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Unleashing a Manufacturing Boom in India
By Rahul Saraogi, Atyant Capital
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THIS MONTH'S ISSUE

Unleashing a Manufacturing Boom in India
By Rahul Saraogi, Atyant Capital

India’s economy opened to the outside world in 1991. China opened itself to the outside world in 1978. India today finds itself in exactly the same stage of development as China was in 1998-1999. India is at the cusp of a boom in manufacturing.

China is no longer a low cost manufacturing destination. As China gets wealthier, its cost of labor is rising. The Chinese government is trying to prevent China from getting stuck in the middle-income trap and is trying to move it up the value chain in manufacturing. This shift has created a big displacement in the global manufacturing supply chain. This shift is likely to accelerate going forward.

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rahulsar
Comment
Sun July 08, 2012, 21:46:53
Thanks for your comments PW.

I think it will be inappropriate for me to comment on names of specific companies. However, I think it will be companies in areas that harness India's strengths (engineering good for example) rather than those that are looking to purely benefit from a China flight.

In terms of time-frame, things are already rolling. Daimler just invested a billion dollars in a truck manufacturing facility in Chennai where I live (after deliberating for 2 decades). However, it will probably be 5+ years before The Economist does a major piece on the topic.
Comment
Tue June 26, 2012, 03:31:40
Brilliant notes!

What stands out to me...
"The important thing is to talk to the businesses that are actually working in India..."
"... In a world where the present is the best case scenario and the future looks bleak, India is in the exact opposite position."

Could you throw some more light on the above two sentences...as in
1. businesses that you think can really take off (keeping in mind the ground realities as they are today and changes that your expect in them)
2. time frame in which you see this scenario of manufacturing boom unfolding to a level where the world takes a note of it..(i think you are looking at 5+ yrs)

Thanks
PW
Comment
Tue June 26, 2012, 02:56:40
Brilliant notes!

What stands out to me...
"The important thing is to talk to the businesses that are actually working in India..."
"... In a world where the present is the best case scenario and the future looks bleak, India is in the exact opposite position."

Could you throw some more light on the above two sentences...as in
1. businesses that you think can really take off (keeping in mind the ground realities as they are today and changes that your expect in them)
2. time frame in which you see this scenario of manufacturing boom unfolding to a level where the world takes a note of it..(i think you are looking at 5+ yrs)

Thanks
rahulsar
Comment
Tue June 19, 2012, 22:55:29
Thanks Dharen.

VC - I can give you all the counter arguments against manufacturing in India. Major ones include:

- Atrocious infrastructure
- Policy instability affects long term investments
- Social intervention by government creates artificial labor shortages
- High cost of capital
- Energy shortage
- Difficulty in acquiring land etc.etc.

In my opinion these are "rear view mirror" concerns. I agree with all of the above as things stand today. However, I wouldn't extrapolate them into the future.

I agree that India has not followed a "build it and they will come" policy like China. However, to its credit, India does manage to build things with a lag (albeit in smaller quantities than required).

The important thing is to talk to the businesses that are actually working in India and not to the journalists.

To answer your specific question, a number of things can derail the opportunity for India. The biggest is if the demographic surge is not harnessed, it will lead India to social and political unrest. However, what I see on the ground is very encouraging and the system seems to be self correcting and self stabilizing.

In my view, the manufacturing juggernaut in India has already started rolling and it will really pick up momentum in the next few years. In a world where the present is the best case scenario and the future looks bleak, India is in the exact opposite position.
vc
Comment
Tue June 19, 2012, 22:20:49
Hi Rahul, any views on what can possibly stop your prognosis from becoming a reality?
Dharen Chadha
Comment
Tue June 19, 2012, 11:11:06
Excellent piece. So we can hope to start manufacturing iPhones and iPads in the future?