OPPORTUNITY is knocking, are YOU ready?
The pandemic has changed global business dynamics. It calls for a change in the way toolmakers have been approaching manufacturing operations so far. The Government of India has laid out elaborate schemes to attract foreign investments to the country and give local toolmakers a chance to reap the benefits. But, for this, toolmakers need to equip themselves with state-of-the-art technologies and keep an open mind to diversifying their operations. With the plethora of options available for toolmakers, the big question is: OPPORTUNITY is knocking, are YOU ready?
For years, China has claimed the title of being “the world’s factory”, reports reveal. As is evident from the ‘Made in China’ tag sported by several global brands, ranging from telecom, automobile, machinery, furniture and lighting to clothing and accessories, one can clearly observe that most companies have chosen to turn to China to meet their manufacturing needs. The reason? According to various studies, China offers low-cost labour, reasonably priced raw materials, access to cutting-edge technology, strategic location, evolved supply chain, lack of regulatory compliance, low taxes and duties, and competitive currency practices, among others. These factors have played a key role in attracting companies from across the globe.
Several countries, including India, have, for years, been competing with China to win over more investments. However, recent events, in the light of the pandemic, are indicative of a change in scenario, believe experts. “China has become the world’s factory. Practically all the industries around the world are highly dependent on China for component or material supplies. However, because of the COVID-19 situation, there has been a lack of supplies, which has impacted production around the world,” elaborates DK Sharma, President, TAGMA India and Business Head, Godrej Tooling.
When a pandemic of the stature of COVID-19 struck, it caught industries off guard. “Companies across the world learned that it was not wise to have put all their eggs in one basket. Sadly, they have had to learn it the hard way,” says Gopalakrishnan T.S., Managing Director, Multiple Special Steel Pvt. Ltd.
“But they cannot wallow in misery and need to move forward. They need to do a SWAT analysis region wise, skill wise and nation wise. The dependency must be spread in such a way that the law of weighted average will ensure better economy and more than that, cent percent dependability,” suggests Gopalakrishnan. Does India stand to gain?
According to several news reports, Mr. Nitin Gadkari, Minister of Road Transport and Highways of India, had, in a recent media interview, said, “China’s weakened global position is a ‘blessing in disguise’ for India to attract more investment”. Experts believe that the current pandemic has taught the world that over dependency on one country is definitely not a sustainable option. “Sensing this challenge, companies around the world are looking to diversify their manufacturing operation to other countries. This will definitely help India project itself as a better alternative to China,” adds Sharma.
Milind Agnihotry, CEO, MIPE, agrees. “With the global sentiments towards China not being as highly favourable as earlier, India will need to step up and show the world how equipped it is to offer competent services,” he says.
“India now has the chance to emerge as the new manufacturing destination as an alternative to China, says Ravindra Moolya, CEO, Speroni India Pvt. Ltd., adding, “India has great potential to grow owing to its high domestic demand, which in turn provides the opportunity to serve the export market. In fact, we have a few global companies that have already invested in India and many more are in the process of doing so. So, if you see, we will have a huge demand coming our way. All we need to do is be prepared and work together to encash on this opportunity.”
Government intervention
The pandemic has certainly thrown open a huge opportunity for India to cash in on. Indian manufacturers, however, will need to be equipped to tackle international manufacturing demands. “India is a huge market and has the potential to cater to other countries. However, for this, the government will need to invest in the necessary infrastructure and offer investor-friendly policies,” explains Agnihotry.
The government, too, sensed an opportunity in this adversity and strategised various initiatives to help the Indian economy bounce back to pre-COVID-19 levels. Some of the prominent ones are:
Atmanirbhar Bharat Abhiyan’
In a bid to promote the ‘Make in India’ initiative, on May 12, 2020, Hon’ble Prime Minister Narendra Modi announced an economic package of INR 20 trillion under the ‘Atmanirbhar Bharat Abhiyan’. He stated that this package would not only help India become self-reliant but also benefit others, including MSMEs, labourers, etc. The Prime Minister added that making India self-reliant is the only way to ensure that the 21st century belongs to the country.
At the recent edition of ‘Mann Ki Baat’, PM Modi’s monthly radio speech, the Prime Minister said, “The people of India have taken many steps forward and are getting vocal for local. Our manufacturers are also thinking about making top quality products. This will boost the efforts towards ‘Atmanirbhar Bharat’.”
The Prime Minister also reiterated that manufacturers should not compromise on the quality of materials produced by them. “This is the right time to work with the ‘zero effect, zero defect’ policy,” he said, adding, “The global best must be manufactured in India. For this, our entrepreneurs and startups must come forward… Vocal for Local is resonating in every house today… India faced many challenges this year [2020] but came out triumphant because it was ‘Atmanirbhar’ (self-reliant).”
Experts believe that the Atmanirbhar Bharat initiative will create many opportunities for the tooling industry. Vivek Nanivadekar, Executive Director, FIBRO India Precision Products Pvt. Ltd., highlights, “The pandemic has certainly disrupted the flow of the global supply chain. Its impact on the manufacturing sector is clearly evident. But, on a brighter note, it has also opened doors for our local industries to develop. India will face new challenges, but we have to work towards overcoming them to make ‘Atmanirbhar Bharat’ a reality. It will take some time for the ‘Vocal for Local’ initiative to materialise, but, once it does, it will see the rise of start-ups contributing manifold to the economy and result in the creation of many more employment opportunities.”
Martin Pinto, Executive Director, Shapers India, feels, “Increasing localisation from many OEMs to meet ‘Atmanirbhar Bharat’ will create many opportunities for domestic toolmakers in the long run.”
Amit Kumar Parashar, Sr Vice President – Operations (Tool Room, Central Quality, Service & QS) Subros Ltd., opines, “On a short-term basis, as the tool supply from Asian countries have been delayed or restricted, the industry is looking to make up for the loss through order realisation domestically. The opportunity exists where the gaps can be filled by the Indian tooling industry, which should be ready to take up the challenge and deliver. For the long term, the promising factor is the ‘Atmanirbhar Bharat’ campaign, where localisation of tooling will offer a major thrust to the automotive and non-automotive sectors.”
To this, Sharma adds, “The ‘Atmanirbhar Bharat’ campaign is a good initiative and will help in localisation , but it will take some time to reflect the real benefits.”
Revising the definition of MSMEs
With an aim to boost the growth prospects of Micro, Small and Medium Enterprises (MSMEs), the government recently revised the definition of MSMEs. As per the new definition, the investment criteria for these enterprises have been revised upwards, the distinction between manufacturing and services enterprises has been eliminated, and an additional criterion of turnover has been introduced.
“There always was this fear, in very successful MSMEs also, that if they outgrow the size of what is defined as an MSME, they’ll lose the benefits that they get as an MSME itself. Outgrowing this definition meant outgrowing and going out of receiving benefits. Therefore, MSMEs preferred to remain within the definition rather than grow. Now, we are coming with a change in the definition of MSMEs so that they need not worry about growing in size; they will still be able to get quite a lot of benefits, which otherwise, as an MSME, they have got,” said Finance Minister Nirmala Sitharaman, while announcing the measures under the ‘Atmanirbhar Bharat’ package.
The new definition states that manufacturing and services enterprises with investments of up to INR 1 crore and turnover up to INR 5 crore will be categorised as micro enterprises. For small enterprises, the investment criteria has been revised to INR 10 crore, with a turnover criteria of INR 50 crore. And, for medium enterprises, the investment criteria has been revised to INR 20 crore with a turnover of up to INR 100 crore.
Commenting on this initiative, Nanivadekar elaborates, “The government is already taking commendable steps to support the MSME sector. For starters, it has redefined the criteria for MSMEs—a move that will help many borderline industries expand. The government has also directed banks to extend the credit limits without asking for additional documentation. Economists have estimated that it would take a couple of years to reach the pre-COVID economic status, but with the current tempo, the Indian engineering industry might arrive at that point in less than six months.”
Pinto highlights, “One major decision to bring more industries under the MSME umbrella has proved to be a game-changer, as the move is likely to benefit most tool rooms in India.”Pinto highlights, “One major decision to bring more industries under the MSME umbrella has proved to be a game-changer, as the move is likely to benefit most tool rooms in India.”
Foreign investments in India The government’s manufacturing-friendly policies are attracting the interest of global companies. The media have reported the plans of several foreign companies that intend to invest in India. Some of these companies include:
Foxconn Foxconn recently announced it has plans to invest $1 billion to expand its factory in Tamil Nadu. The company makes Apple iPhones. According to news reports, Foxconn is among the list of foreign companies, which has applied for benefits from the PLI Scheme.
Samsung According to various news reports, Samsung plans to invest INR 4,825 crore in Uttar Pradesh to relocate its mobile and IT display production unit from China to Uttar Pradesh. This announcement by Samsung comes after the company received approval from the government under the PLI Scheme.
Von Wellx Capitalising on the ease of doing business policy, German shoe brand company, Von Wellx, recently shifted its manufacturing units from China to Agra. Von Wellx has collaborated with Iatric Industries Group, an Indian company, to shift its manufacturing units to Exports Promotion Industrial Park in Agra.
Hasbro To avail of the benefits offered to startups and entrepreneurs for creating innovative toys in India and becoming ‘Atmanirbhar’, toy making company, Hasbro, has increased its manufacturing operations in India. News reports reveal that it plans to set up plants in India and Vietnam.
Production-Linked Incentive Scheme
The government introduced the Production-Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing with an aim to boost manufacturing within the country and decrease imports. The scheme “offers a production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units. The Scheme would tremendously boost the electronics manufacturing landscape and establish India at the global level in electronics sector”, says the Ministry of Electronics and Information Technology website.
The Scheme will be applicable in 10 sectors, namely, pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell battery, textile, food products, solar modules, white goods, and specialty steel. “The PLI scheme across these 10 key specific sectors will make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make India an integral part of the global supply chain,” elaborates a government press release.
“I think this campaign will definitely be beneficial in the long run. The 4-6% incentive provided in the PLI Scheme for the electronics sector will encourage companies to start manufacturing locally and expand their capacities. I’m optimistic that in the coming days, more and more global companies will set up their manufacturing base in India. Localisation of the tooling industry will be the first step to realise the cost benefits,” says Parashar.
“The opportunities are immense. Major sectors such as automotive, consumer electronics, aerospace, railways, infrastructure development, and mass engineering projects will propel the Indian die and mould industry to substantially grow in years to come. According to a report, the Indian tooling industry is currently valued at INR 18,000 crore and is projected to reach INR 26,000 crore by 2025. I think that the government’s initiatives, risk mitigation measures, and focus on localising manufacturing will help the industry prosper,” he adds.
Toolmakers, gear up!
COVID-19 has altered the business dynamics. Toolmakers will now have to change their methods of operation and also look to diversify if they want to encash on the opportunities that lie ahead. Indian toolmakers will have to compete with toolmakers from other countries such as Vietnam, Indonesia and Thailand, among others. If they are looking to lure investors from foreign countries, they will need to step up and equip themselves with the necessary infrastructure to enhance their efficiency and capacity. They will need to embrace new technologies, including automation. They will need to focus on getting leaner and finding ways to become more productive, reliable, technically competent and competitive. The focus must be on enhancing their products’ quality. This will help them get future ready to encash on the opportunities, suggest experts.
“Owing to inadequate infrastructure and capacity, Indian tool rooms are unable to deliver within the set timeframe, making overseas tool rooms a preferred choice. Hence, there is a need for tool rooms to be equipped with high-speed machines, die spotting and quality inspection infrastructure, like CMM, contour checker. They need to invest in CAE tools for designing and must strengthen their project management through tool-room-specific software readily available for planning and scheduling in order to reduce imports,” suggests Parashar.
Besides this, toolmakers will need to diversify and look for opportunities in other sectors apart from automotive. “It is imperative for toolmakers to explore new avenues,” says Sharma, adding, “The honeymoon period in automotive industry may be over now, but there are a whole lot of industries that look promising. Our future can’t depend on just one industry, we must come out of our comfort zone. We have a market ready in lots of consumer-related products and tooling is required everywhere. If automotive remains slow, we have other industries ready to be tapped.”
“Considering the long-term scenario, I think we must remain positive. I believe huge opportunities will be generated for toolmakers in the coming days. The government initiatives like ‘Atmanirbhar Bharat’ will definitely help us grab some of those orders that otherwise we would have lost to China and South East Asian countries,” concludes Sharma.
written by Kimberley D’Mello
Artical 1st published in TAGMA TIMES
