7 Reasons Why India Is Transforming Into A Global Manufacturing Hub
This is a Guest Blog by Mr. Guruprasad Bangle, Co-founder & Chief Technology Officer, SolutionBuggy
India is on the path to becoming a global manufacturing hub and has the potential to export goods worth USD 1 trillion by 2030.
The manufacturing sector holds a prominent position in the Indian economy, accounting for 17% of the country’s GDP and employing over 27.3 million people. The government of India is aiming to increase the share of manufacturing in the overall economy to 25% by 2025 by introducing various schemes and policies. India is now well positioned to take advantage of China’s deteriorating competitiveness due to its low product quality, trade conflicts, and border disputes. A ban on the import of Chinese products has created huge opportunities for Indian manufacturers. The Indian manufacturing sector can potentially add more than $500 billion annually to the global economy by 2030. India is ranked 63 in ease of doing business in 2020, which is an improvement drastically from where it was at 142 in 2014.
The Advantages of Developing a Manufacturing Industry in India:
Favourable Government Initiatives and Policies
To encourage manufacturing industries, the Indian government has announced numerous initiatives and policies such as Make in India, subsidies and bank loans, imposing a ban on the import of a few goods, etc. India has also announced PLI schemes worth USD 26 billion to encourage 13 sectors of the manufacturing industry. Under the union budget for 2022-2023, INR 2 lakh crore of additional credit for MSMEs has been facilitated under CGTMSE.
Low Labour Costs and Skilled Labour Availability
Due to its low labour costs, India is an alternative to China. In India, both skilled and unskilled labourers are available in abundance. India has crores of engineers and the WSJ reported in 2015 that 12 million people enter India’s workforce every year. The availability of English speaking young people is an added advantage to Indian manufacturers.
Large Domestic Market
India is poised to become the third largest consumer market in the world, and consumer spending in India is expected to reach USD 6 trillion by 2030, according to the World Economic Forum. “India’s top 40 cities will make a combined contribution of USD 1.5 trillion, and there will be an opportunity to unlock more than USD 1.2 trillion of spending in rural areas of India by providing online retail by 2030,” the World Economic Forum noted. India, with a population of 1.4 billion people, has created a huge market for manufacturing industries.
Opportunities in the Food Processing Industry
Demand for processed foods is rising exponentially due to a significant increase in the working population, changes in lifestyle, growing disposable income, a young population, urbanization, and nuclear families. Indian food processing industries mainly benefit from the abundant availability of raw materials as India is the largest producer of milk, mangoes, bananas, papayas, guavas, etc. A massive livestock base and a long coastline for marine production are an added advantage. As India produces more than 300 million tonnes of different food grains, it has opened a plethora of opportunities for food manufacturers to develop a variety of products. There is a huge demand for ready-to-eat/cook products due to the rise in working women. Government initiatives and policies such as the PMKSY scheme, PMFME scheme, PLISFPI scheme, and the creation of mega food parks are accelerating the growth of the food processing sector in India.
Opportunities in the Chemical Industry
India is the sixth largest producer of chemicals in the world, covering more than 80,000 commercial products. The Indian chemical industry is valued at USD 180 billion in 2019 and is projected to reach USD 305 billion by 2025. An investment of USD 107.4 billion (INR 8 lakh crore) is estimated in the chemicals and petrochemicals industries in India by 2025. The government of India has launched the PLI scheme to boost chemical manufacturing and exports by promoting Bulk Drug Parks with a budget of INR 1,629 crores. 100% FDI is allowed under the automatic route in the chemical sector, and the FDI inflows reached USD 19 billion between April 2000 and December 2021. Supply chain disruption and trade conflict between the US and Europe have created numerous opportunities in the chemical sector. The dedicated integrated manufacturing hubs under the PCPIR policy are expected to attract more than USD 276 billion in investment by 2035.
Opportunities in the Defence Industry
Demand for defence equipment is growing at a rapid pace due to ongoing territorial disputes and rising concerns about national security. From 2020 to 2030, the Indian defence market represents accessible cumulative capital and revenue acquisition opportunities of $307 billion as Made in India defence equipment and services are provided to over 75 countries. The Indian government has released indigenization lists to ban the import of defence items to boost local manufacturers. The Defence Production and Export Promotion Policy 2020 provides impetus to self-reliance in defence manufacturing and aims to achieve a turnover of INR 1 lakh 75 thousand crores (USD 25 billion), including an export of INR 35 thousand crores (USD 5 billion) in aerospace and defence goods and services by 2025.
Opportunities in the Electronics Industry
According to the Ministry of Electronics and Information Technology, the electronics manufacturing industry was valued at USD 75 billion in 2021 and is projected to reach USD 300 billion by 2026. The consumer electronics sector dominates the electronics market with more than a 35% share, and the industrial electronics and computer sectors each have more than a
15% share in the market. The government of India has launched schemes such as Modified Electronic Manufacturing Clusters (EMC 2.0), Manufacturing of Electronic Components and Semiconductors (SPECS), etc. to encourage the production of electronic goods. 100% FDI is allowed under the automatic route to attract investments in the electronics sector. Digitization and technology transitions such as smart manufacturing, robotics, AI, IOT, etc., have led to the growth of the electronics industry. India has also announced a 5.5 billion PLI scheme to support large-scale electronics manufacturing. Additionally, the Indian government is promoting the development of electronics manufacturing clusters to provide world-class infrastructure facilities to make India an electronic manufacturing hub by subsidising greenfield and brownfield projects.
India is considered the third most preferable manufacturing destination in the world. The creation of manufacturing clusters, permitting FDI up to 100% under the automatic route, easy availability of bank loans, etc are accelerating the growth of the manufacturing sector in India. Indian manufacturers need to focus on developing innovative products and tapping export opportunities to grow at an exponential rate. China exports goods worth more than USD 2.5 trillion annually, including USD 490 billion just to the United States. The conflict between the US and China has created a massive market for Indian manufacturers.