the last bric in the wall · © 2016 ihs markit why are we talking about india? brics chindia ihs...

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Pricing & Purchasing Summit

© 2016 IHS Markit

Paul Robinson, Principal Economist, +1 202 481 9230, [email protected]

The Last BRIC in the Wall: India’s Rise in Global Supply Chains 26 September 2016

mailto:[email protected]

© 2016 IHS Markit

Key points

• It is not the BRICs, but Chindia that matters

• India’s culture, factor endowment, and industry focuses each are negatives short term and positives long term

• From an industry perspective, pharmaceuticals and transportation equipment are promising; metals and chemicals will lag and be domestically focused

• India will continue to grow in importance in global supply chains, pushing up energy costs in Asia but offering a huge source of demand in select markets

The Last BRIC in the Wall / September 2016 IHS Pricing and Purchasing Summit

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© 2016 IHS Markit

Why are we talking about India? BRICs Chindia


3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

United States China India Russia Brazil

Real GDP

Source: IHS Markit © 2016 IHS Markit

Ind

ex

: 1

99

5 =

1.0

<2.0x

4x

6x

It is not the BRICs, but Chindia that matters

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How does India compare with China?


Presentation Name / Month 2016

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Domains examined

Culture

Economics Factor

endowment


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Factor endowments


6 Photo source: Daniel Berehulak

© 2016 IHS Markit

Factor endowments

India

•Energy: 42% imported1

•Literacy: 71% (61% Female)2

•Infrastructure: #363

•Cement production: 270 mmt4

Commonalities

•Labor force/Engineering graduates: China #1, India #22

•Land size: China #4, India #72

•Iron ore reserves: China #4, India #54

•Large home grown enterprises resulting from strong history of entrepreneurship

China

•Energy: 19% imported1

•Literacy: 96%2

•Infrastructure: #233

•Cement production: 2,350 mmt4


7 1 Source: IEA 2 Source: CIA Factbook

3 Source: World Bank 4 Source: USGS

Photo source: Daniel Berehulak

© 2016 IHS Markit

Culture and history


8 Photo source: Wall Street Journal

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Culture and history

India

• Federal parliamentary republic

• Multicultural

• Wealth → Famine → Colony

• Liberalization begins in ’91

• Bifurcated development

• English-speaking

Commonalities

• Group > Individual

• Asian powers

• Income distribution concerns

• Labor rights concerns

• More liberalization needed

China

• Communist state

• Somewhat diverse, but not on India’s level

• Wealth → Isolationism → Forced opening

• Liberalization begins in ’78

• Relatively more equal development



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Economics and industry



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Economics and industry

India

• GDP Composition2:

• Agriculture: 16%

• Industry: 30%

• Services: 54%

• License Raj

• Healthcare, telecom, IT

• Ease of Doing Business: #1301

Commonalities

• Large economies: China #2, India #71

• Heavy state involvement

• Tight controls on foreign ownership (though India is loosening)

China

• GDP Composition2:

• Agriculture: 9%

• Industry: 43%

• Services: 48%

• State coordination

• Manufacturing, electronics

• Ease of Doing Business: #841


11 1 Source: CIA Factbook 2 Source: World Bank

Photo source: Wall Street Journal

© 2016 IHS Markit

How does India compare with China?

• Factor endowments

• Energy shortage will drag on India; Demographics greatest benefit for India

• Culture and history

• Democracy, multiculturalism slow decisions in India; Speed major factor in China’s rise

• Economics and industry

• Generally the industries that thrive in India (healthcare, telecom, and IT) are those outside of the government’s watchful eye; the opposite is true in China


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Each are negatives short term and positives long term for India

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What do these differences mean for industry?



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Industries examined


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Metals Chemicals Transportation

Equipment

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Metals: Major force, but not China


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0500

1,0001,5002,000

2006 2009 2012 2015 2018 2021 2024

USA China India

Exports of pharmaceutical products


Sales of iron and steel


050

100150200

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of iron and steel


0

10

20

30

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of non-ferrous metals


0

50

100

150

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of fabricated metal products


Units: Billions of US Dollars

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Chemicals: Challenges abound


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0250500750

1,0001,250

2006 2009 2012 2015 2018 2021 2024

USA China India

Sales of basic industrial chemicals


0

50

100

150

2006 2009 2012 2015 2018 2021 2024

USA China India





01020304050

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of rubber products


0

50

100

150

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of plastic products



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Transportation equipment: An industry to watch?


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0

500

1,000

1,500

2006 2009 2012 2015 2018 2021 2024

USA China India



Sales of motor vehicles


0

50

100

150

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of motor vehicles


0100200300400

2006 2009 2012 2015 2018 2021 2024

USA China India



Exports of aircraft and spacecraft


050

100150200

2006 2009 2012 2015 2018 2021 2024

USA China India



Sales of other transportation equipment



© 2016 IHS Markit

Industry summary


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• Metals

• Rising, but blunted by property rights

• Clear domestic focus, though some non-ferrous exports are rising

• Chemicals

• Low oil and gas reserves prohibit major industry development, except pharmaceuticals

• Transportation equipment

• Still nascent, but export focus for automobiles and size of other transportation equipment market make the industry one to watch

Pharmaceuticals and transportation equipment are promising; metals and chemicals will lag and be domestically focused

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What is the pricing environment in India?





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Overall inflation mostly tame


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-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014 2015 2016

India, WPI World, WPI

The calming impact of Governor Raghuram Rajan…and Governor Urjit Patel?


Pe

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nt

ch

an

ge

, ye

ar

ag

o

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40

45

50

55

60

65

70

2008 2009 2010 2011 2012 2013 2014 2015 2016

Exchange rate, Rupees per US Dollar

Exchange rate, Rupees per US Dollar

Slip-sliding away


Ru

pe

es p

er

US

D

Weaker Rupee means cheaper goods for overseas buyers


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Indian goods have gotten 35% cheaper for American

buyers since mid-2011

© 2016 IHS Markit

90

100

110

120

130

140

150

2000 2002 2004 2006 2008 2010 2012 2014 2016

India, Real exchange rate with US

Slip-sliding away


Ind

ex

, 2

01

0=

10

0

Weaker Rupee means cheaper goods for overseas buyers


22

Real exchange rate a drag for buyers in the US, but

well below past

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Sourcing opportunities in India?


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-20

-10

0

10

20

2011 2012 2013 2014 2015 2016 2017

India United States

Industrial inorganic chemicals prices


Perc

en

t ch

an

ge,

year

ag

o

-20

-10

0

10

20

2011 2012 2013 2014 2015 2016 2017

India United States

Plastics prices


Perc

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t ch

an

ge,

year

ag

o

Plastics prices


Perc

en

t ch

an

ge,

year

ag

o

-20-10

0102030

2011 2012 2013 2014 2015 2016 2017

India United States

Non-ferrous metals prices


Perc

en

t ch

an

ge,

year

ag

o

-40

-20

0

20

40

2011 2012 2013 2014 2015 2016 2017

India United States

Steel prices, cold-rolled sheet


Perc

en

t ch

an

ge,

year

ag

o

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Sourcing opportunities in India


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-20

-10

0

10

20

2011 2012 2013 2014 2015 2016 2017

India United StatesSource: IHS Markit © 2016 IHS Markit

Perc

en

t ch

an

ge,

year

ag

o

Industrial inorganic chemicals prices present a

buying opportunity for a couple more months -20

-10

0

10

20

2011 2012 2013 2014 2015 2016 2017

India United States

Plastics prices


Perc

en

t ch

an

ge,

year

ag

o


Perc

en

t ch

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year

ag

o

Plastics prices do not present a buying opportunity

-20-10

0102030

2011 2012 2013 2014 2015 2016 2017


Perc

en

t ch

an

ge,

year

ag

o

Non-ferrous metals prices do not present a buying

opportunity -40

-20

0

20

40

2011 2012 2013 2014 2015 2016 2017


Perc

en

t ch

an

ge,

year

ag

o

Steel prices, cold-rolled sheet will present a buying

opportunity in a couple of months

© 2016 IHS Markit

Change is going to do you good

• India’s global supply chain linkages on the rise…but India is not China

• Tightening of energy resources in South and East Asia

• (Slow) easing of the regulation climate


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Preparing your supply chain

• India’s global supply chain linkages on the rise…but India is not China

• Different industry focuses; inequality breeds bifurcated development

• Democracy slows progress, shifts attention from export-orientation (large trade deficit)

• Tightening of energy resources in South and East Asia

• Even companies not trading with India will feel India’s impact on energy costs

• India’s energy imports could strain chemicals and plastics production in East Asia

• (Slow) easing of the regulation climate

• Goods and Services Tax (GST) will consolidate fragmented state tax regimes and encourage free movement of goods in India

• The other “Pivot to (East) Asia”: India-ASEAN Free Trade Agreement/Regional Comprehensive Economic Partnership (RCEP)


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Summary

• It is not the BRICs, but Chindia that matters

• India’s culture, factor endowment, and industry focuses each are negatives short term and positives long term

• From an industry perspective, pharmaceuticals and transportation equipment are promising; metals and chemicals will lag and be domestically focused

• India will continue to grow in importance in global supply chains, pushing up energy costs in Asia but offering a huge source of demand in select markets


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