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Manufacturing Sector in India

December, 2013

Manufacturing: Brief Introduction

According to a study by global management consulting firm McKinsey and Company, the manufacturing sector in India could grow six-fold to US$ 1 trillion, by 2025. The rising demand in the country and the aspirations of multinational companies (MNCs) to establish low-cost plants in India, are seen as reasons for this possible growth. Up to 90 million domestic jobs could be created by that time, with the sector generating about 25–30 per cent of the country’s gross domestic product (GDP). India’s rapidly expanding economy gives domestic entrepreneurs and international players vast opportunities to invest and grow.

India’s manufacturing sector is vital for its economic progress. Its contribution to the GDP is 16 per cent, with the potential to grow more. The government has realized the importance of this sector to the country’s industrial development, and has taken a number of proactive steps to further enhance the industry.

Today, India’s attractiveness as a manufacturing centre for foreign companies is all too apparent. Overseas mobile phone and automobile companies already have manufacturing plants in India. Luxury brands such as Frette and Louis Vuitton are looking to do the same, as is major aircraft maker Airbus.

Growth Trend

Deloitte’s global index for 38 nations (2013) ranked India as the fourth most competitive manufacturing nation. The country’s economy saw massive expansion in the period 2006–2011, attaining a five-year Compound Annual Growth Rate (CAGR) of 7.8 per cent.

Manufacturing: Key Developments and Investments

Saudi Arabia-based Sabic, a manufacturer of fertilisers, polymers and raw materials used in polyester fibres, has started a technology centre in Bangalore. The company has invested US $100 million in the centre with the aim to double its headcount in the next few years. With researchers and scientists coming back to India, Sabic will have access to the right talent pool, according to Mr Janardhanan Ramanujalu, Vice President for Sabic, South Asia and Australia.

Manufacturing companies in Japan view India as the top destination for investments for the next three years, as per Mr Masanori Nakano, Consul General of Japan. India is among the least affected by the global economic slowdown and continues to grow at about 5 per cent.

Cadbury India has signed a memorandum of understanding (MoU) with the Andhra Pradesh Government that will see the company establish its largest manufacturing plant in the Asia–Pacific region. The Rs 1,000-crore (US$ 161.61 million) plant will be built on a 134-acre site in SriCity, Chittoor, and will be operational by mid-2015. India is rated among the top 10 markets in Cadbury’s global business.

About 150 plastics manufacturers are expected to invest nearly Rs 3,000 crore (US$ 484.82 million) in the proposed plastics park at Dahej in the Bharuch district of Gujarat. Some small-scale sector firms have already booked plots to establish their units in the 200 acres allocated by the state government, as per Mr Raju Desai, Chairman, Plastivision India. Each of these units will invest in the range of Rs 10–25 crore (US$ 1.61-4.04 million).

PepsiCo Inc and its partners will invest US$ 5.5 billion to double its manufacturing capacity in the country by 2020, as per Ms Indra Nooyi, chairperson and CEO of the food and beverage giant. With rival Coca-Cola also planning to invest US $5 billion in India by 2020, the country will have received US $10.5 billion in investments from the two biggest global players in the field by the end of this decade.

US-based General Electric Co is planning to make India a major global manufacturing hub. The company believes it can achieve this aim with the help of the country’s massive talent pool and lower manufacturing costs. The upcoming plant at Chakan, Pune, is the first step towards this end, as per Mr Banmali Agrawala, President and CEO, GE South Asia. “We will use the facility to manufacture a range of products for our global markets," he added. The Rs 1,000-crore (US$ 161.61 million) plant will manufacture diversified equipment for the energy, aviation, oil and gas, and transportation sectors.