Indian Manufacturing Industry Analysis

Gross Value Added (GVA) at basic current prices in India’s manufacturing sector grew at a CAGR of 5% during FY16 and FY20 as per the annual national income report published by Government of India. The sector’s GVA at current prices was estimated at US$ 397.14 billion in FY20PE.

The manufacturing component of IIP stood at 129.8 during FY20. Strong growth was recorded in the production of basic metals (10.8%), intermediate goods (8.8%), food products (2.7%) and tobacco products (2.9%). India’s Index of Eight Core Industries stood at 131.9 in FY20.

India’s manufacturing PMI stood at 58.9 in October 2020 from 56.8 in September. Also, companies would start to spend more on hiring and anticipate good growth in prospects. As per the latest survey, capacity utilisation in India’s manufacturing sector stood at 68.9% in Q3FY20.

The electronic goods industry is one of the fastest growing industries and is expected to be worth Rs. 27.96 lakh crore (US$ 400 billion) by 2020. The Government is working on an export-oriented policy for electronic products. The idea behind this policy is to promote greater export of electronics and drive larger investments by setting up port-based electronic manufacturing clusters.

The Government of India has been supportive towards industry’s growth. It has set up Electronic Hardware Technology Parks (EHTPs), Special Economic Zones (SEZs) and has brought about a favourable climate for Foreign Direct Investment (FDI). The Government has also increased liberalisation and has relaxed tariffs to promote growth in the sector. In addition, it has given the nod to Modified Special Incentive Package Scheme (MSIPS) under which the Central Government will be offering up to Rs. 11,881 crore (US$ 1.7 billion) in benefits to the electronics sector in the next five years. Under the scheme, a subsidy for investment in capital expenditure is provided to the extent of 20% of investment in SEZs and 25% of investment in non-SEZs.

The growing customer base and the increased penetration in consumer durables segment have provided enough scope for the growth of the Indian electronics sector. Also, digitization of cable could lead to increased broadband penetration in the country and open new avenues for companies in the electronics industry.

Merchandise export decreased 4.78% y-o-y to reach US$ 314.31 billion in FY20.

National Policy on Electronics (NPE), passed by the Union Cabinet in February 2019, envisaged the creation of Rs. 27.96 lakh crore (US$ 400 billion) electronics manufacturing industry in the country by 2025. 32% growth rate has been targeted globally over the next five years. Electronics manufacturing is expected to increase at an annual rate of 30% over the next five years and clock Rs. 11.5 lakh crore (US$ 163.14 billion) additional production during this period.

In August 2019, the Government permitted 100% FDI in contract manufacturing through the automatic route. In May 2020, the Government of India increased FDI in defence manufacturing under the automatic route from 49% to 74%.

In October 2020, India's manufacturing sector recorded improvement for the third consecutive month, with businesses growing production to the greatest extent in 13 years in the middle of robust sales growth. The IHS Markit India Manufacturing Purchasing Managers Index (PMI) increased from 56.8 in September to 58.9 in October, according to a monthly survey, indicating the highest improvement in over a decade.