India: Optimistic outlook for machinery and plant engineering

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VDMA
Dr. Ralph Wiechers, VDMA-Chefvolkswirt

India is becoming increasingly attractive for German and European machinery and equipment manufacturers, and the companies already operating there are currently very optimistic about their business outlook. This is the conclusion of the latest business climate survey conducted in April by VDMA among its member companies operating in India. It shows a continuing stable economic picture, although the business situation has weakened slightly since the last survey in October.

Business in India largely positive despite slight decline

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Photo – VDMA

More than 100 machinery and equipment manufacturing companies in India participated in the VDMA survey. Of these, 35 percent rated the business situation as good and 60 percent as at least satisfactory. Only 5 percent gave a poor rating. The overall result for the business situation is therefore slightly worse than six months ago, when 48 percent of respondents rated the business situation as good, 49 percent as satisfactory and only 3 percent as poor. Nevertheless, the situation remains overwhelmingly positive. The current balance of positive and negative assessments stands at 31 percentage points, which is still above the long-term average (25 percentage points) since the start of the surveys in spring 2017.

The domestic market in particular is viewed favorably by VDMA members in India. Overall order books and expectations for future incoming orders are assessed much more positively than incoming orders from abroad. More than half (53 percent) expect incoming orders to increase in the coming months. However, according to the survey, only 38 percent of respondents expect new orders from abroad to increase.

Construction machinery sector in India benefits from public investment

A mixed picture emerges when analyzing the sub-sectors. In particular, the construction and mining equipment sectors are doing particularly well thanks to robust public investment by the Indian government. ‘It is very encouraging to see that a high proportion of public investment is going into improving India’s previously inadequate infrastructure. This should reduce the logistics costs for manufacturing companies in India, which are high by international standards,’ says VDMA Chief Economist Dr Ralph Wiechers.

The textile machinery industry in India, on the other hand, recorded a rather below-average business situation. This is primarily due to the global economic downturn in the textile industry. Financial, geopolitical, and other country-specific challenges weighed on the global consumer sentiment and led to a decline in exports in the Indian textile industry.

“It is very encouraging to see that a high proportion of public investment is going into improving India’s previously inadequate infrastructure. This should reduce the logistics costs for manufacturing companies in India, which are high by international standards” says Dr. Ralph Wiechers, VDMA-Chefvolkswirt

Very few respondents report impediments to business activities

When asked about impediments to doing business, only 17 percent of firms reported that this was the case. The most cited obstacle was ‘other factors’, with fierce price competition, particularly from Asian manufacturers, often cited. The strength of the euro or dollar against the rupee is also a significant factor. ‘Foreign subsidiaries often source key components from the parent company in Europe. If the rupee is weak, these imports become more expensive for the subsidiary in India,’ says Dr Wiechers.

This is followed by a lack of orders at 8 percent, which is very low by international standards. Bottlenecks on the supply side, such as a shortage of raw materials or preliminary products or longer delivery times, are hardly recognized by companies across the board. However, companies do occasionally face supply chain challenges as commercial vessels continue to ply the Red Sea and the Suez Canal.

Optimism and expansion plans shape outlook

Over the coming months, 62 percent of respondents expect the business situation to improve from an already fairly positive situation. Only 2 percent expect the situation to worsen, while the remaining 36 percent expect it to remain the same. Rajesh Nath, Managing Director of VDMA in India, explains: ‘The positive sentiment reflects confidence in India’s economic development and the country’s potential as an attractive market for machinery and equipment. Moreover, the expansion of Indian industry will not only better meet domestic demand, but also strengthen the country as an alternative and reliable partner in the global market.’ Local VDMA members are also convinced that demand will increase. More than half of the respondents (59 percent) already produce in India. Of these, 72 percent are looking to expand their production capacity. And of the 41 percent who do not yet have their own local production facilities, just under a third (32 percent) are considering doing so in the future.

 

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