Author: Suprita Mallya
India is at a critical juncture in its economic history, having recently celebrated 75 years of independence. With a population of over 1.3 billion people, India’s sheer size and growth potential are hard to ignore. It has already become the world’s fifth-largest economy and is projected to surpass the United Kingdom in the near future. With its young and vibrant workforce, India has the potential to become a key player in the global industry, particularly in the manufacturing sector.
India is aiming to become a global manufacturing hub and aims to export goods worth USD 1 trillion by 2030. The sector contributes 17% to the GDP and employs over 27.3 million people. India has significantly improved its Ease of Doing Business ranking from 142 in 2014 to 63 in 2020. India’s manufacturing industry is already moving in the direction of Industry 4.0 where everything will be connected, and every data point will be analysed.
India’s manufacturing industry presents an attractive opportunity for investors owing to several factors:
Market Potential: India’s population of 1.3 billion is increasing at a rate of 1.1% annually and is projected to surpass China’s population by 2024, making it the world’s most populous country. With a growing per capita income and Purchasing Power Parity (PPP), India is set to create a market for new products and services. Moreover, India has a large, young working population that will play a crucial role in driving the country’s long-term economic growth. India is presently in a good position to benefit from China’s declining competitiveness as a result of its low product quality, trade disputes, and border problems. Huge opportunities for Indian manufacturers have been opened by a ban on the importation of Chinese goods.
Favourable Government Initiatives: To encourage manufacturing industries, the Indian government has announced numerous initiatives and policies, some of the key ones including Make in India, the Industrial Corridor Development Programme, the National Single Window System and PM Gati Shakti National Master Plan. Additionally, India has established PLI programmes of USD 26 billion to support 13 manufacturing industry sectors. An additional INR 2 lakh crore of loan for MSMEs has been made available through CGTMSE as part of the union budget for 2022–2023. In addition to this, recent reforms have improved the Ease of Doing Business, including modifications to the FDI policy, the rollout of the Goods and Services Tax (GST), and other business-related reforms.
Role of Technology: India is a strong competitor in terms of software and information technologies, and manufacturing industries are gradually beginning to use machine learning, artificial intelligence and other forms of reality technologies. This will help improve the accuracy and speed of manufacturing processes, provide real-time feedback on equipment performance and reduce manufacturing costs to further increase production and process efficiencies to make themselves competitive.
Low Manufacturing Costs: To reach the $5 trillion economy goal by 2025, India’s Finance Minister, Nirmala Sitharaman, has proposed the National Infrastructure Pipeline to attract investment. India’s manufacturing costs are among the lowest in the world, making it highly scalable and ranked second in this regard, according to a BCG report. In addition to this, India is a low-cost, high-volume, high-capacity labour country. The unskilled labour cost is the lowest compared to other low-cost labour countries and the skilled labour cost has competitive rates.
Increasing Investment: A rise in manufacturing output and a consequent increase in the sector’s contribution to exports are being caused by higher capital inflow and increasing M&A activity. The manufacturing sector FDI inflow has shown phenomenal growth – it stood at US$ 27.69 billion as of December 2011, growing to US$ 104.18 billion in December 2021, at a CAGR of 14.17%. About 10 states are attracting most of the FDI that comes into the country. The top states for manufacturing include Maharashtra for sugarcane, Gujarat for gems and diamond processing, Karnataka for software, Tamil Nadu for automotive, Telangana for pharmaceutical, Andhra Pradesh for seafood and New Delhi and Haryana (north) for food processing.
The road ahead involves investing in infrastructure, promoting export-oriented manufacturing, fostering innovation, improving access to finance, streamlining regulations, and encouraging skill development. To attract more investment and businesses, infrastructure quality and availability need to be improved. This could involve building new infrastructure or upgrading existing infrastructure. Encouraging the development of export-oriented manufacturing can help businesses tap into new markets and increase competitiveness. Innovation can be driven by supporting research and development and promoting the adoption of new technologies and processes.
Small and medium-sized enterprises can be supported by making it easier for them to access credit and other forms of financing. Simplifying and streamlining regulations could reduce the burden on businesses and encourage more investment in the manufacturing sector. Additionally, skill development opportunities can address the shortage of skilled labour in the manufacturing sector.
India’s manufacturing industry presents an attractive opportunity for investors due to the increasing population of young and vibrant workforce, numerous initiatives and policies announced by the government to encourage manufacturing industries, and recent reforms that aid in a further increase in production and process efficiencies. A concerted effort must be made to take steps to promote future growth in the manufacturing sector, to fully capitalize on its potential by investing in infrastructure, promoting export-oriented manufacturing, fostering innovation, improving access to finance, streamlining regulations, and encouraging skill development of labour. Overall, India’s manufacturing industry has enormous growth potential, and with the right policies, infrastructure, and support, it can become a global manufacturing hub and contribute significantly to India’s long-term economic growth.