US Worrying Indian Auto Components Manufacturers

Indian auto component manufacturing is going through tough times. Domestic demand has fallen and exports have dried up, manufacturers are finding it hard to stay afloat. As per a new estimate by Federation of Indian Micro, Small & Medium Enterprise (FISME), some 4,000 ancillary units are on verge of closure making 200,000 jobs redundant.

With the big three American automotive giants in dock, things are looking bleak for auto component exporters. If two of the big three file for the bankruptcy then many of Indian OEM players would be left in lurch without any payment for their exports. General Motors, biggest export destination for Indian auto components account for USD 500 mn worth of exports. If it goes down, it won’t just hit the small players it will hit big players of the Indian auto components market.

ECGC( Export Credit Guarantee Corp) has already frozen credit risk insurance cover to all auto component manufacturers who supply components to big three in US. This has aggravated the problems of component manufacturers specially the small manufacturers who can’t take risks like large firms and are at inevitable loss of business. According to FISME, almost 25% of SMEs in auto component manufacturing have NPAs and this is expected to increase to 50% in near future. The fact that these SMEs account for almost 50% of India’s total auto components exports speaks about the troubled times ahead for the industry.

Avoiding Unemployment as Poll Issue

Employment has suddenly emerged as the issue that is jolting the confidence of both politicians and businessmen alike. The government once again caught off-guard, is in mood of denial as it did in case of credit crisis and economic slowdown. The government seems to not woken up to the reality or it’s the Prime Minister Manmohan Singh, who wants to divert the attention by making claims about the economic growth. Mr Singh once again in a summit last week said that India would achieve next year’s growth target of 8%, when a few weeks back they were claiming it would be 7%.

Rising unemployment rate during elections are major embarrassment to any government, UPA recognises this fact and thus avoid any talk on the issue to prevent its escalation in media. The government and PM has kept on making statements about India’s miraculous future growth despite global slowdown. Finance Minister has severely criticized reports on layoff by industry and suggested industry could manage downturn without downsizing. The government has been trying to hush-up the matter. It want to keep the issue of unemployment under carpet to avoid any further jolt to its chances of winning election.

Almost every sector in the industry be it retailing, technology, automotive, textiles and exports are under pressure to shed labour and bring down production to avoid any closure. Government has no business in directly supporting industries in this business cycle, it should have taken steps to boost economic growth but it has even failed on this count.

Textile, Jewellery & Auto-components- Unemployment rises amongst India’s Forex Earners

The global economic slowdown has impacted different sectors with varied degree of severity. Textiles and Gems & Jewellery sector, which are one of the biggest contributor’s of India’s exports earnings, are in shambles. Both the sectors are tied with discretionary consumption of global clientele for their produce thus heavily dependent on global market. With discretionary consumption taking nose dive with economic uncertainty all over the world, consumptions of products likes jewellery and garments have fallen dramatically.

This has direct impact on the economic viability of business units related to these two sectors. As a large number of units in these sectors are small and medium size units and most of the workforce belong to unorganised sector. As the new orders have dried out, a large number of these SME units have shut shops leaving workers in lurch. Around 50,000 works have lost jobs in gems & jewellery industry, which expects job losses to go further. Textile industry also expects to cut 5 lakh employees in next five months. Adding to the woe is auto components industry, which in last few years had become darling of global automotive giants, as automobile industry faces question of declining demand the small components manufactures are already showing door to the contact labourers.

India to sign FTA with European Union and ASEAN

Indian government will be signing two trade agreements with two major trade blocks in next six months. India will free trade agreements with European Union (EU) and Association of South East Asian Nations (ASEAN). India will formalize India-EU Trade and Investment agreement by beginning of next year. The agreement is expected to double the Indo-EU trade to Euro100 Bn in next five years.

Similarly, India is also expected to sign free trade agreement with ASEAN for trade in goods. This agreement will be signed during India-ASEAN summit and it will also base for commencing talks on agreement in investments and services. India already had a FTA with one of the ASEAN member, Thailand. India already has trade imbalance with ASEAN block. India’s exports to ASEAN for last financial year stood at USD16 Bn, while’s India’s imports from ASEAN nations stood at USD24 Bn.

India already has trade imbalance with ASEAN and post FTA regime is expected to widen this gap. But, India expects boost its position through the trade agreement as it is facing stiff competition from countries like China.

Indian Pharma Companies prescribe Contract Manufacturing for Growth

India’s contract manufacturing market is set to explode with a 41% growth in next three years to clock USD 2.6 bn by 2010 as per a study conducted by KPMG. This year India’s contract manufacturing industry is expected to reach turnover of USD 1.2 bn, up from USD 869 mn.

The report mentions the manufacturing activities in which Indian companies involved for contract manufacturing. It includes simple vaccines, solid & liquid dosage forms, active pharmaceutical ingredients and intermediates. Foreign acquisitions have helped Indian pharma companies in gaining global prominence and getting contract manufacturing deals.

Worldwide Contract manufacturing industry is expected to reach USD 50bn in 2009 and contract manufacturing of OTC and nutritionals is also expected to reach USD 110bn. The biggest players in this contract manufacturing market are expected to be India and China. India so far has been largely targeting US pharma companies for exploring contract manufacturing but regulatory changes in Europe would make it easier for the Indian companies to bag such contracts

Indian Govt claims record Rice Procurement, Mulls Rice Exports. Is it another Blunder?

Just a few months back several state governments had announced to provide rice at Rs2-4 a kg citing soaring prices of food grains and shortage as a reason populist measure to make this staple food available. Government had also banned the export of rice and India subsequently vanished from the list of rice exporting nations. Now comes the announcement from the government agency Food Corp of India (FCI) that India will be able to export rice this year. Unbelievable it may sound but, the FCI says that it has already bought 28 Mn tones of rice from farmers, much higher than the target, thus will be in position to export it.

Ironic it may sound but India as few months back government was pleading helplessness over controlling food prices now the government has indicated that it may lift the ban on non-basmati rice exports after October. Food management program in India is not only incoherent and inconsistent but also lacks vision. No one knows the possible reason for government’s enthusiasm for rice exports (probably except exporters) when future food security is on question mark.

Just few months back, government put advertisements on every tv channel claiming bumper harvest but it failed to procure wheat and had to import wheat at twice the rate which it was unwilling pay to the domestic farmers. Now government claims that its wheat inventory stood at 23.5 Mn tones, much above 13.5 Mn tones last year but, it has no answers why it couldn’t get wheat for poor. The political apathy with food security is to such intolerable extent that India is probably the only country where bumper foodgrain gets spoiled in poor storage facilities and worse it buys spoiled foodgrain for its people, yet it never stops at taking hasty decision and looks short-term benefits overlooking the long term concerns.