|Follow up on Indian industries; history of investment in
Auto: Initial protectionist investment began in 1953. Protectionists measures were lifted in 1996 and international companies came in. Until the mid 1990s, the Indian auto sector consisted of just a handful of local companies. However, after the sector opened to foreign direct investment in 1996, global majors moved in. Exports shot upwards over the following years. By 2002, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi had set up their manufacturing bases here. By 2003, 15 global car makers - including GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan – had set up outsourcing offices in the country, with a combined budget of approximately $1.5 billion
IT: Prime Minster Atal Bihari Vajpayee (office: March 19, 1998 – May 22, 2004) placed the development of Information Technology among his top five priorities and formed the Indian National Task Force on Information Technology and Software Development. The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's telecommunications sector. The Information Technology Act 2000 created legal procedures for electronic transactions and e-commerce.
These measures have led to a steady inflow of investments by large foreign companies such as Reuters, for establishing large captive ITES/BPO facilities across India. Moreover, the existing ITES/BPO operations of major multi-nationals are also being ramped up to cater to the ever increasing demand for better and speedier service. Almost all of India's top ITES/BPO giants have announced some form of expansion and are in the process of hiring manpower to fill the additional seats. India's competitive advantage lies in its ability to provide huge cost savings thereby enabling productivity gains and this has given India an edge in the global ITES/BPO marketplace. NASSCOM studies pinpoint the following factors as the major reasons behind India's success in this industry (Source: www.nasscom.org):
• Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland.
• Improving telecom and other infrastructure which is at par with global standards.
• Strong quality orientation among players and their focus on measuring and monitoring quality targets.
• Fast turnaround times and the ability to offer 24x7 services based on the country's unique geographic location that allows for leveraging time zone differences.
• Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedures.
• A friendly tax structure, which places the ITES/BPO industry on par with IT services companies.
Steel: In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries – the steel industry in India in particular – which has subsequently developed quite rapidly. In 1992, India produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron. Furthermore, the steel production capacity of the country has increased rapidly since 1991 – in 2008, India produced nearly 46.575 million tones of finished steels and 4.393 million tones of pig iron.
Banking: The Indian banking system is not directly exposed to the sub-prime mortgage assets. It has very limited indirect exposure to the US mortgage market, or to the failed institutions or stressed assets. Indian banks, both in the public sector and in the private sector, are financially sound, well capitalised and well regulated. Even so, India is experiencing the knock-on effects of the global crisis, through the monetary, financial and real channels. Our financial markets – equity markets, money markets, forex markets and credit markets – have all come under pressure mainly because of what we have begun to call 'the substitution effect'. As credit lines and credit channels overseas went dry, some of the credit demand earlier met by overseas financing is shifting to the domestic credit sector, putting pressure on domestic resources. The reversal of capital flows taking place as part of the global de-leveraging process has put pressure on our forex markets. Together, the global credit crunch and de-leveraging were reflected at home in the sharp fluctuation in the overnight money market rates in October 2008 and the depreciation of the rupee.
The outlook for India, going forward, is mixed. There is evidence of economic activity slowing down. At the same time, headline inflation, as measured by the wholesale price index, has fallen sharply, and the decline has been sustained for the past three weeks, pointing to a faster than expected reduction in inflation.
From a December RBI speech: The outlook for India going forward is mixed. There is evidence of economic activity slowing down. Real GDP growth has moderated in the first half of 2008/09. Industrial activity, particularly in the manufacturing and infrastructure sectors, is decelerating. The services sector too, which has been our prime growth engine for the last five years, is slowing, mainly in construction, transport and communication, trade, hotels and restaurants sub-sectors. For the first time in seven years, exports have declined in absolute terms in October. [exports then plummeted 22% in January 09] Recent data indicate that the demand for bank credit is slackening despite comfortable liquidity. Higher input costs and dampened demand have dented corporate margins while the uncertainty surrounding the crisis has affected business confidence.
Timeline: India's automotive industry
India has begun an ambitious development programme for its automotive industry, which it hopes will make it a global production hub by 2016.
The initiative, which is backed by both the government and by the existing automotive industry, relies on heavy investment both by domestic operators and non-Indian car companies.
Many foreign firms are eager to participate in the likely profits to be derived both from the growth of the Indian market and from the development of India as a major producer and exporter of cars, motorcycles, commercial vehicles and automotive components.
Here is an overview of the relatively slow, albeit increasingly rapid, emergence of India's automotive industry.
An embryonic automotive industry emerges in India
Efforts to create a manufacturing industry to supply the automotive industry with components get underway, spearheaded by the Indian government and leading entrepreneurs.
1970 to 1980
India's automotive industry begins to grow relatively fast, fuelled by six automotive companies:
Telco (now Tata Motors)
Mahindra & Mahindra
However, having a car is still seen as a luxury.
This is at least partly because the sector's growth is held back by requirements for production licences and restrictions on both production within India and on imports.
1980 to 1985
Japanese manufacturers begin to build motorcycle, car and commercial vehicle factories in India, often in partnership with Indian firms.
Component manufacturers also enter into joint-venture agreements, with European and US firms.
Exports start to grow.
1985 to 1990
The auto component sector, which had been protected by high import tariffs, squares up to competitors as the rules are changed.
Maruti Udyog enters the passenger car segment.
During the following years, Japanese manufacturers started selling motorcycles and light commercial vehicles.
Economic liberalisation gets underway, allowing passenger car production without licences, though import restrictions remained in place.
Hero Honda emerges as a major operator in the motorcycle market, while Maruti Udyog becomes the leading passenger car maker.
1995 to 2000
International car makers enter the Indian market, a trend that accelerates.
Advanced technology is introduced to meet competitive pressures, and environmental and safety imperatives.
Automobile companies start investing in service network to support maintenance of on-road vehicles.
Auto financing starts emerging as an important driver for demand.
2000 to present
Liberalisation of the automotive industry gets underway, with the removal of many trade and investment restrictions.
Cars developed and produced entirely in India for both the domestic and exports markets emerge.
Financial services firms begin to offer car loans, in cooperation with the car industry.
Efficiency, capacity and environmental issues are identified, along with initiatives aimed at encouraging research and development to address such issues.
Source: India's Ministry of Heavy industries & Public Enterprises Draft Automotive Mission Plan 2006-2016.
Story from BBC NEWS:
Published: 2007/04/03 17:02:30 GMT