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Manufacturing Sector in India

December, 2014


India’s growing economy has offered domestic entrepreneurs and international players multiple opportunities to invest. The Government of India has realised the significance of the manufacturing industry to the country’s industrial development and is taking necessary steps to increase investment in this sector.

According to a report by Mckinsey and Company, India’s manufacturing sector could touch US$ 1 trillion by 2025. There is potential for the sector to account for 25-30 per cent of the country’s GDP and create up to 90 million domestic jobs, by 2025.

Many foreign investors have decided to invest in the country in the recent past due to low cost of setting up of plants and available manpower. For instance, Toshiba Group has planned to make India the design, manufacturing and export hub for its lighting business, and multiply the local headcount to design lights for planned smart cities airports, stadiums, highways, warehouses and factories, said Mr Yoichi Lbi, President & CEO, Toshiba Lighting & Technology Corporation.

Market Size

Business conditions in the Indian manufacturing sector continued to improve in October, 2014 fuelled by accelerated growth of output and new orders according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) data. According to the PMI, manufacturing operating conditions in India rebounded from 51 in September 2014 to 51.6 in October 2014.

Electronics goods production in India is expected to touch US$ 104 billion by 2020. The country’s electronics market is anticipated to grow to US$ 400 billion by 2020 and expand at a CAGR of 24.4 per cent during the period 2012-2020.

The domestic market size of the chemical industry is around US$ 118 billion and it is approximately 3 per cent of the global chemical market, according to a report by Tata Strategic Management Group. It is highly diversified with more than 80,000 chemicals and currently accounts for 15 per cent of manufacturing GDP which makes it very crucial for the economic development of the country.


India has become one of the most attractive destinations for investments in the manufacturing sector. Some of the major investments and developments in this sector in the recent past are:

  • Hero MotoCorp has planned to invest Rs 5,000 crore (US$ 785.79 million) in five manufacturing facilities across India, Colombia and Bangladesh, to increase its annual production capacity to 12 million units by 2020.
    • Kalyan Jewellers has raised around Rs 1,200 crore (US$ 188.59 million) from Warburg Pincus in one of the largest private equity (PE) deals in the jewellery manufacturing segment in India.
    • A consortium of Chinese automobile companies has planned to make Gujarat's Sanand an electrical vehicle (EV) manufacturing hub. The consortium consisting of seven companies plans to set up the EV park at an estimated investment of US$ 100 million.
    • Gulf Oil Lubricants India has entered into a partnership with Mahindra & Mahindra. Gulf Oil will now manufacture and supply Mahindra Genuine Oil under the brand name Mahindra M-Star Super.
    • Asian Paints has planned to invest Rs 2,400 crore (US$ 377.14 million) to set up a manufacturing unit in Nanjangud in Mysore district, Karnataka. The 175 acre project has been cleared by the State High Level Clearance Committee (SHLCC).
    • Pidilite Industries Ltd has approved the acquisition of adhesive business of Blue Coat Pvt Ltd for a cash consideration of Rs 263.57 crore (US$ 41.41 million). Blue Coat is a manufacturer of industrial adhesives and textile printing chemicals
    • Minda Industries Ltd has announced a joint venture (JV) with Panasonic Corp to manufacture lead acid batteries. The manufacturing plant of the JV will be based in Uttarakhand.
    • Honeywell Aerospace has signed a licensing agreement with Tata Power Co Ltd’s strategic engineering division (SED), enabling it to produce Honeywell’s Tactical Advanced Land Inertial Navigator (TALIN) in India.
    • Danfoss India, a major player in climate and energy space, inaugurated its new manufacturing, research and development (R&D) and administrative campus, built with an investment of Rs 500 crore (US$ 78.57 million), in Oragadam, Chennai, on November 5, 2014. The plant also includes a solar power plant which will generate 1 MW of electricity, sufficient to power 10 per cent of electricity requirements of the campus. Danfoss India, a part of Danish company Danfoss Group, stated that it is taking forward the national appeal to ‘Make in India’, through its focus on local manufacturing and R&D in the new campus. As part of this strategy, the company is planning to make India a manufacturing cum export hub for its regional subsidiaries and source products from local suppliers, thereby creating ancillary jobs.

    Government Initiatives

    The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:

    The government has an ambitious plan to locally manufacture as many as 181 products India currently imports at a cost of at least US$ 18.1 billion. The move could also help infrastructure sectors such as power, oil and gas, and automobile manufacturing that require large capital expenditure and revive the Rs 1.85 trillion (US$ 29.07 billion) Indian capital goods business.

    To give its ambitious ‘Make In India’ programme the much needed atmosphere to succeed, the government is expected to come up with a separate set of labour laws governing the Micro, Small and Medium Enterprise (MSME) sector which forms the backbone of the manufacturing sector. The proposed new labour laws for the MSME sector will be applicable to industrial units that employ 40 or less in their workforce and will specifically address the needs of those who are employed in the small factories or manufacturing units.

    Once implemented, the new labour laws will provide the ease to do business in India and will also help effectively manage labour unrest and industrial strife and lead to new entrepreneurs entering the manufacturing sector.

    The Ministry of Micro, Small and Medium Enterprises (MSME) has signed a memorandum of understanding (MoU) with the International Labour Organisation (ILO) to support the Government of India’s ‘Make in India’ programme.

    The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India, has been awarded ISO 9001:2008 certification, demonstrating the Ministry’s mission of promoting the growth and development of MSMEs with dedication and commitment.

    In accordance with the Government's 'Make in India' initiative, the Department of Industrial Policy and Promotion (DIPP) has provided a major boost to the manufacturing sector by approving 33 applications. Clearance of these 33 applications and the deregulation of Defence product List excluding a large number of components from purview of industrial licensing will provide a major impetus to advanced manufacturing in Defence sector.

    India has recently increased the cap on Foreign Direct Investment in defence manufacturing to 49 per cent due to which German firms are interested in high-end electronic manufacturing in India, according to Mr Ravi Shankar Prasad, Union Minister for Communications and Information and Technology, Law and Justice, Government of India.

    Road Ahead

    The manufacturing sector in India is an attractive hub for foreign investments. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country.

    The electronic system design and manufacturing (ESDM) industry will benefit from the government’s Make in India campaign and is projected to see investment proposals worth Rs 10,000 crore (US$ 1.57 billion) over the next two years, according to the India Electronics and Semiconductor Association (IESA).

    The Indian chemical industry is also likely to touch US$ 190 billion by the financial year 2017-18 on account of increase in demand of the chemicals from industries of various sectors.

    Exchange Rate Used: INR 1 = US$ 0.0157 as on December 26, 2014

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