An overwhelming majority of bC India exhibitors (79 per cent) expect the economy in the region to improve and to continue growing, says Rajesh Nath, Managing Director, VDMA India Services. Excerpts from the interview...
How do you look at the overall investment potential in India, especially for German companies?
India is a favourite destination for foreign direct investments (FDI) with investments of Ç15.17 billion during 2013-14. In the Union Budget 2014, the decision to raise FDI from 26 per cent to 49 per cent through the FIPB route, with management control in Indian hands, will provide a boost to the domestic manufacturing industry. This will accelerate growth and encourage capital investments both by domestic and foreign companies in India.
Germany is India´s largest trade partner in European Union and 11th largest trade partner globally. Currently, India ranks 5th among Asian exporters to Germany. In 2013, India imported Ç9.1 billion of goods from Germany. Out of which Ç2.9 billion were various machinery, equipment and complete plants, a share of about 32.5 per cent.
Maharashtra with about 39 per cent share of German investments remains to be the most attractive destination for German investments in India. In the past 4-5 years, Pune has become the hotbed for new German investments. Karnataka and Gujarat are other important destinations.
Are there any more companies investing in the CE sector in India?
Increasing impetus to develop infrastructure in the country is attracting the major global players. There has been cumulative FDI inflow of $175 million in earthmoving machinery between 2000 and 2013. Government of India has de-licensed the material handling equipment industry and allowed 100 per cent FDI under the direct route. The government has also given approval to some financial institutions to raise money through tax-free bonds. Many German companies and VDMA members are planning towards more investments in India. In the construction equipment and building machinery sector as well as the mining machinery sector, companies like Liebherr, Schwing Stetter, Putzmeister, Wirtgen, Hess, ZF and Thyssen Krupp, to name a few, have invested substantially in the last 3-5 years.
How do you assess the growth potential in India, and on a wider scale, in the BRIC nations?
The four BRIC countries are distinguished from a host of other promising emerging markets by their demographic and economic potential to rank among the world´s largest and most influential economies in the 21st century. Together, the four original BRIC countries comprise more than 2.8 billion people or 40 per cent of the world´s population, cover more than a quarter of the world´s land area over three continents, and account for more than 25 per cent of global GDP. A country´s population and demographics, among other factors, directly affect the potential size of its economy and its capacity to function as an engine of global economic growth and development.
All signs point to a country that would be wise to focus on developing its infrastructure. And when it does, demand for earthmoving and construction equipment (ECE) will surge. Growth in a country´s fleet-size ECE stock is highly correlated to the growth of the construction industry (a proxy for infrastructure growth), with a high correlation coefficient (more than 0.99).
In the near future in India, the bulk of construction growth is likely to come from growth in transportation infrastructure (roads, rail, airports and ports), urban infrastructure (mass rail transit systems, water supply and sanitation, and urban housing) and rural infrastructure (rural roads, irrigation, and rural housing) - three important sectors for driving ECE demand. With significant infrastructure investment and growth expected in India, it is expected that ECE stock will exhibit robust growth in the near future.
What has been the total value of import of equipment into India from VDMA´s member companies?
In 2013, the total import of machinery from Germany reached Ç2.98 billion (Rs 24,436 crore). Among the machinery sectors, major demand of German equipment was for power transmission (9.3 per cent), textile machinery (8.2 per cent), machine tools (7.6 per cent), valves (5.2 per cent), air handling (5.0 per cent), food processing and packaging (4.8 per cent) and material handling (4.7 per cent). There are other sectors like plastics, printing, paper, construction and building material machinery which are growing steadily in India.
Out of the total exports of construction equipment to India, South Korea and the US take the highest share of 21 per cent each followed by China, Japan and Germany with 16 per cent, 11 per cent and 9 per cent, respectively. German exports of construction equipment to India had a drop in 2013 with figures below Ç50 million. While in the exports of building material machinery to India, Germany climbs to second rank with 17 per cent share.
What have been the sale trends in the global markets, especially for VDMA´s member companies?
The month of September 2014 turned out to be good for the German machinery industry. The major orders came from non-euro countries. Ultimately, the quarter had 5 per cent growth in comparison to the previous year. For the period January to September 2014, the total growth was 2 per cent. In September 2014, incoming orders in the mechanical engineering industry in Germany were up by 13 per cent from the previous year. The domestic business declined by 9 per cent and international business was up 24 per cent year-on-year. Based on a three-month comparison, which is less affected by short-term fluctuations, incoming orders rose by 5 per cent year-on-year between July and September 2014. Domestic orders rose by one per cent, while international orders increased by 6 per cent.
The sales forecast for 2014 is estimated to be Ç210 billion. This would be the highest level of sales ever recorded by the mechanical engineering industry. In 2004, sales in the mechanical engineering industry amounted to Ç143 billion and this represents a growth of 46 per cent in a decade.
The mining sector still is not out of woods. How far this has impacted the import of equipment from Germany?
The Indian market is served for many years, not only because of the need of raw materials to foster the national economic growth, but also because India is the third largest producer of coal. Difficult regulatory framework and business environment slow the development of coal production. Consequently in India, German mining equipment sold less recently.
As in 2014, worldwide exports of machines from Germany decreased by 8 per cent in the first half of the year, exports of mining equipment to India decreased to touch a figure of Ç10.2 million, in the same period. This amount of decrease correlates with the shrinking imports of mining equipment to India last year.
What is the total number of member companies participating in bC India 2014?
The last event of bC India in February 2013 in Mumbai attracted a total of 710 companies from 33 countries and more than 28,000 trade visitors. Following two successful events in Mumbai, bC India is moving to Delhi for its next show. At least 61 German companies will take part at bC India 2014 and will display their products within the German Pavilion.
There has been cumulative FDI inflow of $175 million in earthmoving machinery between 2000 and 2013.