New Delhi: Prime Minister Narendra Modi’s return to power for the third time has enthused the association of German engineering firms in India (VDMA), and they are expecting India’s robust economic growth to continue, even as other parts of the world grapple with a slowdown. In fact, a majority of VDMA’s members say that they expect their order books for manufacturing equipment to grow robustly in India. “An impressive 95% of our members surveyed are bullish on India, and are expecting to grow at 10% per annum,” says Rajesh Nath, Managing Director of VDMA India.
VDMA, or the German Engineering Federation, is Europe’s largest industrial association and has been present in India for more than 20 years now. It boasts of 600-odd members across India, who employ more than 5 lakh people directly and indirectly. Over the last two decades, German companies have invested an estimated $15 billion (Rs 1,26,000 crore at current exchange rate) in India. But Nath says that another $3 billion (Rs 25,200 crore) of investment is expected to be made in India over the next 5 years.
The manufacturing industries where VDMA members are witnessing strong growth in order books include machine tools, construction machinery, food processing & packaging, and process technology. Says A. K. Dembla, President & Managing Director of Humboldt Wedag India: “As an equipment supplier to the cement industry, I can tell you that there is massive capacity expansion happening here. But we are witnessing growth in other industries, too. In fact, in the last five years, my company has grown its revenue three times. For us, India is the place to be.”
The government’s Make in India push is luring foreign manufacturers, too. Nath says last week he hosted a delegation from Germany that went around looking at different industries—from automotive to medical to food processing—in cities such as Chennai, Pune, and Bengaluru. Says Ashim Sharma, India Head of ZwickRoell, a German company that is a global leader in material testing equipment: “There are dozens of medium-sized German companies that would love to set up shop in India. What they need is active support from the government in facilitating the investment.” ZwickRoell itself is planning on expanding its India operations.
A foreign banker who guides global companies with their India investment says that it’s just a matter of time before the world sees merit in making India a central part of their global manufacturing. “Some of the medium-sized companies are still in a wait-and-watch mode because of some specific challenges: for example, land acquisition, especially between 100 and 200 acres, is a challenge; getting skilled labour is another challenge; and taxation—particularly around transfer pricing—can be daunting for some,” he says. But the banker expects these issues to be ironed out in the next 3 to 5 years.
Meanwhile, German engineering companies are also looking to set up global competency centres (GCCs) or Centres of Excellence in India. Nath of VDMA India says at least 5 CoEs with a head count between 100 and 200 each have been set up in the last six months alone. He believes that as German companies aggressively derisk their dependence on China, the natural beneficiary will be the world’s only other large market: India.
Recently, the President of VDMA, Karl Haeusgen, went on record to say that the biggest threat to the business model of European companies is China’s subsidy-driven machinery and equipment manufacturers. “In mechanical engineering, the market shares of international suppliers in entire sectors have been reduced to zero with Chinese state aid,” Haeusgen said in a recent interview.
Therefore, as German companies fight to maintain their market position globally, a well-crafted Make in India proposition could prove to be a game-changer for them.
Members of Germany’s biggest association of engineering firms, VDMA, are gearing up for a surge in orders for manufacturing equipment with investment in new and existing plants. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
