February 1, 2024
📰 FEATURE STORY
How is India faring as a manufacturing hub?
As the economy prepares for the interim budget, attention will be paid to what it provides for India’s manufacturing sector. Business leaders want policies and schemes to foster innovation and bolster the Make in India initiative. With a significant shift in the domestic manufacturing dynamics in the past few decades, the sector could make or break the Indian economy.
A lot is riding on India in the years ahead. We’ve outlined some lofty economic goals for ourselves. The government has recognised the importance of manufacturing. Make in India and Production Linked Incentives (PLIs) are policies directly aimed at bolstering the sector. Has that worked out well so far? Is India catching up with global competitive manufacturers?
Today’s customers are more demanding than ever before. Their changing tastes and preferences drive innovations in product design and manufacturing. There’s a lot that goes into making the customer happy, and companies have needed to adopt new technologies and methodologies to keep up. Additionally, companies navigate complex geopolitical challenges, diverse supply chains, and regulations.
Today, most goods are produced by global supply chains across different countries. Companies have reached an inflection point to weather the challenges and capitalise on the opportunities they present. China was certainly the world’s factory for a while. That’s not necessarily the case anymore. Part of the opportunity is burgeoning destinations for manufacturing like Vietnam, Thailand, Bangladesh, and Malaysia.
Last year, India overtook the UK to become the world’s 5th largest economy. Some estimates show it’s on track to become the 3rd largest by 2047, with a GDP of over $15 trillion. Over the past few decades, India has been mainly seen as a service sector hub with little manufacturing prowess. It was usually the other way around for most countries.
India’s working-age population is about 800 million, and 200 million will be added in the next three decades. However, manufacturing only employs 50-60 million. The sector should create over 80 million more jobs in the coming decades to become a global manufacturing hub. India is competing with Vietnam and China. Both countries haven’t fully exhausted their supply of cheap labour.
What does the future hold? According to a NASSCOM study, most Indian manufacturers will adopt digital transformation by 2025. With new technologies like Artificial Intelligence (AI) and Machine Learning (ML), companies will look for investments to enhance productivity, forecasting, and efficiency. A PWC India survey stated that 54% of companies in the manufacturing sector have already implemented such technologies.
The government has spared no moment to tout some of its manufacturing policies, namely Make in India and PLIs. For the former, the government outlines three targets – increase manufacturing output by 12-14% per annum, increase manufacturing’s share of GDP by 25% by 2022, and create 100 million jobs in the sector by 2022.
So, how have the policies worked? What are India’s prospects for manufacturing?
VIEW: Strong base for the future
The past decade has shown India’s manufacturing capabilities to the world and set up a rock-solid base to leap into the future. An India Brand Equity Foundation (IBEF) report showed India as the third most sought-after manufacturing destination and is projected to be a global hub with the potential for $1 trillion in exports by 2030. What India has going for it are the chemicals, electronics, automotive, and textiles sectors.
With Industry 4.0, India has shown its ability to integrate technologies like AI and robotics into manufacturing. The recovery period from the pandemic had global challenges that India needed to deal with. In the global context, the Indian economy was a bright spot. Industrial production increased last year as inflation moderated. It came in the backdrop of 7.2% economic growth in the 2022-23 fiscal.
If we delve deeper into specific sectors, electronics and renewables are standouts. They arguably offer the best opportunities for India. There’s an organic growth of electronics consumption, which makes India an attractive destination for companies like Apple, Samsung, and Foxconn. A decade since Make in India’s launch has seen electronics and pharmaceutical exports rise. The same can be said for PLIs.
COUNTERVIEW: It’s not all a rosy picture
As said before, India is competing with China and Vietnam. Indian workers, adjusted for quality, won’t necessarily be much cheaper than their competitors. Any perceived gains from labour costs won’t compensate for other deficiencies. Another problem India has is tariffs. It’s a thorny issue. There are also non-tariff barriers like differential safety standards and border inspections that need to be lowered. However, India needs to be a part of regional trade agreements for that to happen. Vietnam is a signatory to regional agreements, and it’s why global supply chains go through there and much less through India.
Between 2007 and 2021, India’s share of the global value chain-related manufacturing output increased only slightly from 14% to 17%. For Vietnam, it increased from 35% to 56%. So, does that mean the PLI and Make in India schemes haven’t been as successful as planned? It looks like it. The PLI scheme has helped in some sectors, but investments have been sluggish in others. The three goals under Make in India weren’t achieved in the provided time frame.
Manufacturing employment in 2020-21 was nearly half what it was in the five years prior. While the government has touted companies like Apple for increasing the production of iPhones here, it doesn’t tell the whole story. If we look at the Index of Industrial Production (IIP), which tracks growth across different industries, it has grown at a yearly average rate of 2.9%. Any thriving manufacturing sector should have a growth rate of 7-8%.
- Interim Budget 2024: Here’s how government can boost domestic manufacturing – India Today
- From Make in India to Make for the World: A journey into industry 4.0 – Manufacturing Today
- The next 25 years: India’s golden opportunity to become a manufacturing powerhouse – The Economic Times
- India’s manufacturing output surges while inflation pressures ease – S&P Global
- In his new book, Raghuram Rajan examines why manufacturing has become so difficult in India – Scroll
- Is This a Lost Decade for Indian Manufacturing? – The Wire
- As ‘Make in India’ Enters 10th Year, What Does the Government’s Silence Mean? – The Wire
- Make in India? Half of manufacturing jobs lost in five years – Financial Express
What is your opinion on this?
(Only subscribers can participate in polls)
a) India has performed well as a manufacturing hub.
b) India hasn’t performed well as a manufacturing hub.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
For the Left:
BJP’s Renewed Labharthi Push