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2014-12-11

India: Industry the Key to Greater Prosperity

Although growth has been significantly reduced in recent times, India continues to be one of the world's high-growth national economies. The Asian Development Bank expects to see growth of 5.5% for 2014, increasing to 6.3% in 2015. The government plans to promote industrialization on a massive scale, making the country a particularly interesting proposition for the mechanical engineering and plant engineering sectors. There is also a great need for modernization in the mining and steel industries. In addition, there will be major investments in infrastructure.

When we talk about the drivers of the global economy, we usually think of three countries: China, the USA and India. In comparison to the USA and China, India is currently the least industrialized country, despite the enormous economic growth it experienced up until 2011. Historically, the national economy is largely focused on the internal market. According to calculations by the German Chambers of Commerce Abroad, India's exports are only 15% of the value of China's. One reason for this is the structure of the Indian national economy.

Industry Set to Create Jobs

In the last few years, the contribution made by industry to the gross national product in India has stagnated at around a quarter. The service sector dominates in India, as it accounts for 59% of economic performance — unusual for an emerging nation. India's high level of expertise in IT plays a key role in this regard. And although more than 50% of the population works in agriculture, this sector represents only 14% of the gross national product. Against this background, the stated aim of the new Indian government is to promote industrialization, as industry is seen as the only way to create enough jobs for the large numbers of poorly qualified people. In addition, the government aims to remove both regulatory and bureaucratic obstacles and improve infrastructure.

The 100 Billion Dollar Project

These investments will be made in developing the transport network as well as improving energy and water supplies. The largest infrastructure project -the Delhi-Mumbai Industrial Corridor - is set to change the parameters in the country. It aims to create an industrial corridor between the cities of Delhi and Mumbai that will be around 1400 km long and 300 km wide. The starting point involves the development of roads and high-speed rail networks. New cities are set to be created along this corridor that will be several times bigger than Shanghai. For this megaproject alone, the government is anticipating investing 100 billion dollars. Other corridors and special economic zones are also being planned. The aim of this project is twofold. Firstly, it aims to attract foreign investors and manufacturing companies, and secondly it aims to strengthen domestic industry.

This supports the "Make in India" initiative that was launched in the fall of 2014. The government wants to use this initiative to improve the investment environment by eliminating unnecessary laws and reducing the amount of bureaucracy. Investors can get in touch via the central website www.makeinindia.com . A committee of eight people will answer inquiries from investors within 48 hours.

Despite the fact that industry currently accounts for a relatively small proportion of the gross national product, it is already a very interesting market from a mechanical engineering perspective because of the size of India's national economy. In 2013, Indian companies purchased machinery worth around EUR 3 billion in Germany alone. One of the driving forces is the automotive sector. Virtually all automotive companies have built plants in India in the last few years and have brought suppliers with them. According to the OICA (The International Organization of Motor Vehicle Manufacturers), more than twenty million motorized vehicles, passenger cars, commercial vehicles and motorcycles left Indian factories in 2013.

World's Biggest Tractor Manufacturer

In terms of quantity, India is the biggest manufacturer of tractors in the world while also being the largest market. The Association of Equipment Manufacturers in Milwaukee, Wisconsin in the USA has calculated that almost a third of the world's tractors are built in India. Indian manufacturers are currently working to improve export opportunities - particularly to Asia and Africa - by attempting to move from the low-cost segment to the medium performance and price segments. To achieve this aim, these manufacturers are also cooperating with European suppliers. However, the products developed in Europe are usually too expensive and too complex for the Indian sales markets. If solutions are developed locally and with local requirements in mind, then they can also be produced locally and will have a much better chance of success.

Mining: Major Need for Modernization

While the automotive sector is already primarily using modern machinery, technical equipment in older industries such as mining is for the most part completely outdated. As prices of raw materials have fallen, companies have invested even less money than they did in the years before 2011. For this reason, the new government announced a new action plan in early August 2014 for the strict regulation of the mining industry. This action plan is mainly concerned with revising the Mines and Minerals Regulation Act of 1957.

In the mining industry, the demand for equipment will therefore increase in the medium term, especially since ground-level reserves are decreasing and companies will need to develop deeper layers. Up to now, Indian manufacturers have specialized in equipment for open-pit mining: In terms of the coal required for generating power, nine times more coal is currently being mined above ground than below ground. The prospect of tapping into underground reserves offers an interesting opportunities for international machinery manufacturers.

Food: Less than Ten Percent Packaged

The food industry will also develop in the medium term, but at a greater rate. The amount of industrially processed and packaged food is currently very low. According to information from Germany Trade & Invest, it represents significantly less than ten percent of total production in terms of value. A growing middle class and the approval of commercial chains with corresponding logistical networks is expected to increase this percentage significantly. In the long term, this should lead to the formation of one of the biggest markets for food processing and packaging machinery.

India Ahead of Brazil and Russia

According to calculations by the International Monetary Fund (IMF), India will overtake both Brazil, as well as Russia or Italy, in the ranking of the biggest national economies by 2019 due to its stronger growth. This makes India is one of the markets with the strongest economic growth for mechanical engineering, after the USA and China.

40 Years of Bosch Rexroth in India

Bosch Rexroth has been in India since 1974. Over four decades, it has established itself as a supplier for Indian mechanical engineering in the mobile applications, plant engineering, factory automation and renewable energy sectors. Since 1974, Rexroth has achieved this by producing hydraulic and automation components locally, and has developed solutions and products that are adapted for Indian requirements. As a local partner, Rexroth has equipped and modernized numerous Indian steel works. Product variants for mobile hydraulics developed in India are being used in hundreds of thousands of Indian tractors.

With eight sales offices and three Service Centers, this multi-technology specialist is present in all of the key regions. In 2013, the company opened a new plant at its main location of Ahmedabad. Its investment of EUR 33.7 million has tripled the production space. Bosch Rexroth now employs around 880 people in India.

 

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Susanne Herzlieb
Maria-Theresien-Straße 23
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Phone: +49 9352 18-1573
susanne.herzlieb@boschrexroth.de