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Manufacturing Sector in India

June, 2014

Brief Introduction

India’s manufacturing sector could reach US$ 1 trillion by 2025, as per a study by global management consulting firm McKinsey and Company. This could be achieved on the back of the continually growing demand in the country and the inclination of multinational corporations to establish low-cost plants in India. Up to 90 million domestic jobs could be created by 2025, with the manufacturing sector contributing to about 25–30 per cent of India’s gross domestic product (GDP).

India’s expanding economy offers domestic entrepreneurs and international players alike, opportunities to invest. The Government of India knowing the importance of the sector to the country’s industrial development has taken a number of steps to further encourage investment and improve the economy.

India was ranked the fourth most competitive manufacturing nation in Deloitte’s global index for 38 nations (2013). The country’s economy witnessed significant expansion in the period 2006–2011, achieving a five-year compound annual growth rate (CAGR) of 7.8 per cent.

Market Size

India’s manufacturing sector presently contributes about 16 per cent to its GDP.

The HSBC Purchasing Managers' Index (PMI) for the manufacturing sector touched 52.5 in February, the highest since March 2013. The index was at 51.4 in January 2014.

In terms of volume of production, the Indian chemical industry is the 12th largest producer in the world and third largest in Asia. The industry accounts for about seven per cent of the world production of dyestuff and dye intermediates, particularly for reactive acid and direct dyes.

Electronics goods production in India is projected to touch US$ 104 billion by 2020. The production grew at a CAGR of 14.4 per cent during the period FY 2007–2013. The country’s electronics market is projected to grow to US$ 400 billion by 2020, and is expected to expand at a CAGR of 24.4 per cent during the period 2012–2020.


The following are some of the major investments and developments in the Indian manufacturing sector:

CRI Pumps has started a manufacturing unit in State Industries Promotion Corporation of Tamil Nadu’s (SIPCOT) Special Economic Zone (SEZ) at Perundurai, Tamil Nadu, with an investment of Rs 30 crore (US$ 4.99 million). The unit will manufacture stainless steel submersible pumps, vertical multistage pumps, pressure boosting systems, motors and industrial pumps.

Germany-based Linnhoff, which makes asphalt batching and concrete mixing plants, has set up a greenfield manufacturing facility at Khed City near Pune. The facility which is set up at an investment of Rs 50 crore (US$ 8.31 million) is the company’s fifth manufacturing facility globally and will look after both domestic and export needs. Further, the company also plans to establish a research and development (R&D) centre at the same location.

Chennai-based tractor manufacturer Tractors and Farm Equipment Ltd (TAFE) plans to invest Rs 250 crore (US$ 41.59 million) by end of FY 2014–15 on development and expansion of new products. The company, with four factories, has a capacity of around 200,000 units per annum, which it plans to take up to around 300,000 units per annum in the next two years, as per Ms Mallika Srinivasan, Chairman and Chief Executive Officer, TAFE.

Despite the growth of digitisation, India’s demand for paper is projected to rise 53 per cent over the next six years, chiefly on the back of a sustained increase in the number of school-going children in the hinterlands. Consumerism, modern retailing, growing literacy and the increasing use of documentation is likely to keep demand for writing and printing paper high.

Switzerland-based Baumer Group has established an engineering, training and assembly operations at Pune to produce electronic pressure sensors. “In Pune we will ramp up our operations by investing US$ 10 million over next two years and increase the headcount from 30 to over 100 people,” as per Mr Oliver Vietze, CEO and Chairman, Baumer Group.

Coca-Cola plans to establish a greenfield manufacturing facility in the Nellore district of Andhra Pradesh. The facility which is estimated at Rs 1,200 crore (US$ 199.65 million) will be the company’s biggest in Asia. Its move to choose Nellore district for the facility is an attempt to bridge the increasing demand for its products in the south Indian states of Andhra Pradesh, Karnataka and Tamil Nadu.

Denmark-based Danfoss Industries plans to establish a greenfield manufacturing and R&D centre near Chennai, Tamil Nadu. “The facility at Oragadam near Chennai is spread over 50 acres and would be fully ready by the end of this year. It would employ around 1,200 people and the focus would be on R&D capabilities,” as per Mr Ravichandran Purushothaman, President, Danfoss.

Government Initiatives

The Centre’s Salt Commissionerate, Government of India, has apportioned 1,972 acres of salt pans to several public sector companies in Tamil Nadu to set up industrial parks. The NTPC Tamil Nadu Energy Company Ltd (NTECL), a joint venture between NTPC Ltd and Tamil Nadu Electricity Board has been given 1,000 acres; Ennore Port Ltd (764 acres); HPCL (108 acres); and BPCL (100 acres), as per Mr EM Sudharsana Natchiappan, Minister of State for Commerce and Industry, Government of India.

India plans to create as many as 100 million skilled jobs in the manufacturing sector by raising its share of GDP from 16 per cent to 25 per cent, said Mr Anand Sharma, Commerce and Industry Minister, Government of India, at the World Economic Forum (WEF) annual meet in January this year.

The Indian government has agreed, in principle, to five National Investment and Manufacturing Zones (NIMZs) outside the Delhi–Mumbai Industrial Corridor (DMIC) region. The zones include Nagpur in Maharashtra; Tumkur in Karnataka; and Chittoor, Medak and Prakasam in Andhra Pradesh. The state governments have to first acquire the land before any investments can be made in the approved zones.

Road Ahead

India’s manufacturing industry is important for the country’s economic progress. Today, the sector’s attractiveness as a hub for foreign investments is clear. Several mobile phone, automobile and luxury brands, among others, either have or are looking to set up their manufacturing base in the country.

Hi-tech exports are also anticipated to boost India’s manufacturing sector. Hi-tech exports have witnessed CAGR of 26 per cent during the period 2007–2011, with exports touching US$ 20.9 billion from US$ 8.1 billion in 2007. The pharmaceuticals and electronic goods dominate exports of hi-tech products, with the share of electronics almost doubling during the period 2007–2011, as per an industry study.

Exchange Rate Used: INR 1 = US$ 0.0166 as on June 27, 2014

References: Media Reports, Press Releases, McKinsey Publication, Deloitte Report