Manufacturing Sector in India

Introduction

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, had 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. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020*. Government aims to achieve 25 per cent GDP share and 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 4.29 per cent during FY12 and FY19 as per the annual national income published by the Government of India. The sector’s Gross Value Added (GVA) at basic prices based at current prices is estimated at US$ 403.47 billion in FY19PE. Quarterly GVA at Basic Prices for H1 2019-20 grew by 0.4 percent as compared to growth of 13.9 percent in H1 2018-19.

Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022. Business conditions in the Indian manufacturing sector continue to remain positive. The manufacturing component of the IIP stood at 130.8 during April-January 2019-20 and grew 0.3 per cent year-on-year. India’s merchandise exports in April-January 2019-20 is estimated to be US$ 265.26 billion.

Investments

With the help of Make in India drive, India is on the 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 increasing purchasing power.

Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 89.15 billion during April 2000-December 2019.

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:

• In March 2020, Oricon Enterprises has 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 'Make-in-India' initiative.
• In September 2019, Mumbai has now got its first metro coach manufactured by state-run Bharat Earth Movers (BEML) under 'Make-in-India' initiative.
• In October 2019, Berger Paints India Ltd, a Kolkata-based company, acquired 95.53 per cent stake of STP Ltd (STPL), which is mainly 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. 
• India’s manufacturing PMI stood at 54.50 in February 2020. Also, companies start to spend more on hiring and anticipate good growth in future prospects.
• Capacity utilisation in India’s manufacturing sector stood at 69.1 per cent 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 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 MOSPI’s report on Payroll Reporting in India, number of new subscribers* under Employees’ Provident Fund Scheme reached 7,50,441 in January 2020.
• Under the Pradhan Mantri Kaushal Kendras, 73 lakh people have been trained during 2016-20 while 723 Pradhan Mantri Kaushal Kendras established till Jan 2020.
• As of February 2020, there are 14,602 Industrial Training Institutes (ITI) present in India. (Accessed on March 06, 2020).
• In August 2019, the government permitted 100 per cent FDI in contract manufacturing through 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 per cent) got placements. PMKVY 2.0 (2016-2020) which was launched in October 2016 and by June 2019 about 52.12 lakh candidates have received training and 12.60 lakh (24.18 per cent) have got jobs.
• In February 2019, the Union Cabinet passed the National Policy on Electronics (NPE) which has envisaged creation of a US$ 400 billion electronics manufacturing industry in the country by 2025. 32 per cent growth rate has been targeted globally in next five years.
• In September 2018, the Government of India exempted 35 machine parts from basic custom duty in order to boost mobile handset production in the country.
• Government of India is in the process of coming up with a new industrial policy which envisions development of a globally competitive Indian industry. As of December 2018, the policy has been sent to the Union Cabinet for approval.
• In Union Budget 2018-19, the Government of India reduced the income tax rate to 25 per cent for all companies having a turnover of up to Rs 250 crore (US$ 38.75 million).
• 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 per cent.
• The Government of India has launched a phased manufacturing programme (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
• The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
• The Ministry of Defence, Government of India, approved the “Strategic Partnership” model which will enable private companies to tie up with foreign players for manufacturing submarines, fighter jets, helicopters and armoured vehicles.

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 and India is expected to rank amongst the top three growth economies and manufacturing destination of the world by the year 2020. 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 as on January 2020, Re 1 = US$ 0.01402

Notes: * - According to the Global Manufacturing Competitiveness Index published by Deloitte

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