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issue: January 2009 APPLIANCE Magazine

Appliance Industry Forecasts: India
Web Exclusive: Is India Stable for Now?


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Diane Ritchey, News Editor

India’s diverse economy encompasses high-tech appliance manufacturing facilities, modern agriculture, services, and traditional village farming. The national economy is the third largest in the world behind the United States and China, and has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, and again in 2007, and that economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit.

However, India experienced more bad news in late 2008 than good. Industrial production dipped to as low as 1.3% in August as against 10.9% in August of 2007. Foreign institutional investors pulled out close to $15 billion in late 2008, and Indian corporations owed at least $45 billion to overseas lenders. And India currently has a high rate of inflation, which has averaged around 10% through 2008, and a depreciating rupee, which costs an Indian almost 50 rupees for a dollar.

The terror attacks that rocked the country in early December briefly held hostage the city of Mumbai, which is the financial and commercial capital of India. The attacks couldn’t have come at a worse time.

The Organization for Economic Cooperation and Development (OECD) is forecasting India’s 2008 GDP to be only 6.3%, but still expects India to grow in 2009 and expects an Indian recovery, in tandem with the world economy, in 2010.

OECD said that “Unchecked fiscal spending during the expansion has left the Indian authorities with little room for maneuver in the ongoing slowdown. At the same time, foreign institutions have become more reluctant to invest in India. A period of fiscal retrenchment seems desirable, focused on making government subsidies available only to those in real need.”

To counteract shrinking growth due to the global economic slowdown, the Indian government announced a $4 billion stimulus package in late November. That measure pushed the amount of spending by the government to $60 billion in efforts to help the country’s export, real estate, and infrastructure sectors. In addition, in early December, the Indian central bank cut its benchmark interest rate by one percentage point to increase growth and shore up investor confidence, and the government cut state-set fuel prices for the first time in nearly two years, before introducing expected fiscal measures to keep the economy expanding just as manufacturing activity is slowing down.

Appliance Industry in India

 However, some business leaders and analysts said that most measures were insufficient to lift growth and ease lending.

Adi Godrej, chairman of appliance maker Godrej, said the central bank could have cut rates further: “I would have preferred a deeper cut of 150 basis points.”

In addition, a report by Crisil, the Indian affiliate of Standard & Poor’s, the ratings agency, noted that India has a budget deficit projected to be above 8% of GDP for 2008 to the end of March 2009, thus it has little room to stimulate the economy.

Yet most economists expect India to turn the corner first and rebound quickly from the global slowdown. “We expect the Indian business cycle to be the first to bottom in Asia. And, it should, in theory, be first to emerge,” said Sharmila Whelan, senior economist at investment banking firm CLSA. “The worst will be over by mid-2009, and by 2010 you should be able to see the next investment-led business cycle taking root.”

He noted that India should do better than most countries because Indian trade constitutes only about 32.5% of GDP—only about half the China figure—so India is better protected from fluctuations in global trade.  In addition the country has a favorable demographic profile, meaning over the next decade India can continue to draw on the benefits of a young and rapidly growing labor force.

While economists and industry bodies believe that India will grow and a recovery is a possibility, they hesitate from putting a timeframe to the current mood and economics. The sentiment, according to a Financial Times report, is a result of not just the slump in the stock markets, job losses, and salary cuts but is also due to the recent terrorism in the country; as people feel more vulnerable physically and financially, they are less apt to venture out to crowded markets. And all that could lead to foreign investors and tourists reconsidering plans for India as well.

Whirlpool, Haier, and water heaters OEM A.O. Smith all announced plans to expand manufacturing in India manufacturing in 2008. Whirlpool of India said in October 2008 that it planned to invest $20 million in new product lines in the next 12-18 months. “The funds will be invested in three of our existing facilities,” T.K. Saha, vice president of sales, said in a news conference. The funds for investment would be drawn mainly from internal accruals, he said. The firm, 83% held by Whirlpool Corp., also expects to post a revenue growth of 20% to 25% in FY09 with new product launches. Growth is coming from microwave ovens, air-conditioners, and water purifiers, as well as refrigerators and washing machines, Saha said. Currently, refrigerators contribute 70% of revenues.

In 2008 Haier announced a foray into the commercial refrigeration segment with the launch of deep freezers in the Indian market.  “The new range of deep freezers marks a step forward our endeavor to bring in innovative products to the Indian market,” said Haier Appliances India director and chief operating officer, Pranay Dhabhai. The company plans to sell around 20,000 units in the first year and is targeting a 12% market share in the total domestic market for the product. The deep freezers are mainly for use in commercial refrigeration and would be available in two variants—a hard top opaque and glass top with sliding door. The new freezer models are energy efficient and CFC free. Haier will initially import the products from its manufacturing unit located in the Middle East and begin local manufacturing next year.

A. O. Smith announced plans to locate the headquarters of its A. O. Smith India Water Heating Private Limited venture in Bangalore and begin construction of a residential water heater manufacturing plant. A. O. Smith said it was the first U. S. water heater business to enter the India market. Design work on the 76,000-sq-ft facility began in 4Q 2008; construction is scheduled for completion in 2Q 2010. The plant will initially have about 100 employees, according to Ajita G. Rajendra, president of A. O. Smith Water Products Company.

“We selected Bangalore for a number of strategic reasons,” he pointed out. “The city is centrally located in one of our key target markets in India with a growing consumer class interested in premium water heating solutions. The local infrastructure will be able to support our distribution needs.”

The plant and India corporate offices will be located on 20 acres in the Harohalli Karnataka Industrial Area just outside of Bangalore. The manufacturing operation will be designed to assemble glass-lined residential water heaters in sizes ranging from six liters up to 100 liters.

In the initial phase, the plant will purchase pre-painted steel components for water heater jackets. Plans call for plant expansions as the business grows to including jacket and tank fabrication and painting. Once the facility is fully built out, it will be a fully integrated residential water heater operation, Rajendra said. The plant also will manufacture co-branded products for Jaquar Company one of the leading suppliers to the sanitary channels in India.

 

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