Column : Dreams Inc

Written by Arindam Bhattacharya | Updated: Jan 1 2011, 03:21am hrs
Where will the Indian manufacturing industry be in 2020 I have a short answerwe can be where we aspire to be! Let me explain.

The world in 2020 will be very different. The last decade saw an unprecedented combination of highest growth in the global economy and the severest economic crisis in recent years. The defining trend of the first half of this decade was globalisation. The economic crisis reordered the priorities with economic survival, job protection and national interest becoming the dominant themes in the developed nations as they struggled to pare their debt and re-ignite the growth engine. At the same time, the economic centre of the world is shifting towards developing nations, with these countries becoming the growth engines for the global economy. This is creating an unequal two-speed world in an era of higher inflation, a complete opposite of the previous decade of high-speed globalisation.

What are the implications for India India will become the hottest market in the world by 2020a combination of size and growth, ease of access, and level of competitiveness.

Just take a look at some numbers for plant and machinery. Over the next decade, Indian manufacturing industry will buy/invest in fixed assets several times what it did in the last three decades combined. In 2007-08, manufacturing companies had nearly Rs 13 lakh crore of gross fixed assets, with a growth in asset productivity ranging between 3% and 7%. Assuming similar range of productivity, to fuel the growth of the sector, fixed assets will need to increase by Rs 50-70 lakh crore by 2025, of which about Rs 10 lakh crore is required in just the next five years. Compare this with Rs 3 lakh crore of fixed assets added over the previous five years. No wonder, India is a top destination for the most powerful global leaders, visiting the country not to sign political agreements but commercial agreements to benefit their home countries.

India can become the next manufacturing pole of the world after China as Asia becomes the largest trading block in the world driven by two interrelated trends. The first trend is the shift of manufacturing capacities from West to East. In the last two decades, total industrial production in the developing countries has grown from 20% of OECD countries to more than 35%. By 2025, they will overtake the developed markets in industrial production. The second historic trend is that of shifting trading patterns, from Europe and the US-based flows to intra-Asia routes. For example, the intra-Asian trade in 1990, which was just 4 million TEUs, had the fastest growth among all key trading routes and grew to over 28 million TEUs by 2008, and is expected to grow to over 80 million TEUs by 2015by far the largest trading route in the world.

A word of caution. Given its relative openness compared to the other hot marketChinaIndia will also become the defining battleground where the future of the global industrial structures will unfold. The developed countries, on one hand, will continue to pressurise India to further open its commercial borders for their companies to trade, and on the other, continue pushing their domestic agenda to enhance the competitiveness of their own companies through policies on re-industrialisation, climate change and labour conditions. These will, of course, be resisted by Indian companies who would want to not just protect their own turf but also enter the markets in these developed economies.

Today, India is 14th in the league table of the biggest manufacturing nations. Its industry has moved through phases of development: (i) import substitution after Independence, (ii) licence raj that ended up stifling growth, and (iii) progressive liberalisation since the economy was opened. The industrial sectors growth has doubled from 3-4% a year in the 1960s to 7-8% in the last decadesecond-highest in the world.

In this new decade that will see a second and different wave of globalisation, India has a historic opportunity to redefine its manufacturing industry. Many critical forces are already alignedacceptance of Made in India in the global market, growing FDI into the country, major growth in investments in infrastructure to address numerous bottlenecks and reduce transaction costs, and favourable dependency ratio for next 20 years to drive growth in consumption.

We can continue to grow at the 7-8% rate of the last decade or aspire to change the trajectory in the next. We can follow the path of business as usual and remain in the second rung of manufacturing nations, or aspire to join the ranks of the top industrial countries in the world. We can remain the hottest market for rest of the world, or aspire to leverage the home advantage to become the most globally competitive manufacturing nation. If we meet these aspirations, India will produce many more world beaters from the manufacturing sector. Currently, there are nearly 25 Indian manufacturing companies with annual revenue in excess of $1 bn. By 2020, we should double this number and have a few with annual revenues in excess of $100 bn.

Where will the Indian manufacturing industry be in 2020 We can be where we aspire to be!

The author is managing director, the Boston Consulting Group, India