On 25th of September, when Prime Minister Narendra Modi launched the 'Make in India' campaign with much fanfare, there were many who were not really surprised by it. After all, a country that has aspirations of being a global superpower cannot really afford to have negligible manufacturing capabilities. For a nation with a billion plus people, a market that is ever-increasing in size, surprisingly, India's manufacturing play seems to be pretty tame. For instance, the contribution of the manufacturing sector to the national GDP stood at a modest 14.1% (in 2012) in comparison to say, China, where the manufacturing sector contributed to a healthy 31.8%. Even in our neighbourhood, manufacturing sector’s contribution to GDP accounts for more, like Sri Lanka (17.9%), or even Bangladesh (17.6%). In fact, it is higher still in Pakistan (14.5%), only Nepal at 6.6% scores less. If that was not bad enough, the contribution of manufacturing sector as of GDP in India came down to 13% in 2013 (1). Instead of increasing, it is actually reducing.
Thus, the fact that we need a robust and powerful "manufacturing" engine to take us in the future is not that difficult to agree with. We need to re-energize and reinvigorate the manufacturing sector, and that is quite the vision of the new government when it launched the 'Make in India' program, all laced up with the mechanical lion. The big question that one needs to ask is; how are we going to make this vision a reality? Or can we really?
Numbers add up
To be fair, there is never really a doubt about India's capability or potential. The fact that we have a huge population (that is quite young), robust educational system, growing economy and democracy work in India’s favour. What we really lack is the will and vision. It was in the 1940s, around the time the Independence movement was gaining strength when Mahatma Gandhi had famously said, that India resides in the villages. Some 7 odd decades later, that assertion seems to be changing. According to the 2011 census, 312% of Indians lived in urban areas (compared to 11.4% in 1901)(2). And as per a survey conducted by UN State of the World Population report in 2007, by 2030, 40.8% of India's population is expected to reside in urban areas. Now, with a majority of the population living in the cities, a potent manufacturing sector is a must not only to meet the requirements of the populace, but also to provide employment opportunities.
Challenges that lie ahead
So what are the shackles that are actually binding the manufacturing sector? What are the real concern areas? One of the biggest challenges, that is often cited, is lack of capital. But then, considering the number of banking and non-banking institutions that are lending to companies, capital is not really an issue; Smart Capital is. The fact is, a company that wishes to grow and move to the next level, needs not only funds, but guidance and expertise. The challenges and opportunities for every industry segment are different and varied, say for instance, for a company in an energy sector the requirement for funds is pretty different from that in the healthcare domain. Hence, even though the need for finance and capital might be the same, the application of it is pretty different. So, you need a partner that understands the nuances of the business and its requirements, not merely looking at everything from the prism of interest and principal. Thus, when seeking a financial partner, it is important to partner with the best.
Also, the paradigm of capital now needs to change for the manufacturing sector. The old model of investment and returns is passé. Companies across the globe today are looking at new ways of financing and running their businesses, for instance, getting loans for specifics like equipment financing is different than going for an overall loan. And, when it comes to capital intensive industry, leasing can be a big part of the solution.
Considering how critical capital for business success, a company needs to find the right kind of financing partners that not only understand the nuances of financing but also the business space. The growth of a company is directly tied up to the way its capital inflow is structured and it is very important to find the best ones. And this is why players like GE Capital India are redefining the space. Bringing in their vast experience from years of experience, the financing company is truly powering the Indian dream. With innovative solutions including fund for business expansion, growth, equity capital, local or cross-border financing, or buying/leasing assets, mid-market companies have a lot more choice in terms of how to deploy their capital. In the end, the success of the 'Make in India' objective not only lies with the policy pronouncements of the government but also with how the partnerships pan out between companies and their financial partners.
Shifting landscape
Finally, things seem to be looking up for the Indian economy, optimism is in the air. As per the recently released India Manufacturing Barometer 2014 - survey by FICCI and PwC, 55% of the respondents expect to make major investments over the next 12 months (3). Forty nine per cent of the surveyed companies plan to add capacity. Research Development, new products or services introduction and facilities are the three priority areas of investment for over 45% of these respondents. So while in the same survey last year only 28% of respondents were optimistic about prospects of Indian economy, 94% of them are gung-ho this year. Thus, the wheels have been set in motion. The 'Make in India' program that envisages to increase manufacturing sector's contribution to 25% has reinvigorated the sector. All we need now is the right partnerships across domains -- from business to finance -- to blossom and take shape. Only, then will this vision be a reality, and India will be a manufacturing powerhouse.
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