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Arbor Resources Blog Updates

India - a market to watch

6/7/2018

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India’s wood products market continues to expand rapidly. Today, softwood is gaining market share over hardwood, assisted in part by limited volumes of renewable or certified hardwood fibre. At the same time, a variety of initiatives are pointing to huge future increases in Indian wood products demand: India’s goal of growing the share of manufacturing in its GDP to 25% by 2022; proposed massive infrastructure investments (e.g., 500 new cities, 50 subways and 250 airports by 2030); and a backlog in housing construction (up to 65 million units). 

There is a “Make in India” campaign that is well on its way to making the nation a haven for investment and a propeller of economic growth. On the threshold of major reforms and poised to become the third-largest economy in the world by 2030, Make in India has announced a variety of initiatives that will facilitate the indigenous manufacturing of furniture, and ease the way for doing business in India. 

Indian dynamics are somewhat like China’s were some 10 years ago: constrained domestic production and a likely eventual surge in imports to meet domestic demand. Despite notable differences, India compares favourably to China and the U.S. Ranked as one of the top three most attractive investment destinations in the world, India is also one of the fastest-growing global economies. According to a study by the World Bank, India’s organized furniture industry is expected to grow by 20% per annum over the next few years, crossing the US$32 billion threshold by 2019. 

Foreign direct investment in India’s real estate sector, the government’s “Housing For All by 2022” initiative, and development of 100 smart cities to accommodate a growing urban population are some of the growth drivers reviving the real estate and construction sector. The anticipated increase in the tourism, hospitality, retail and hospital sectors is also expected to spur furniture demand in the country. The rise in demand for residential realty is a huge 20%, and the home furniture market should witness the fastest growth of all sectors in the next five years, followed by the office and institutional segments. 

According to a World Bank study, the Asian market is thought to be the biggest consumer of furniture worldwide, and India holds a major slice of the pie. The foreign direct investment enterprise under Make in India has already resulted in 60% growth in inflows, and it is this government campaign, along with the objective of high standards of quality, that is steadily attracting international capital and technological investment in the country, facilitating local production. 

With rapidly depleting global hardwood supply and huge consumption growth anticipated in India, the demand for imported softwood will only expand. One forecast is calling for massive softwood expansion: from ~2.5 million m3 in 2017 to over 65 million m3 in 2027. There are several developments that support this type of growth rate projection. For one, government and consumer perceptions around sustainable supplies (as opposed to illegally sourced lumber) are starting to change (India is currently considered the third-largest world market for illegal timber, following China and Vietnam). There is also the so-called “Ikea effect” that is allowing more consumers to be exposed to the look and use of softwood furniture. In fact, Ikea is planning to open 25 stores in India in next five years, with about 30% of the business volume to be sourced locally. 

“Is India the new China?” That’s a question that continues to be asked and the answer, simply put, is yes. It is only a matter of time. Many game-changers support this premise: 

- India has a young population, with a median age of 30 from now until 2050; 
- 100 million students graduate every year; 
- India has the fastest-growing GDP (7.4 %), surpassing even China; 
- The country is the world’s largest democracy, led by a growth-oriented leader with a majority government; 
- For the first time in India, corruption is being dealt with decisively; 
- There is a robust and transparent financial sector in the country; 
- India is leapfrogging to a digital economy, with almost 1 billion people now having biometric identification and 300 million smartphones; 
- The domestic construction industry in India is US$1 trillion in scale; 
- The country has industrial corridors and smart cities; and
- India’s real estate market permits direct foreign investment. 

As a result of all of the factors noted above, India will continue to be a softwood market to be watched. As of now, its growth prospects look mammoth! ​

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    Author
    ​FRANK T DAVIS 

    A SURLY AND CYNICAL OLD CURMUDGEON WITH A JAUNDICED VIEW OF THE POLITICAL ELITE .

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