With MSME units making up over 70% of this segment, the government has lately been pushing small businesses to be the catalyst in its plan towards an Atmanirbhar Bharat (self-reliant India). The MSME Ministry recently launched the MSME Innovative Scheme, a new strategy that combines innovation in incubation, design intervention and IPR protection. However, a large chunk of the country’s MSMEs has traditionally been reluctant to invest in new technologies. The main reason is that it required a large amount of capital investment and a talent upgrade.
Representing 90% of the organised machine tool and allied equipment manufacturers, Indian Machine Tools Manufacturers’ Association (IMTMA) is the apex body for the machine tool industry in India. In an email interaction, Ravi Raghavan, President of the industry body, speaks about the role of MSMEs in the machine tool industry, its key issues and the growth prospects. Edited excerpts:
Economic Times (ET): Can we start by getting an idea on the role the machine tool industry plays in the economic development of the country?
Ravi Raghavan (RR): Everything that we use today comes from manufacturing, and manufacturing is not possible without machine tools. There is a machine tool behind every manufactured item. In today’s world, if you aspire to be a manufacturing powerhouse, then you first need to be a leader in machine tools. Countries like Germany, Japan and China are strong in manufacturing as they have a strong machine tool industry. India needs to emulate these countries if it aspires to be among the $5-trillion economy nations. As the Indian machine tool industry strengthens its domestic base, develops indigenous products and finds avenues for exports, its global positioning will improve, which bodes well for the country’s economy.
ET: What are the various ways in which IMTMA is helping MSMEs become self-reliant in the machine tool industry?
RR: IMTMA is helping MSMEs to reach out to champions in the sector by developing sector-specific products, offering innovative solutions. For this, the association is conducting research and has formed sector-specific groups to decipher business opportunities across various sectors. The Indian machine tool industry and IMTMA are also working closely on localisation of imports. The PLI and infrastructure investments, besides the incentives provided by Aatmanirbhar Bharat and Make in India campaigns have created good business momentum.
As the Indian machine tool industry is dominated by MSMEs, which necessitates collaborative work for sustainable goals, IMTMA has constituted clusters for micro and small enterprises (MSEs). The objective is to enable the MSEs to discuss and work together for mutual benefit so as to continually learn, mature and grow into competitive enterprises. IMTMA has formed industrial clusters for units in the western region in Pune and in the northern region in Delhi, Ludhiana and Punjab. Moreover, the government has launched the enhancement of competitiveness in the Indian capital goods sector to address technology development aspects in the industry. The scheme is expected to develop advanced technologies and enhance machine tool industry capabilities.
ET: How tough has it been for you to train MSMEs in frugal manufacturing, which is increasingly becoming a differentiator for MSMEs globally?
RR: The machine tool industry is driven by MSMEs. More than 80% of our member companies are MSMEs, mostly in the supply chain apart from machine tool builders.
IMTMA has been at the forefront of skill development through various initiatives and carved a niche for itself in training and skilling people for manufacturing industries. The association has also set up a full-fledged e-learning portal, accessible round-the-clock for self-paced learning on technical subjects relating to manufacturing technologies. IMTMA also conducts symposiums on smart manufacturing and automation, national productivity summits and seminars on metalworking to enable the MSMEs learn more about global best practices.
ET: The machine tool industry is the lifeblood of the government’s Make in India plan. How do you see India’s journey towards becoming a global manufacturing hub? Are you satisfied with the pace of the progress made so far?
RR: Initiatives such as the PLI schemes, identification of champion sectors, increased FDIs in strategic sectors, reforms towards ease of doing business, reduction of corporate tax rates, et cetera augurs well for manufacturing. As a result, many leading companies have established manufacturing units in India and more industries from abroad are willing to shift their base to India and set up manufacturing units.
The government has created defence, machine tools, toy clusters and dedicated manufacturing zones and special economic zones which have enhanced manufacturing activities manifold. In the auto sector and renewable energy sector, many new non-traditional players are establishing manufacturing units and scaling up domestic manufacturing.
The Indian machine tool industry has recovered well from the two years of average performance and has almost reached the previous heights it achieved in 2018-19. The order book position looks bright for the forthcoming financial year, 2022-23, with green shoots being evidently visible as the financial year unfolds. This growth and resilience are a hallmark of the growth of capital goods and the manufacturing sector.
ET: What are the key bottlenecks policymakers urgently need to take care of?
RR: Demand creation is the foremost challenge for industries, besides maintaining a constant cash flow and enhancing technological capabilities through R&D, which will guarantee stability for industries in the long run. Also, overcoming bottlenecks in public procurement and making it faster and more judicious can lead to enhanced participation by MSMEs. Further, enhanced participation in the trade receivables discounting system (TReDS) initiative facilitating MSME receivable payments from corporates, and replacing bank guarantees with surety bonds in the capital goods sector will also bode well for the manufacturing industry.
ET: What impact of the FY22 budget do you see on the MSME sector and on the machine tool industry?
RR: India has moved from a basic accounting budget to a more strategic one that lays out a map for industries on what to focus on in the long term and act with a proper vision. The increase in capital expenditure on infrastructure projects by the government is extremely encouraging. It is important to note that capital goods not only result in direct employment but is also a big multiplier for indirect employment. Also, capex spend is a big driver of demand for capital goods like machine tools.
From an economic point of view, these are direct and indirect multipliers. For example, when railway infrastructure improves, logistics costs will scale down, helping manufacturing industries. Similarly, the development of roads will aid in faster rotation of trucks helping industries to get raw materials perhaps a week earlier than it used to be. The production turnout will also be faster and all these moves will have a cascading effect on the business ecosystem. These developments augur well for MSMEs.
ET: What growth prospects do you see for the machine tool industry in the current financial year?
RR: The capital goods industry normally grows at 1-2 percentage points more than the GDP in any growing manufacturing economy. We expect a higher growth rate in India due to a much lower base for machine tools.
ET: Exports remain a big market for the machine tool industry. How big is that opportunity? And, how do you envision the export potential playing out?
RR: Around 7-8% of the production is being exported currently. We still have a long way to go. IMTMA has formed a special interest group for enhancing exports to targeted countries and pushing up exports in three years substantially. The association is also planning and strategising to identify industries and products, and shortlisting countries for exports.