| | SEPTEMBER 20228INDUSTRY INSIGHTSM anufacturing growth has a large number of dependencies, many of which are invisible to even the most advanced modelling techniques. Some dependencies however, can be treated as direct corelations and obvious ones at that. So without further ado let me reveal to you, a concept that is somehow the most obvious truism while also being the underlying universal law of manufacturing growth. Are you ready?."Firms will create more output only if they expect to sell it".So, is that it? Well yes and also no, the oversimplified statement above is a consequence of complex market dynamics and also, in no small measure the implementation of government policies that support (or hinder) them. I will try and address some of these factors (both dynamics and policies) in this article.The market penetration of ACE (appliances and consumer electronics) in India is a particularly good indicator of the rise in consumer wealth. Its estimated that the Indian ACE market will grow at a CAGR of 12 percent nearly doubling in size by 2025 (Indian Brand Equity Forum)There are of course other factors that play a major role in this explosive sectoral growth. For example the availability of low cost consumer credit at the point of sale. This goes a long way in addressing the affordability barrier for India's ever-growing banked population. Expanded distribution/support footprints and e-Commerce mean that underserved geographies are now within reach. Finally, no commentary on the Indian consumption story is complete without touching on changing behavioural patterns. Whether it's the growth in smart phone demand driven by mobile internet access or the less explored impacts of climate change on the demand for human comfort applications like cooling and air purification. The Indian Air Conditioner market is a perfect example of a low penetration (ergo high growth) segment whose growth is a consequence of all the dynamics we've just highlighted.Indian consumers armed with higher discretionary income will prioritise the human need for cooling as global temperatures rise. They will purchase over 150 million room ACs over the next 10 years, representing a conservative retail value of approximately Rs. 5,10,000 crore. While I concede that there are very few certainties in life, the Indian consumption story is a pretty safe bet.So, we've established that the Indian ACE market is potentially huge. So why isn't the Indian ACE manufacturing ecosystem growing in step with demand? If the universal law we talked about earlier is to stand. It would seem that Indian companies do not believe that they will not be able to sell additional products if they were to increase output. This is clearly at odds with the fact that the Indian ACE sector will see what can be only described as breakout growth in the coming years.The reality is that Indian companies in the ACE sector have chosen to fulfil a significant ratio of market demand through the import of finished products and subsystems rather than investing in manufacturing capacities in India. While this strategy has worked until now, a large portion of the value generated by India's internal demand has not remained in the country. Additionally, we have lost WHY THE GOVERNMENT NEEDS TO CREATE OPPORTUNITIES & AGGREGATE DEMAND THAT WILL ALLOW THE INDUSTRY TO INVEST IN MANUFACTURING IN INDIA?By Omer Basith, Co-Founder & CEO, Virtual Forest
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