The Business Cycle and Process manufacturing business in India

1. Introduction

Over the last few decades, India a world's fastest-growing economies has
witnessed major changes in its industrial sphere. Significantly, one of the sectors that has
played a vital role in driving this economic recovery is process manufacturing. These
industries are in the process sectors: chemicals, petrochemicals, pharmaceuticals, and
food/beverage/textile manufacturing; This is imperative for even the government given how
dynamic and unpredictable business cycle in India affects Process manufacturing Business.

The economic or business cycle, also known as trade cycle. Wavering of economy
over time would be more definitive. These phases are then separated into four cycles -
expansion, peak (lasts around a year), contraction, and trough. During expansion, the
economy expands as businesses invest and employ more workers and consumer spending
increases. Demand Booms: Sustained demand booms are typical benefits for businesses in
process manufacturing. For example, during economic growth phases a lot of industrial
activities take place and consumers having spending power can drive up demand for
pharmaceuticals and chemicals.

Growth rates stabilize before starting to fall at the peak of each business cycle. The
positive recovery phase is usually characterized by high levels of production and employment
but also rising costs and potential inflationary pressures. For process manufacturing
companies, this period could indicate a requirement to streamline production processes and
control costs effectively in order to remain profitable.

The peak is followed by a contraction phase or recession. The word for millions of
unemployed people that stops purchasing causing an incredible low economic activity. This
stage is also quite difficult for process manufacturing businesses in India. The need for non-
essential goods (e.g., luxury food items, or specialized chemicals) may drop considerably.
Manufacturers may be forced to cut back on production, pare down inventories, and
introduce cost control measures in their manufacturing facility as a response to the recession.
But the pharmaceuticals are consumables and essentials their demand could be sustained,
making it an area of resilience for the industry.

The trough phase, on the other hand, is when we reach the lows of a business cycle
before an economy begins recovering again. This phase could lead to muted demand for
process manufacturing companies in India, but it will also help them gear up for recovery.
Factoring in some vision and tech investment, along with pivoting products for market share
increases during the next boom, can put companies in a winning position.

The dance of the business cycle and Indian process manufacturing underpins a
nuance between stability, and growth in strategic adaptability. In other words, businesses
must keep an ear to the ground in response to broader changes and willing to make
adjustments. Government policies, such as fiscal stimulus or infrastructure investments, also
are critical in harnessing the downside of economic downturns and laying down an
environment conducive to growth.
 2.Understanding the Business Cycle

Business cycles are intervals of general expansion followed by recession in

economic performance. The changes in economic activity that characterize business
cycles have important implications for the welfare of the general population,
government institutions, and private sector firms.

There are numerous specific definitions of what constitutes a business cycle. The
simplest characterization comes from regarding recessions as 2 consecutive
quarters of negative GDP growth. More satisfactory classifications are provided by,
first including more economic indicators and second by looking for more informative
data patterns than the ad hoc 2 quarter definition. In the United States, the National
Bureau of Economic Research oversees a Business Cycle Dating Committee that
defines a recession as "a significant decline in economic activity spread across the
market, lasting more than a few months, normally visible in real GDP, real income,
employment, industrial production, and wholesale-retail sales."[1]

Business cycles are usually thought of as medium term evolution. They are less
related to long-term trends, coming from slowly-changing factors like technological
advances. Further, a one period change, that is unusual over the course of one or
two years, is often relegated to “noise”; an example is a worker strike or an isolated
period of severe weather.

The individual episodes of expansion/recession occur with changing duration and

intensity over time. Typically their periodicity has a wide range from around 2 to 10
years.

There are numerous sources of business cycle movements such as rapid and
significant changes in the price of oil or variation in consumer sentiment that affects
overall spending in the macroeconomy and thus investment and firms' profits.
Usually such sources are unpredictable in advance and can be viewed as random
"shocks" to the cyclical pattern, as happened during the 2007–2008 financial
crises or the COVID-19 pandemic.

3. Phases of business cycle

The business cycle is the periodic rise and fall of economic activity, measured by the gross
domestic product (GDP). It's often illustrated as a wave, with periods of expansion or boom,
followed by contraction or recession. Here are the four stages of the business cycle:
 I. Expansion
The expansion phase is characterized by economic growth. There is an increase in real GDP,
employment, investment, consumer spending, and corporate profits. Businesses are
expanding production to meet rising demand. This is typically a period of low
unemployment, rising wages, and optimism.

II. Peak
The peak is the highest point of the expansion phase. The economy is operating at full
capacity, and inflationary pressures may begin to build. The Federal Reserve may raise
interest rates to slow down economic growth and prevent inflation from spiralling out of
control.

III. Recession
The contraction phase, also known as a recession, is a period of economic decline.
There is a decrease in real GDP, employment, investment, consumer spending, and
corporate profits. Businesses are reducing production as demand weakens. This is
typically a period of rising unemployment, falling wages, and pessimism.

IV. Trough
The trough is the lowest point of the contraction phase. The economy has reached its
bottom, and there are signs that a recovery is beginning. The Federal Reserve may lower
interest rates to stimulate economic activity.

V. Recovery
The recovery phase is a period of economic growth following a recession. The economy
begins to pick up steam, and there is an increase in real GDP, employment, investment,
consumer spending, and corporate profits. Businesses are starting to invest and hire again.
This is typically a period of declining unemployment, rising wages, and cautious optimism.
The business cycle is a natural part of the economy. It's important to understand the
different phases of the business cycle so that you can make informed business decisions. For
example, businesses may want to expand their operations during the expansion phase and
cut costs during the contraction phase.
Conclusion
This cycle keeps repeating itself, although the length of each phase can vary. Economists
can't predict exactly when a recession might hit or how long it will last, but understanding
business cycles helps them and policymakers make informed decisions.

3.Factor influencing business cycle

A. Economic Indicators
Economists are like detectives, using clues to understand what's happening with the
economy. These clues are called economic indicators, which are like gauges on the
rollercoaster. Here are some key indicators we watch.

 (GDP) Gross Domestic Product

This tells us the total value of everything produced in a country. It's like the overall size of
the economy's pie. When the pie gets bigger (GDP rises), it usually means things are good.In
economics, the final users of goods and services are divided into three main groups:
households, businesses, and the government. One-way gross domestic product (GDP) is
calculatedknown as the expenditure approachis by adding the expenditures made by those
three groups of users. Accordingly, GDP is defined by the following formula: GDP =
Consumption + Investment + Government Spending + Net Exports or more succinctly as GDP
= C + I + G + NX where consumption (C) represents private-consumption expenditures by
households and nonprofit organizations, investment (I) refers to business expenditures by
businesses and home purchases by households, government spending (G) denotes
expenditures on goods and services by the government, and net exports (NX) represents a
nation’s exports minus its imports.

The expenditure approach is so called because all three variables on the right-hand side of
the equation denote expenditures by different groups in the economy. The idea behind the
expenditure approach is that the output that is produced in an economy has to be
consumed by final users, which are either households, businesses, or the government.
Therefore, the sum of all the expenditures by these different groups should equal total
outputi.e., GDP.

This GVA growth has been mainly due to significant growth of 9.9% in Manufacturing sector
in 2023-24 over -2.2% in 2022-23 and growth of 7.1% in 2023-24 over 1.9% in 2022-23 for
Mining & Quarrying sector. Real GVA and Real GDP have been estimated to grow by 6.3%
and 7.8% respectively in Q4 of FY 2023-24.

 Unemployment rate

This measures the percentage of people who are actively looking for work but can't find it. A
low unemployment rate means more people are buying things, which keeps the economy
moving.

The unemployment rate in India's manufacturing sector saw fluctuations from 2020 to 2024
due to the impacts of the COVID-19 pandemic and subsequent recovery. In 2020-21, there
was a marginal fall in employment due to the pandemic, but this was offset by a 7% increase
in 2021-22. The number of persons employed in manufacturing dipped from around 16.6
million in 2019-20 to 16.1 million in 2020-21, then rose to 17.2 million in 2021-22. The
sector showed significant recovery and growth in employment and output during this
period.

 Consumer Spending

This tracks how much people are spending on stuff. When people feel confident, they spend
more, which boosts businesses. But if they're worried, they tighten their belts, slowing
things down. Consumer spending in the manufacturing business drives demand for goods,
influencing production volumes and economic growth. Increased consumer spending
typically leads to higher demand for manufactured products, prompting manufacturers to
boost production, invest in new technologies, and hire more workers. Conversely, reduced
consumer spending can lead to decreased demand, causing manufacturers to scale back
production, delay investments, and possibly reduce their workforce. Consumer preferences
and trends also shape manufacturing strategies, pushing companies to innovate and adapt
their products. Overall, consumer spending is a critical factor in the health and growth of
the manufacturing sector.

 Consumer spending in India decreased to ₹24,971.79 billion in the first quarter of

2024 from ₹25,729.57 billion in the fourth quarter of 2023. This marks a slight
decline after a period of growth.
  By the end of 2023, consumer spending amounted to over ₹25.6 trillion, reaching an
all-time high during the recorded period.

B . Monetary Policy
Monetary policy refers to the actions undertaken by a central bank, such as the Federal
Reserve in the United States or the Reserve Bank of India, to control the money supply and
interest rates in an economy. Its primary objectives are to manage inflation, control
unemployment, and stabilize the currency.

For example, during a recession, a central bank might implement an expansionary monetary
policy by lowering interest rates and purchasing government securities. This increases the
money supply, encourages borrowing, and stimulates spending and investment. Conversely,
to combat high inflation, the bank may enact a contractionary policy by raising interest rates
and selling government securities, reducing the money supply and slowing economic
activity.

An instance of this is the Reserve Bank of India cutting the repo rate (the rate at which it
lends to commercial banks) during the COVID-19 pandemic to boost economic activity by
making loans cheaper.

c. fiscal policy

Fiscal policy involves government spending and taxation decisions aimed at influencing
economic activity. It plays a key role in managing the business cycle, which consists of
periods of economic expansion and contraction.

During a recession, the government may implement an expansionary fiscal policy by

increasing public spending and cutting taxes. This injects more money into the economy,
boosts consumer demand, and stimulates business investment, thereby fostering economic
recovery. For example, during the 2008 financial crisis, many countries, including the United
States, increased infrastructure spending and provided tax rebates to households to spur
demand and create jobs.

Conversely, during periods of economic expansion when inflation is a concern, the

government might adopt a contractionary fiscal policy. This involves reducing public
spending and increasing taxes to cool down the economy and control inflation. For instance,
to combat high inflation in the early 1980s, the U.S. government reduced spending and
increased taxes, which helped to stabilize prices but also led to a temporary slowdown in
economic growth.
D . Global Events
The business cycle of process manufacturing in India is significantly influenced by both
domestic factors and global events. Domestically, factors such as government policies,
infrastructure development, availability of raw materials, and labor conditions play critical
roles. Process manufacturing, which includes industries such as chemicals, pharmaceuticals,
and food processing, often requires consistent inputs and efficient processes. Government
initiatives like the "Make in India" campaign have aimed to bolster manufacturing, but
challenges like regulatory hurdles and infrastructure bottlenecks remain. Globally, events
such as trade wars, economic downturns, and geopolitical tensions can disrupt supply chains
and impact export demand. For instance, the COVID-19 pandemic caused significant
disruptions in global supply chains, leading to shortages of raw materials and affecting
production schedules. Additionally, shifts in global trade policies, such as changes in tariffs
and trade agreements, can either open up new opportunities or pose challenges for Indian
manufacturers. Overall, the interplay between domestic conditions and global events creates a
dynamic environment for process manufacturing businesses in India, necessitating adaptive
strategies to navigate through various phases of the business cycle.

for example, led to widespread disruptions in supply chains, causing shortages of essential
inputs and delaying production timelines. Additionally, shifts in global trade policies, such as
the imposition of tariffs on Chinese goods by the United States, can alter trade dynamics and
create both challenges and opportunities for Indian manufacturers. As a result, the business
cycle in this sector is characterized by periods of expansion and contraction influenced by a
complex mix of local and international factors.

E. Government policy
Government policies play a crucial role in shaping the business cycle of process
manufacturing businesses in India. The Indian government has implemented various policies
to promote industrial growth and stability, which directly impact the process manufacturing
sector, encompassing industries such as chemicals, pharmaceuticals, and food processing.

The "Make in India" initiative is one of the key policies aimed at transforming India into a
global manufacturing hub. This initiative encourages both domestic and foreign companies to
manufacture their products in India, offering incentives such as tax benefits, simplified
regulatory processes, and financial support. Additionally, the Production Linked Incentive
(PLI) scheme provides financial incentives to boost the manufacturing and export of specific
products, further driving growth in the sector.
The implementation of the Goods and Services Tax (GST) has significantly impacted the
business cycle by unifying the tax structure across the country, reducing the complexity of
doing business, and promoting efficiency. Infrastructure development projects like
Bharatmala and Sagarmala enhance logistics and transportation networks, improving supply
chain efficiency and reducing costs for manufacturers.

Furthermore, the government has focused on labor reforms and skill development initiatives
to ensure a steady supply of skilled workers for the manufacturing sector. Programs such as
Skill India aim to train millions of people in various trades, enhancing the labor pool's quality
and availability.

However, challenges remain, such as inconsistent policy implementation and bureaucratic red
tape, which can hinder growth and stability. Despite these challenges, government policies
continue to be a pivotal factor in driving the business cycle of process manufacturing
businesses in India, influencing periods of expansion and contraction within the industry.

F. Technological Changes

Technological changes are a driving force in the business cycle Advancements in technology,
such as automation, artificial intelligence (AI), and the Internet of Things (IoT), are
transforming how manufacturing processes are designed, executed, and managed. These
innovations can lead to significant improvements in efficiency, quality, and cost-
effectiveness, ultimately impacting the business cycle by fostering periods of growth and
modernization.

Automation and AI are increasingly being integrated into manufacturing operations to

streamline production processes, reduce human error, and enhance precision. For example,
automated assembly lines and AI-powered quality control systems can significantly increase
production speed and consistency, reducing downtime and waste. This not only boosts
productivity but also enhances competitiveness in the global market.

The adoption of IoT in process manufacturing allows for real-time monitoring and
management of manufacturing equipment and processes. IoT-enabled devices can collect and
analyze data to predict equipment failures, optimize maintenance schedules, and improve
overall operational efficiency. This predictive maintenance reduces unexpected downtime and
extends the lifespan of machinery, leading to cost savings and increased production
reliability.
Furthermore, advancements in digital technologies, such as digital twins and smart
manufacturing, enable manufacturers to create virtual models of their production processes.
These digital replicas allow for simulations and optimizations before implementing changes
in the physical production line, reducing risks and improving efficiency.

However, the adoption of these technologies requires substantial investment in infrastructure

and training. Small and medium-sized enterprises (SMEs) in India may face challenges in
accessing the necessary resources to implement advanced technologies. Government
initiatives and policies, such as the "Digital India" campaign and incentives for technology
adoption, play a crucial role in supporting businesses in this transition.

Overall, technological changes are a key factor in shaping the business cycle of process
manufacturing businesses in India. By driving innovation and efficiency, these advancements
can lead to periods of rapid growth and transformation, positioning Indian manufacturers to
compete effectively on the global stage.

THEORIES OF BUSINESS CYCLES

We have explained above the various phases and common features of business cycles.
Now, an important question is what causes business cycles. Several theories of business
cycles have been propounded from time to time. Each of these theories spells out different
factors which cause business cycles.

1. Pure Monetary Theory

The traditional business cycle theorists take into consideration the monetary and
credit system of an economy to analyze business cycles. Therefore, theories developed
by these traditional theorists are called monetary theory of business cycle. The monetary
theory states that the business cycle is a result of changes in monetary and credit market
conditions. Hawtrey, the main supporter of this theory, advocated that business cycles
are the continuous phases of inflation and deflation. According to him, changes in an
economy take place due to changes in the flow of money.

For example, when there is increase in money supply, there would be increase in prices,
profits, and total output. This results in the growth of an economy. On the other hand, a
fall in money supply would result in decrease in prices, profit, and total output, which
would lead to decline of an economy. Apart from this, Hawtrey also advocated that the
main factor that influences the flow of money is credit mechanism. In economy, the
banking system plays an important role in increasing money flow by providing credit.
An economy shows growth when the volume of bank credit increases. This increase in
the growth continues till the volume of bank credit increases. Banks offer credit facilities
to individuals or organizations due to the fact that banks find it profitable to provide
credit on easy terms.

The easy availability of funds from banks helps organizations to perform various
business activities. This leads to increase in various investment opportunities, which
further results in deepening and widening of capital. Apart from this, credit provided by
banks on easy terms helps organizations to expand their production.

1. Keynes’ Theory of Business Cycle

J M. Keynes in his seminal work ‘General Theory of Employment, Interest and Money’
made an important contribution to the analysis of the causes of business cycles. According to
Keynes, the changes in the level of aggregate effective demand will bring about fluctuations
in the level of income. The aggregate demand is composed of demand for consumption goods
and demand for investment goods. According to Keynes, propensity to consume is more or
less stable in the short run. Private investment however depends upon profit motive and
business expectations about the economy. Thus fluctuation in aggregate demand depends
primarily upon fluctuations in investment demand. Multiplierplays a significant role in
causing magnified changes in income following a reduction or increase in investment.
Keynesian theory however fails to explain the cumulative character of business cycle. For
example, suppose that investment rises by 100 rupees and that the magnitude of multiplier is
4. From the theory of multiplier, we know that national income will rise by 400 rupees and if
multiplier is the only force at work that will be the end of the matter, with the economy
reaching a new stable equilibrium at a higher level of national income. But in real life, this is
not likely to be so, for a rise in income produced by a given rise in investment will have
further repercussions in the economy. This reaction is described in the ‘principle of
accelerator’ (accelerator is the impact of income on investment). Samuelson combined the
accelerator principle with the multiplier and showed that the interaction between the two can
bring about cyclical fluctuations in economic activity.

2. Schumpeter’s Innovation Theory of Business cycles

Joseph Schumpeter considered trade cycles to be the result of innovation activity
of the entrepreneurs in a competitive economy. Schumpeter calls the equilibrium state of the
economy as a “circular flow” of economic activity which just repeats itself period after
period. The circular flow of economic activity gets disturbed when an entrepreneur
successfully carries out an innovation. According to Schumpeter, the primary function of an
entrepreneur is innovation activity which yields him/ her real ‘profit’. According to
Schumpeter, introduction of a major innovation leads to a business cycle. As the innovator-
entrepreneur begins bidding away resources from other industries, money incomes increase
and prices begin to rise thereby stimulating further investment. As the innovation steps up
production, the circular flow in the economy swells up. Supply exceeds demand. The initial
equilibrium is disturbed. There is a wave of expansion of economic activity. This is what
Schumpeter calls the “primary wave”. This primary wave is followed by a “Secondary wave”
of expansion. This is due to the impact of the original innovation on the competitors. You can
imagine the impact of innovation if you relate it to some real life examples such as the
Internet, mobile phone, and on-line transactions. As the original innovation proves profitable,
other entrepreneurs follow it in “swarm-like clusters”. Innovation in one sector induces
innovations in related sectors. Money incomes and prices rise. As potential profits in these
industries increase, a wave of expansion in the whole economy follows. This period of
prosperity ends as soon as ‘new’ products induced by the waves of innovations replace old
ones. Since the demand for the old products goes down, their prices fall and consequently
their producer-firms are forced to reduce their output. When the innovators begin repaying
their bank loans out of the newlyearned profits, the quantity of money in circulation is
reduced as a result of which prices tend to fall and profits decline.

Economic Growth
In this atmosphere, uncertainty and risks increase. Recession sets in. The economy
cannot continue in recession for long. Entrepreneurs continue search for profitable
innovations. The natural forces of recovery bring about a revival.
 Process Manufacturing

What is process manufacturing ?

Process manufacturing is a method of combining supplies, such as ingredients or raw

materials, and using a predetermined formula or recipe to produce something. The process
manufacturing production method is commonly used in bulk production and follows
sequential steps. The list of items that are produced by process manufacturing is varied. One
example is food and beverages, but it can also be found in oil refining, the production of
gasoline, pharmaceuticals, personal care products, cosmetics, specialty chemicals, plastics,
metals, paints and even alcohol. When doing process manufacturing, it’s important to follow
specific steps. One step must be completed before starting the next step. There are also
specific conditions that process manufacturing must follow regarding heat, time and pressure.
These conditions result in thermal or chemical changes that are irreversible. Process
manufacturing is permanent, which is why production must be followed with precision.
Controlling process manufacturing production is assisted by project management software.
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Benefits of Process Manufacturing

We’ve already touched on the advantages of process manufacturing, but it’d be a
disservice to not dig deeper into explaining the benefits. For one, it’s cost-effective.
Manufacturing used to make things by hand or construct complex individual products that
needed many unique parts. Process manufacturing works in bulk without substantial human
labor. It decreases labor costs, adds efficiency and, by so doing, increases the profit margins.

Another benefit of process manufacturing is that it makes the allocation of costs easier,
allowing for the logical administration of all aspects of the production line. This helps
businesses allocate resources when needed. It also helps managers make adjustments and
collect data from various points along the process, enabling them to make better decisions.

Process manufacturing makes product targets and procedures transparent. This allows teams
to know what they need to do and supervisors can assess their performance accordingly. In
other words, it improves communication and staff morale. Keeping the lines of
communication open also allows for feedback from the people on the production line, which
can lead to greater efficiency in terms of manufacturing processes, further improving staff
motivation and focus on objectives.

The goal of process manufacturing is to make production simple without sacrificing quality,
which is why it embraces automation. That removes human error from production and, with
close monitoring, captures issues that can be documented, traced to their origins and resolved.
It also leads to improved safety on the production line.

Process Manufacturing Examples

Knowing process manufacturing by defining it and its benefits is only part of the larger
picture. Exploring the various industries that use it and showing examples of how it’s applied
can broaden our understanding. Let’s look at a few process manufacturing examples in some
of the major industries that use the production method.
Pharmaceutical Industry
Process manufacturing is used in the pharmaceutical industry for both over-the-counter
and prescription medications. These require high levels of quality control management to
closely monitor the sophisticated formulation. It’s also highly regulated by the government,
which further requires quality control. Operations can include blending, granulation, milling,
coating, tablet pressing, filling and others.

Food & Beverage Industry

The food and beverage industry also uses process manufacturing as well as the packaging
companies that allow the food and beverages to be distributed. You can find its use in dairy
and meat products, commercial baked goods, sauces, alcoholic beverages and juices, among
others. Process manufacturing focuses on recipe development and maintenance. But there are
also manufacturing systems and the use of quality control management that are required to
meet health regulations.
Chemical Industry
The chemical industry, often bundled with tire and process and abbreviated as CTP,
makes up a large portion of manufacturing. It uses process manufacturing to convert raw
materials into final and intermediate products. Chemical industries will also incorporate batch
manufacturing. That is, a refinery output can go straight to a chemical plant, a petroleum
chemical facility or used for raw materials when manufacturing tires.

Process Manufacturing vs. Discrete Manufacturing

We’ve learned that process manufacturing is about creating recipes to produce a product. It
includes products such as food and beverages, chemicals and others that are made by
combining supplies, ingredients or other raw materials according to a formula.
Discrete manufacturing, on the other hand, produces a product using the same parts and the
same quantities. The finished product is always the same. It uses standard, specific parts and
if a part isn’t meeting quality standards, it’s rejected. This contrasts with in-process
manufacturing where quality control detects a variance and the formula is adapted to bring
the final product up to specification.

Yields can vary in process manufacturing, while discrete manufacturing produces an exact
amount of finished products. The basic difference can be boiled down to process
manufacturing relies on formulas and discrete manufacturing assembles parts in a prescribed
process to produce a distinct item.

Historical Overview

India's economic history showcases significant phases influenced by various policies and
global economic conditions. During the colonial era, India's GDP growth was stagnant,
averaging around 0.5% annually from 1900 to 1947 due to exploitative British policies. Post-
independence, India adopted a mixed economy with state-led development, focusing on
industrialization through Five-Year Plans. For example, during the Second Five-Year Plan
(1956-1961), the focus was on rapid industrialization, leading to an average annual GDP
growth of about 4.2%. However, the period of the "License Raj" (1947-1991) involved
extensive government control over production and investment, resulting in inefficiencies and
an average GDP growth rate of around 3.5%, often termed the "Hindu Rate of Growth." The
1991 economic crisis, marked by a severe balance of payments crisis, led to significant
economic reforms, including liberalization, privatization, and globalization, which spurred
higher growth rates.

Period Key Features Average Annual GDP

Growth
Pre-Independence (1900- Colonial exploitation, 0.5%
1947) agricultural economy
Early Post-Independence Mixed economy, Five-Year 4.2%
(1947-1965) Plans, industrialization
License Raj (1965-1991) Heavy regulation, 3.5%
inefficiencies
Post-Liberalization (1991- Economic reforms, 6-7%
present) globalization

Current Economic Climate

India's current economic climate is marked by rapid growth and challenges. Following the
liberalization reforms of the 1990s, India experienced an economic boom, with GDP growth
rates averaging around 6-7% annually. In recent years, the economy has been driven by a
young population, rising middle class, and a strong services sector. For instance, in 2019,
India's GDP growth was 4.18%, with significant contributions from the IT and
telecommunications sectors. However, the COVID-19 pandemic severely impacted the
economy, causing a contraction of -7.3% in 2020-2021. The economy is recovering, with an
estimated growth rate of around 9.5% in 2021-2022, supported by government stimulus
measures and a rebound in consumer demand. Yet, challenges such as unemployment, income
inequality, and inflationary pressures persist.
Government Policies and Their Impact

The Indian government has introduced various policies to stabilize the business cycle and
promote growth. Key reforms include the Goods and Services Tax (GST) in 2017, which
aimed to create a unified national market by replacing multiple indirect taxes. For example,
GST implementation simplified the tax structure and improved tax compliance, though it
faced initial teething problems. The Insolvency and Bankruptcy Code (IBC) of 2016 was
introduced to address the issue of non-performing assets (NPAs) and streamline the resolution
process, which helped improve the ease of doing business. Initiatives like "Make in India"
aim to boost manufacturing and attract foreign investment, while infrastructure projects such
as Bharatmala (road development) and Sagarmala (port development) focus on enhancing
connectivity and logistics. The Digital India campaign aims to promote digital infrastructure
and services, contributing to financial inclusion and e-governance. While these policies have
had positive impacts on economic efficiency and growth, challenges in implementation and
resistance from various sectors have been observed.

Major Government Policies and Their Impacts

Policy Year Objective Impact

Goods and Services Tax 2017 Unified national market, Improved tax
(GST) simplified tax structure compliance, initial
disruptions
Insolvency and Bankruptcy 2016 Resolve NPAs, streamline Improved ease of
Code (IBC) insolvency process doing business, faster
resolutions
Make in India 2014 Boost manufacturing, attract Increased FDI, mixed
FDI results in
manufacturing
growth
Bharatmala & Sagarmala Ongoing Enhance road and port Improved
connectivity infrastructure,
logistics efficiency
Digital India 2015 Promote digital Enhanced financial
infrastructure and services inclusion, e-
governance

Imapct of business cycles on process manufacturing

in india:

1. Expansion:

= This phase is characterized by an increase in output and employment. There is

also an increase in the demand in the market, capital expenditure, sales and
subsequently an increase in income and profits. This cycle will continue till there
is hundred percent utilization of available resources.

And the production level will be at the maximum capacity. The unemployment
rates will be zero with the exception of voluntary unemployment and frictional or
structural employment (which is temporary).

In this phase both the prices and cost increase at a somewhat faster rate. But
generally, the public enjoy prosperity and a higher standard of living. The growth
rate will eventually deaccelerate as the economy approaches its peak.

2. Contraction:

= At the peak of an economy, demand is stagnant. Then very soon, demand starts
falling in certain sections of the economy. This is the start of the contraction phase
of the trade cycle, which is the opposite of the expansion phase.

Even the investment levels and employment levels decrease along with the
demand. Now there is a mismatch between demand and supply in the market.
Once producers become aware of the shift in the economy they start disinvesting,
scaling back operations, cancelling orders for goods and labour etc.

This will start a domino effect. Now producers of capital goods and raw materials
will also start cancelling orders and holding off investment.

At this turning point in the economy, the prices of the goods also fall. Income
levels decreases which decrease consumer spending as well. The outlook about
the economy is pessimistic and we will see a contraction in economic activities
across all sectors. We call this phase recession.

Case Studies
The Great Depression of 1930s:-
= A notable historical example of a trade cycle is the Great Depression of the
1930s, which was a severe worldwide economic downturn.

It began after the stock market crash of 1929 and lasted until the late 1930. This
period was marked by significant decline in industrial production, international
trade, and employment, as well as deflation in almost every country.

Real GDP fell 29% from 1929 to 1933.

The unemployment rate reached a peak of 25% in 1933.

Consumer prices fell 25%; wholesale prices plummeted 32%.Some 7,000 banks,
nearly a third of the banking system, failed between 1930 and 1933.

Another example is post-world war Il economic expansion, also known as the

Golden Age of Capitalism, which was a period of strong economic growth and
prosperity that lasted from the end of world war Il until the early 1970s.

This cycle show high rate of growth in GDP, income and employment, and was
driven by factors such as technological innovation, and expansion of consumer
goods, production and reconstruction of war-torn economies.

13 million people became unemployed. In 1932, 34 million people belonged to

families with no regular full-time wage earner.

Industrial production fell by nearly 45% between 1929 and 1932.Homebuilding

dropped by 80% between the years 1929 and 1932.In the 1920s, the banking
system in the U.S. was about $50 billion, which was about 50% of GDP.
From 1929 to 1932, about 5,000 banks went out of business. By 1933, 11,000 of
US 25,000 banks had failed.Between 1929 and 1933, U.S. GDP fell around 30%;
the stock market lost almost 90% of its value.

In 1929, the unemployment rate averaged 3%. Over one million families lost their
farms between 1930 and 1934. Corporate profits dropped from $10 billion in 1929
to $1 billion in 1932.

Between 1929 and 1932, the income of the average American family was reduced
by 40%.Nine million savings accounts were wiped out between 1930 and 1933.
273,000 families were evicted from their homes in 1932.There were two million
homeless people migrating around the country.

Over 60% of Americans were categorized as poor by the federal government in

1933. In 1932 deflation was 10.7 percent and real interest rate was 11.49 percent.

New York social workers reported that 25% of all schoolchildren were
malnourished. In the mining counties of West Virginia, Illinois, Kentucky, and
Pennsylvania, the proportion of malnourished children was perhaps as high as
90%. Many people became ill with diseases such as tuberculosis.

The 1930 U.S. Census determined the U.S. population to be 122,775,046. About
40% of the population was under 20 years old. Suicide rates increased; however,
life expectancy increased from about 57 years in 1929 to 63 in 1933.

Indian bicycle Industry – Hero Cycle:

ABSTRACT:

Hero Cycles started with manufacturing cycle components slowly paving its way onto
becoming the one of the ‘Best Cycle Brand’ in India. Today, Hero Cycles is undoubtedly the
largest manufacturer of bicycles in India producing 5.2 million cycles per annum.Starting
from a small unit to creating a huge global footprint, Hero Cycles production unit in
Ludhiana is fully equipped with an in-house R&D facility producing major bicycle
components within its premise under stringent quality parameters complying with all global
standards. The company focuses on innovation, user friendly & quality products. In this case
we tried to analyze the strong areas, weak points, threats and opportunities of the company
with the help of SWOT Analysis. A holistic approach is being adopted to understand the
environment in which company’s operating therefore; PEST Analysis Core competency and
Marketing Strategies are studied. This study shows how it succeeded and stood as a market
leader.

KEYWORDS: Hero cycles, pest, swot, strategies, success etc.

INTRODUCTION:

Hero Cycles Ltd was established in the year 1956 and has its headquarters in Ludhiana,
Punjab. It is a manufacturer of bicycles and bicycle related products.It initially started with
manufacturing cycle components. At present, the company is one of the world's largest
manufacturer of bicycles and producing 19,000 cycles per day. The company based in
Ludhiana, is fully equipped with in house research and development facilities. Their most
modern and sprawling unit in Ludhiana produces all major components that include frame,
fork, rims, handle and mudguards and many such things within their premises under strict
quality parameters that match the global standards. They were also the first to introduce
aluminum frame bicycles in India. The company has over 250 suppliers network, approx.
2800 dealerships & over 4,300 employees and moreover ISO 9001 & ISO 14001 certification
from BVC of UK and recognized R&D department by the Govt. of India. Hero Cycles has
also entered into Mid Premium, Premium & Super Premium segment under the brand names
Hero Sprint, Hero Sprint Pro & UT. As part of its strategy to further cement its position in the
fast-growing premium cycling segment in India.
THE VISION AND MISSION:

The Hero Group are continuously striving for synergy between technology, systems and
human resources to provide products and services that meet the quality, performance, and
price aspirations of the customers. While doing so, the company maintain the highest
standards of ethics and societal responsibilities, constantly innovate products and processes,
and develop teams that keep the momentum going to take the group to excellence in
everything we do." Hero Honda’s mission is to strive for synergy between technology,
systemsand human resources, to produce products and services that meet the quality,
performance and price aspirations of customers. While doing so, company maintains the
highest standards of ethics and societal responsibilities.” This mission is what drives us to
new heights in excellence and helps us forge a unique and mutually beneficial relationship
with all our stakeholders.

Industry Overview:

Bicycle Industry has its existence since decades when it was major means of personal
transportation. With the advancement of technology, the trend of the bicycle was reduced in
India among the middle and highincome population, but its popularity is returning on account
of the health priorities and adventure cycling sports. The increasing congestion, urbanization,
and sustainability are majorly driving the growing demand for bicycles all over India. Punjab
state accounted for the largest share in the manufacturing of bicycles which produced around
10.5 million units in 2017. China bicycle manufacturer are expected to enter Punjab state and
boost the industry by introducing lightweight technology. Moreover, the distribution channel
has fuelled the growth of India bicycle market, where sales through online distribution
channel is rising at a steep rate and are expected to take over large market share over the
forecast period. Sales through the bicycle specialty offline stores are still preferred option by
the 80% of the population which belongs to middle and lower income group and have a
higher preference for physical shopping. Further, the trend of e-bikes is setting up ground for
the growth of new and existing entrants. Globally ebikes are expected to contribute 50%
value share by 2022 to the total bicycle industry. Brands such as Atlas, Hero Cycles, Avon
cycles have huge market penetration offering low to medium price bicycles and accounted for
around 60% market share in 2017. Brands such as Firefox and B’Twin from Decathlon are
penetrating into high price segment. Goldstein Market Intelligence analyst forecast that the
India bicycle industry is set to grow at a CAGR of 8.6% over the forecast period of 2017-
2030.

HERO GROUP: SUCCESS STORY:

Hero Group has been one of India’s most trusted brands for several decades now.
Hero Cycles has been a market leader in the standard bicycle category for three decades. It
was in 1986 when Hero Cycles was first named as the largest producer of bicycles by the
Guinness Book of world records. Since then, the company has not only maintained its lead in
the market but has constantly endeavored to improve its products through persistent research
and innovation. Hero Cycles currently rolls out one bicycle every nine seconds and has been
setting new sales records each year. Keeping pace with the changing needs of the time, Hero
Cycles has entered the premium bicycle segment in recent years. In 2012, launched UT Edge
lifestyle brand; in 2015 we acquired 'Firefox Bikes' further cementing the company’s position
in the premium bicycle segment. In 2016, the launch of premium Hero Sprint Pro series
augmented Hero’s position in the lifestyle biking segment. With these strategic moves, the
company now commands dominance in the double-digit growing premium segment while
continuing to maintain its leadership in the mass segment with over 45% share. In March
2016, Hero Cycles acquired a majority stake in Sri Lankan bicycle maker BSH Ventures.
This acquisition has given a plant that will manufacture for most of overseas brands. Earlier
in 2015, Hero Cycles had acquired a majority stake in UKbased Avocet Sports to enter the
high-end bicycle market of Europe.

Hero Cycles Showcases the latest in Bicycle Technology and a host of new launches at
India’s Largest Cycle & Fitness Expo:

World’s largest bicycle manufacturer Hero Cycles is showcasing a series of its latest brands,
from premium to mass products, at the largest exhibition of India’s bicycle, fitness and sports
industry that opened in Ludhiana. This is the 4th edition of the annual India International
Cycle, Fitness & Outdoor Sports Expo that brings together the best in bicycles, fitness and
outdoor sports equipment industry.
GRAND STRATEGY

 In the year 2002, they made a tie up with National Bicycle Industries, a part of Matsushita
Group, Japan, for manufacturing high end bicycles.

 In September2006, the company signed a technical collaboration-cum-joint marketing

agreement with Ultra Motor for producing a new range of low-speed electric two-wheelers in
India.

 During the year 2008-09, the company launched 14 new models and new set of product for
export market.

 Pantaloons Retail India Limited (PRIL) and Hero cycles have come together to promote the
premium segment of Hero bicycles in India. PRIL, s “Planet Sports” will be the major
promoter of Hero cycles.

 The tie up has been done mainly for the high end bicycles which are being launched in
India by Hero Cycles. These high end bicycles will be sold in Planet sports as well as other
shop in shop format including Future groups Pantaloons, Brand Factory and Sports
warehouses.

SWOT ANALYSIS:

STRENGTH  Good customer base

 Strong Brand image

 Quality

 Innovation

WEAKNESS : Unable to fulfil some regions demand.

OPPORTUNITIES: Right time for expanding and existing capacities.

THREATS  Dumping of materials by china in different parts of the world

 More players entering into these segment.

CONCLUSION:

Hero Bicycles changes the definition of Bicycles is that now bicycles are not about the basic
traveling machine, it is now more about being creative. It is the world’s largest manufacturing
company of bicycle, which has registered a phenomenal sale in December by selling more
than 6 lakhs units. This makes the highest one-month selling company in the history of the
bicycle. In comparison to the other cycle companies in India, it has all the qualities which
make it exceptional from others. Hero cycles with its strategies and innovative ideas it is
satisfying the growing needs of customers with improvised technology and stood as a market
leader.

Strategies for mitigation:

 Stay ahead of the negative consequences of risk and protect their revenue,
reputation, and competitive position.

 Build trust with clients, investors, and other stakeholders by being able to
prove that they’re doing everything they can to mitigate risk.

 Streamline audits, reduce the likelihood of negative findings, and make

compliance with regulatory requirements easier.

 Increase efficiency by preventing disruptions to business operations.

 Keep their teams focused on important, strategic work instead of
constantly putting out risk-related fires.

Challenges:

Demand Fluctuations:

During economic expansions, demand for manufactured goods typically increases,

which can strain production capacities and supply chains. Conversely, during
economic contractions, demand can plummet, leading to underutilized resources and
excess inventory. This cyclical nature of demand requires manufacturers to be highly
adaptable, which can be challenging without flexible production systems and agile
supply chains.

Financial Strain:

Economic downturns can severely impact cash flow and profitability, especially for
manufacturers with high fixed costs. Reduced revenues can lead to difficulties in
meeting financial obligations, maintaining operational levels, and investing in
necessary upgrades or expansions. Access to credit can also become more constrained
during downturns, exacerbating financial challenges.

Supply Chain Disruptions:

Business cycles can lead to volatility in raw material prices and availability. During
expansions, the increased demand for raw materials can lead to higher costs and
potential shortages. In contrast, during contractions, manufacturers may face
disruptions due to lower production volumes, leading to inefficiencies and higher per-
unit costs.

Workforce Management:

Managing a workforce through the ups and downs of business cycles is challenging.
During expansions, there may be a need for rapid hiring and training, while
contractions can lead to layoffs and reduced workforce morale. Balancing workforce
needs with economic conditions requires careful planning and a focus on maintaining
core talent.

Operational Inefficiencies:

Economic fluctuations can lead to operational inefficiencies. For example, during

downturns, reduced production volumes can lead to higher per-unit costs and
decreased economies of scale. Conversely, during booms, overextension and rushed
expansions can result in quality control issues and operational bottlenecks.

Opportunities:

Technological Advancements:
Business cycles often drive innovation as companies seek to improve efficiency and
reduce costs. During expansions, manufacturers have the capital to invest in advanced
technologies such as automation, artificial intelligence, and the Internet of Things
(IoT). These technologies can enhance productivity, quality, and flexibility,
positioning companies for greater resilience during downturns.

Market Diversification:

Economic fluctuations provide an impetus for companies to diversify their markets

and products. By exploring new geographical markets and developing new product
lines, manufacturers can reduce dependency on a single revenue stream. This
diversification helps buffer against the adverse effects of localized economic
downturns.

Cost Optimization:

Downturns force companies to scrutinize their cost structures and identify areas for
improvement. This focus on cost optimization can lead to leaner operations and better
resource utilization, which benefits companies in the long run. Practices such as just-
in-time inventory, lean manufacturing, and strategic sourcing become more prevalent
during economic contractions.

Strategic Partnerships and Mergers:

Economic downturns often create opportunities for strategic partnerships, mergers,

and acquisitions. Companies with strong balance sheets can acquire competitors or
 complementary businesses at lower valuations, expanding their market presence and
capabilities. These strategic moves can lead to increased market share and enhanced
competitive positioning.

Sustainability Initiatives:

Increasingly, manufacturers are leveraging business cycles to focus on sustainability.

During expansions, investments in sustainable practices and technologies can be more
easily justified and funded. These initiatives not only improve environmental
performance but also lead to cost savings and compliance with regulatory standards,
which are increasingly important to consumers and stakeholders.

Role of technology and innovation:

 Accelerating Decision-Making:-
= Technological innovation helps accelerate decision-making processes within
businesses. With the introduction of advanced data analytics and artificial
intelligence, businesses can now access real-time information and insights to make
informed decisions quickly. These technologies enable companies to collect, analyse,
and interpret large volumes of data, allowing them to identify trends, patterns, and
potential risks or opportunities that may impact their operations.

 Solves Complex Business Problems:-

=Technological innovation in business is essential in solving complex business

problems and driving growth. With the rapid advancements in technology, businesses
now have access to a wide range of tools and solutions that can help them streamline
operations, improve efficiency, and enhance customer experiences.

 Ability to Adapt to Change Faster:-

 =Staying updated with the new technology innovations in business can give you a
competitive edge over others. Being well-informed and engaged with these
developments positions you ahead of your competitors.

 Empowering Customer Engagement

=With the advent of digital transformation, modern businesses now have the ability to
connect with their customers on a deeper and more personalized level. From social
media platforms to chatbots and AI-powered customer service, these technological
advancements allow businesses to provide a seamless and convenient experience for
their customers.