacturing resonates well with our industry as we

    grow and produce for the world. Indias expanding economy offers equal

    investment opportunities to domestic entrepreneurs and international players. It is

    our responsibility to leverage emerging economy.

    18

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