The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest growing sectors. The machine tool industry was literally the nuts and bolts of the manufacturing industry in India. Today, technology has stimulated innovation with digital transformation a key aspect in gaining an edge in this highly competitive market.
Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables.
Technology has today encouraged creativity, with digital transformation being a critical element in gaining an advantage in this increasingly competitive industry. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity.
India has the capacity to export goods worth US$ 1 trillion by 2030 and is on the road to becoming a major global manufacturing hub.
With 17% of the nation’s GDP and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy. Through the implementation of different programmes and policies, the Indian government hopes to have 25% of the economy’s output come from manufacturing by 2025.
India now has the physical and digital infrastructure to raise the share of the manufacturing sector in the economy and make a realistic bid to be an important player in global supply chains.
Manufacturing exports have registered highest ever annual exports of US$ 447.46 billion with 6.03% growth during FY23 surpassing the previous year (FY22) record exports of US$ 422 billion. By 2030, Indian middle class is expected to have the second-largest share in global consumption at 17%.
Propelled by growth in priority sectors and driven by favourable megatrends, India’s manufacturing sector has opened itself into new geographies and segments. Significant initiatives have been introduced under Aatmanirbhar Bharat and Make in India programmes to enhance India’s manufacturing capabilities and exports across the industries. Sector specific Production Linked incentives (PLI) have been introduced in the aftermath of the pandemic to incentivize domestic and foreign investments and to develop global champions in the manufacturing industry.
Building on the competitive advantage of a skilled workforce and lower cost of labour, the manufacturing sector is also witnessing an increased inflow of capex and heightened M&A activity, leading to a surge in manufacturing output and resultant increased contribution to exports. The positive developments in the manufacturing sector, driven by production capacity expansion, government policy support, heightened M&A activity, and PE/VC-led investment, are creating a robust pipeline for the country’s sustained economic growth in the years to come.
The Index of Industrial Production (IIP) from April-July 2023 stood at 142.8.
At the aggregate level, capacity utilisation (CU) for the manufacturing sector recovered to 68.3% in Q2:2021-22 after waning of the second wave of COVID-19 pandemic in the country, which had caused plummeting of CU to 60.0% in the previous quarter.
Capacity utilisation at manufacturing facilities was at a robust 74.3% in Q3 of FY23, up from 74% in Q2. Utilisation has held above the 72% mark since Q3 of FY22, indicating that the manufacturing activity is taking place at a brisk pace.
India’s manufacturing exports have traditionally grown between 5% and 10% pre–Covid-19 years, but exports have seen tremendous growth over the last two years, with a compound annual growth rate (CAGR) of 15%. India reached US$ 418 billion of manufacturing exports in fiscal year 2022 (FY22).
Chemicals, pharmaceuticals, electronics, automotive, industrial machinery, and textiles (among others) are expected to propel manufacturing exports to reach US$ 1 trillion by FY28.
Mobile phone production has increased fivefold in the past five years, and India is on track to emerge as a global exporting hub of mobile phones, which creates robust demand for integrated circuits and semiconductors. This will get a boost with the focus moving from assembly to developing expertise in end-to-end hardware component manufacturing.
India is planning to offer incentives of up to Rs. 18,000 crore (US$ 2.2 billion) to spur local manufacturing in six new sectors including chemicals, shipping containers, and inputs for vaccines.
The fourth industrial revolution, Industry 4.0 is poised to happen on a global scale, taking the automation of manufacturing processes to a new level by linking the cyber & physical, incorporating AI and enabling customized and flexible mass production technologies.
Six new technology innovation platforms launched to enhance indigenous manufacturing. The platforms have been developed with the aim of facilitating globally competitive manufacturing in India.
These six platforms will work towards urging industries (including Original Equipment Manufacturers (OEMs), Tier 1, Tier 2 & Tier 3 companies and raw material manufacturers), start-ups, domain experts/professionals, R&D institutions, and academia (college and universities) to come up with technology solutions, suggestions and opinions on matters related to manufacturing technologies.
India has potential to become a global manufacturing hub and by 2030, it can add more than US$ 500 billion annually to the global economy.
India’s gross value added (GVA) at current prices was estimated at US$ 626.5 billion as per the quarterly estimates of the first quarter of FY22.
The manufacturing GVA at current prices was estimated at US$ 110.48 billion in the first quarter of FY24.
The manufacturing sector has seen some major developments, investments and support from the Government in the recent past.
- The cumulative index of eight core industries increased by 3.7% during April-August 2023-24 over the corresponding period of the previous year.
- The combined index of eight core industries stood at 144.6 for Apr-Feb 2023 driven by the production of coal, refinery products, fertilizers, steel, electricity and cement industries.
- In FY23, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 55.6.
- India's manufacturing sector activity continued to expand in August 2023, with the S&P Global Purchasing Managers' Index (PMI) rising to a three-month high of 58.6.
- In FY23, the export of the top 6 major commodities (Engineering goods, Petroleum products, Gems and Jewellery, Organic and Inorganic chemicals, and Drugs and Pharmaceuticals) stood at US$ 295.21 billion.
- In FY23 (until February 2023), EPFO added 131 lakh net subscribers.
- During the financial year 2022-23, around 1.39 crore net members were added by EPFO with an increase of 13.22% compared to the previous financial year 2021-22 wherein EPFO had added approximately 1.22 crore net members.
According to Department for Promotion of Industry and Internal Trade (DPIIT), India received a total foreign direct investment (FDI) inflow of US$ 46.03 billion in FY23.
In the Union Budget 2022-23, Ministry of Defence has been allocated Rs. 525,166 crore (US$ 67.66 billion). The government allocated Rs. 2,403 crore (US$ 315 million) for Promotion of Electronics and IT Hardware Manufacturing.
The PLI for semiconductor manufacturing is set at Rs. 760 billion (US$ 9.71 billion), with the goal of making India one of the world's major producers of this crucial component.
Electronics, vehicle, and solar panel production account for around 80% of total manufacturing expenditure, with semiconductors/electronics value chain accounting for 50% of total expenditure in February 2022.
As per the survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), capacity utilisation in India’s manufacturing sector stood at 72.0% in the second quarter of FY22, indicating significant recovery in the sector.
In September 2021, Prime Minister Mr. Narendra Modi approved the production-linked incentive (PLI) scheme in the textiles sector—for man-made fibre (MMF) apparel, MMF fabrics and 10 segments/products of technical textiles—at an estimated outlay of Rs. 10,683 crore (US$ 1.45 billion).
The 'Operation Green' scheme of the Ministry of the Food Processing Industry, which was limited to onions, potatoes and tomatoes, has been expanded to 22 perishable products to encourage exports from the agricultural sector. This will facilitate infrastructure projects for horticulture products.
To propagate Make in India, in July 2021, the Defence Ministry issued a tender of Rs. 50,000 crore (US$ 6.7 billion) for building six conventional submarines under Project-75 India.
Production-linked incentive (PLI) was launched to establish global manufacturing champions across 13 sectors with an allocation of ~Rs. 1.97 lakh crore (US$ 27.02 billion) over the next five years (starting FY22).
India's display panel market is estimated to grow from ~US$ 7 billion in 2021 to US$ 15 billion in 2025.
The future outlook of the manufacturing sector looks on track with pandemic easing out.
The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 3.4 trillion along with a population of 1.48 billion people, which will be a big draw for investors. With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation.
