The need for global giants to stay invested in India's manufacturing ecosystem: R&D, Exports, Livelihoods and beyond: From the lens of automotive industry
Showcasing big brands as part of a successful make in India campaign are 30 renowned companies across top 5 countries invested in India’s growth story. The list features 10 automobile companies from the United States, Japan, Germany, and France. India counts on the core sectors envisioning its $5 trillion economy, where the investments by industry giants would be significant across sectors.
The automotive sector in India has evolved over the years and features major Indian players such as Tata Motors, Eicher, Ashok Leyland, M&M, TVS, Hero Moto Corp. presenting healthy competition to global giants like Hyundai, Honda, Daimler, Suzuki, Volkswagen to name a few. The foreign players have contributed with automotive FDI levels picking up after a dip in 2017-18, depicting the confidence of the investors in the market where the existing players have continued to invest in India to the extent of developing a dedicated supply chain, customizing their branding and products as per Indian requirements and establishing themselves as a long term strategic partner in the Indian automotive industry.
Foreign investors manufacturing domestically support ‘Make in India for the World’. During April-2000 and June 2020, the auto sector accounted for ~5% of India’s overall FDI inflow and the industry presently holds ~4.3% share in overall exports. The criticality of this sector can be gauged by the fact that it contributes 7.1% to the country’s GDP and has a large economic multiplier effect that can be realized by mapping dependence of other sectors in upstream/downstream of automotive industry. The automobile industry is one of the largest employment providers in the country and employs close to 30 million people directly/indirectly, across the country.
The present competitive landscape has evolved with major companies worldwide being open to investments across the globe, given there is an attractive investment opportunity and the ease of doing business on offer. India has done well to be an attractive investment destination as becomes evident from the FDI inflow numbers for the core sectors in manufacturing.
Foreign brands bring in the investments that have the following direct/indirect impact on the industry ecosystem, which also stimulates the exports’ contribution to the economy:
The effect of COVID has impacted several industries across sectors, adversely. The automotive sector presents a more severe case where the effect has been disproportionate. Recent developments in the automotive sector have been disheartening. The sector had been facing economic downturn since 2019 which worsened with the onset of the pandemic-forced lockdown, the effects of which are being felt across the globe.
This presents an urgent need for government to safeguard the investments in India, which would be quintessential to attract further investments into India, to achieve its potential of becoming a manufacturing hub for the world.
One of the areas that could support the investments could be revision of the tax loss carry forward policy that India has in place. The present tax law allows for business losses to be carried forward by 8 years to be offset against any subsequent profits in coming years in that bracket. An extension for losses being allowed to be carried forward beyond the stipulated time frame could be pursued as a special, especially when tied up with a very significant quantum of investments (e.g. INR 5000 crore or higher). Such policy measure would not only support companies panning to further expand and develop India’s ecosystem, but also be an invitation for more investors to consider India as their strategic destination for manufacturing.
Having witnessed a dominance in services sector now presents a great opportunity to develop the manufacturing sector, catching up on the huge potential it presents. With the large domestic market India has, there is high demand for products and thereby the untapped-potential contribution of manufacturing presents a huge opportunity – not just for industries, but also for the government to work towards the country’s growth. Some examples of Asian countries with high manufacturing contribution to GDP that have been able to address the issue of poverty and unemployment to a fair extent are Thailand, Indonesia, Malaysia, Taiwan, Philippines, Korea and China, where manufacturing has contributed 30 to 50 per cent of GDP. India, with a major advantage of domestic consumption levels can capture this moment when post COVID the supply chain is looking to diversify, moving out of the present consolidation.
Presenting the right policies, setting up single window clearances and hand-holding companies would see more investments being made into the manufacturing sector in India.
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