Manufacturing Sector in India

Introduction

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022.

Market Size

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

Business conditions in the Indian manufacturing sector continue to remain positive. 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.

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

Investments

With the help of Make in India drive, India is on a path of becoming the hub for hi-tech manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in process of setting up manufacturing plants in India, attracted by India's market of more than a billion consumers and an increasing purchasing power.

According to the United Nations Conference on Trade and Development (UNCTAD), India ranked among the top 10 recipients of Foreign Direct Investment (FDI) in South Asia in 2019, attracting US$ 49 billion—a 16% increase from the previous year.

Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 88.45 billion during April 2000 March 2020.

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

• In May 2020, Sterling and Wilson Solar Limited (SWSL) bagged an Engineering Procurement Construction (EPC) contract in Australia for Rs 2,600 crore (US$ 368.85 million).
• In March 2020, Oricon Enterprises entered into a joint venture agreement with Italy-headquartered Tecnocap Group to set up a new company, Tecnocap Oriental, for manufacturing lug caps.
• In September 2019, Mumbai got its first metro coach manufactured by state-run Bharat Earth Movers (BEML) under the 'Make-in-India' initiative.
• In October 2019, Berger Paints India Ltd, a Kolkata-based company, acquired 95.53% stake of STP Ltd (STPL), which is primarily into waterproofing and protective coatings.
• In September 2019, OnePlus launched its smart TVs in the Indian market.
• In August 2019, Vivo planned to invest around Rs 3,500 crore (US$ 480 million) in India into capacity expansion. 
• Capacity utilisation in India’s manufacturing sector stood at 69.1% in the second quarter of 2019-20.

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:

• In March 2020, the government approved the Production Incentive Scheme (PLI) for Large-scale Electronics Manufacturing. The scheme proposes production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
• In May 2020, Government increased FDI in Defence manufacturing under the automatic route from 49% to 74%.
• In March 2020, the Union Cabinet approved financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme for development of world class infrastructure along with common facilities and amenities through Electronics Manufacturing Clusters (EMCs).
• As per the Ministry of Statistics and Programme Implementation (MOSPI) report on Payroll Reporting in India, number of new subscribers* under Employees’ Provident Fund Scheme reached 4,01,949 in March 2020.
• Under the Pradhan Mantri Kaushal Kendras, 73 lakh people were trained during 2016-20 while 723 Pradhan Mantri Kaushal Kendras were established till Jan 2020.
• As of February 2020, there were 14,602 Industrial Training Institutes (ITI) present in India. (Accessed on March 06, 2020).
• In August 2019, the Government permitted 100% FDI in contract manufacturing through the automatic route.
• Under Pradhan Mantri Kaushal Vikas Yojana (PMKVY) 1.0, 19.85 lakh candidates were trained, out of which 2.62 lakh (13.23%) got placements. Under PMKVY 2.0 (2016-2020), which was launched in October 2016, about 52.12 lakh candidates received training and 12.60 lakh (24.18%) got jobs by June 2019.
• In February 2019, the Union Cabinet passed National Policy on Electronics (NPE), envisaged to create a US$ 400 billion electronics manufacturing industry in the country by 2025. 32% growth rate has been targeted globally in next five years.
• Under the Make in India initiative, Government aims to increase the share of the manufacturing sector to country’s GDP to 25% by 2025.
• Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of India increased export incentives available to labour intensive MSME sectors by 2%. In April 2020, Government extended FTP for one more year, up to March 31, 2021.

Road Ahead

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

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$ 2.5 trillion along with a population of 1.32 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. The corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.

Note: Conversion rate used in September 2020, Rs 1 = US$ 0.013585

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.