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The Bigger Picture

By Rajiv Budhraja

The history of manufacturing sector in India in the last few years is littered with instances of bottlenecks which have effectively hampered this vital sector of economy. Of the many ills facing the manufacturing sector in India, the ones that are most often talked about relate to land acquisition, environmental permissions and industrial relations/ labour issues.rajeev-budhraj

Notwithstanding Government’s avowed objective of doubling manufacturing’s contribution to overall Gross Domestic Product (GDP) of India, the manufacturing sector has stagnated at about 16 per cent of the GDP. India’s share in the global manufacturing stands at only 1.8 per cent. For comparison sake, in China manufacturing constitutes 34 per cent of GDP and the country accounts for 13.7 per cent of world manufacturing – up from 2.9 per cent in 1991.

One important element, besides the few mentioned above, which could seriously compromise the future of manufacturing in India is growing shortage of critical raw materials. Raw material concerns do present themselves on debates on future of manufacturing but perhaps not as vocally as they should. This is particularly true of raw material intensive industries as automotive tyres.

India is still one of the fastest growing markets for automobiles in the world and that has reflected in the growth of tyre sector as well. The automobile sales are projected to grow to seven million units by the year 2020. And thus India is poised to emerge as the world’s third-largest automobile market behind the US and China.

Call it the long term growth potential of India, the investments in tyre manufacturing continue to pour in. Braving sluggishness in economic scenario, the expansion of capacities in tyre manufacturing by domestic as well as international majors has so far continued unabated.

However, the writing on the wall is clear. Raw material scenario has not kept pace with investments in tyre manufacturing.  And that is where the criticality of the situation begins to assume frightening proportions. After all, raw materials account for 72% of automotive tyre industry turnover.

According to recently released figures,  by 2020 India will consume 2.4 million MT of rubber including 1.5 million MT of Natural Rubber (NR) and 0.8 million MT of Synthetic Rubber(SR). Which essentially means consumption of Rubber intake will increase by complete 1 million MT between 2012 (1.4 MMT) and 2022.

Tyre sector will consume the major share of 1.8 million MT of rubber including 1.1 million MT of NR and 0.6 million MT of SR by 2020.

Further the figures states that the years 2014 and 2015 are likely to see a major 7.3% and 8.4% growth respectively in NR consumption in India as the economy shows signs of turnaround.

Against this backdrop, the news of India slipping two ranks in the pecking order in natural rubber production has come as a dampener. Both Vietnam and China have overtaken India in NR production in 2013.

What might queer the pitch for rubber consuming industries in India is the growing inclination on the part of natural rubber producing countries to consume rubber domestically. Vietnam which currently consumes 15% of its NR production plans to increase domestic NR consumption to 40% in the next few years leaving less NR for export to countries such as India than what could otherwise have been available.

Moreover, NR Growth in Non-Traditional areas is yet to pick up in India. To sum up raw material, particularly Natural rubber, supply crunch therefore looms over the future growth of Tyre and Rubber sector in India.

And that brings us to the question – are we missing wood for the trees. Setting up new plants reaffirms faith in India’s growth potential but that needs to be accompanied with a robust raw material infrastructure. Else we will lose sight of the bigger picture.

 

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