“GST has resulted in a significant increase in internal trade”
Industry 4.0 is expected to transform manufacturing in India by bringing operational efficiencies to manufacturing industries like automotive, electrical and electronics, aerospace.
Industry 4.0 is expected to transform manufacturing in India by bringing operational efficiencies to manufacturing industries like automotive, electrical and electronics, aerospace. India has a unique opportunity to innovatively pave its own road to smart manufacturing, says VDMA India’s Managing Director Rajesh Nath, who was conferred the ‘Cross of the Order of Merit’ - the highest civilian honour awarded to individuals for their services to Germany - in October 2017. Germany is the second largest exporter of machinery to India accounting for around 16.7 per cent of India’s total machinery imports. In this interview, Rajesh Nath explains how Germany, known globally for its engineering technology, can help Indian manufacturers up their manufacturing ante by adopting Industry 4.0.
How is VDMA nurturing Indo-German trade relationship?
To become successful in India, companies need to know the characteristics and peculiarities of the Indian market. Here, the VDMA offices in India support the companies based on the needs of the members. These support activities include the provision of information on taxation and the Indian market, such as market entry barriers, future market developments or the current legal situation. In addition, the VDMA India office represents the interests of the members, including support for promotion actions, for example through participation in fairs and the organisation of symposia, meetings or similar presentation platforms for companies. With four offices in India, VDMA is geared to cater to the needs of the members and acts as an important bridge-head between the German and Indian industry.
Many German companies have set up and are setting up manufacturing in India in addition to the sales and service office. Several German companies and VDMA members are planning towards more investments in India. German companies like Siemens, Bosch, Schaeffler Group, Phoenix Conveyors, Liebherr, Schwing Stetter, KSB, Wirtgen, ZF, Thyssenkrupp, Vulkan, Nord Drives to name a few have invested substantially in the last 5 years.
What are your views on India as a market?
India being the fastest growing major economy in the world with an annual average GDP growth during last five years higher than the growth achieved since economic reforms began in 1991. From being the 11th largest economy in the world in 2013-14, it is today positioned as 6th largest economy in world.
Indian economy is estimated to achieve a growth of 7.2 per cent (as per first advance estimates released by Central Statistics Office) in 2018-19, higher as compared to 6.7 per cent recorded in 2017-18. It is poised to become 5 trillion dollar economy in next 5 years and a 10 trillion dollar economy in next 8 years thereafter based on existing growth story and key government initiatives to be taken based ten-fold agenda as a vision for the next decade - 2030.
VDMA India conducted the 4th edition of the VDMA Business Climate Survey in October 2018. 97 participants from all sectors of the mechanical engineering industry shared their evaluations regarding their company's business and the situation of their most important customer industries. Their current business situation was seen as good by 44 per cent of the participants, whereas 52 per cent considered it satisfactory and 3 per cent bad. The balance of positive and negative evaluations was, therefore, plus 41 percentage points.
Which end-user industries are the main demand drivers for German companies in India?
In 2017, the trade between India and Germany grew by 9.93 per cent to Euro 19.15 billion from a figure of nearly Euro 17.42 billion in 2016. Indian imports from Germany experienced a good growth of 9 per cent over the previous year and amounted to Euro 10.69 billion. The exports from India to Germany attained a value of Euro 8.46 billion in 2017. This was an increase of 11 per cent as compared to the year 2016.
In 2017, the total import of machinery from Germany reached a volume of Euro 3.10 billion. This was an increase by 4.38 per cent compared with the same period in the previous year. Among the machinery sectors, major demand of German equipment was for power transmission (9.7 per cent), textile machinery (without dryers) (8.23 per cent), machine tools (7.16 per cent), construction equipment & building material machinery (5.96 per cent), and plastics & rubber machinery (5.54 per cent). There are other sectors like food processing & packaging, process, material handling technology, which are growing steadily in India.
What are the key challenges for before Indian manufacturers?
The country's manufacturing sector activity improved in November and touched an 11-month high as new order flows encouraged companies to lift production amid strong demand conditions. The Nikkei India Manufacturing Purchasing Managers' Index strengthened to 54.0 in November from 53.1 in October, signalling the strongest improvement in the health of the sector in almost one year.
Despite an abundance of human resources and a demographic advantage, the absence of adequate managerial and leadership talent is a major challenge to Indian companies. Talent pools are shallower than they appear at the first glance.
External challenges facing Indian globalisers include limited understanding of overseas markets, an inability to navigate regulatory complexities and a weak brand or reputation in overseas markets. In addition to external challenges, Indian companies face a number of challenges within their operations – primarily centred on inability of attracting and retaining talent, cross border cultural issues and inability of building cultural barriers and lack of global mindset.
How can German technologies support India’s growth story?
Germany is known globally for its engineering technology. The German manufacturers are internationally well positioned with their broad range of sectors: In 23 out of 31 comparable sectors, they are among the global top three; in 14 of which, they are in first place. India is the third largest sales market in Asia for the German engineering industry. In 2017, out of approximately Euro 18.37 billion of machinery imported by India, Germany had a share of around 16.7 per cent, behind China (34.2 per cent) and ahead of Japan (10.3 per cent) and Italy (7.4 per cent).
When Germany launched a project under the name ‘Industrie 4.0’ to digitalize manufacturing at the Hannover Messe in 2011, the government officials, industry leaders and academics who were working on the project probably had no idea that Industry 4.0 and specifically that fourth industrial revolution would become such a widely used concept.
India has a unique opportunity to innovatively pave its own road to Smart Manufacturing. Industry 4.0 is expected to transform manufacturing in India by bringing operational efficiencies to manufacturing industries like automotive, electrical and electronics, aerospace. The major area of focus will be the technological advancement across various industries. IIOT (Industrial Internet of Things), 3D printing, 3D sensors, social software, augmented reality, location awareness are considered to usher in the next era of smart production. These automation technologies collectively are moving the manufacturing industry towards the next phase of technological advancement.
How are German firms viewing tax reforms (ie, GST) undertaken by India in July 2017?
GST has eliminated taxes on inter-state movement and harmonised the VAT structure across states (except for exempted goods). Border inspections are significantly reduced. That said, GST has resulted in a significant increase in internal trade - by as much as 30 to 40 per cent, according to some estimates.
GST is seen as a positive change in an era of transaction-based valuation, as it has made calculation of tax much simpler for the manufacturer. Also under the new tax laws, manufacturers can claim input tax credit on input goods, which seems to be a positive sign for cash flow. SMEs are keenly observing the time difference between input tax credit and the credit being available.
SMEs have been key contributor to Germany's growth. Do you see SMEs in India doing the same?
India’s SME sector has been one of the primary drivers of its economy. Small & Medium Enterprises (SMEs) account for 45 per cent of India’s total manufacturing output and employ around 40 per cent of its workforce.
Government has undertaken many effective steps to strengthen MSME sector, which provides employment to crores of people. Recently, a scheme of sanctioning loans upto Rs 1 crore in 59 minutes has been launched. GST-registered SME units will get 2 per cent interest rebate on incremental loan of Rs 1 crore. The requirement of sourcing from SMEs by Government enterprises has been increased to 25 per cent.
Globally, the MSME segment development has shown mixed results depending on various policies and initiatives undertaken by developing and developed economies during their critical economic lifecycle. Many developed economies like Germany have demonstrated that the MSME segment constitutes the backbone for maintaining growth rates as well employment generation rate and provides stability during economic downturns. It is, therefore, very crucial that as India embarks on a new wave economy, it adopts an MSME opportunity framework that will provide the necessary impetus to seize the opportunities created.