Reforms, strategic investments are transforming the landscape

This article is authored by VG Sakthikumar, chairman & managing director, Schwing Stetter India.

India is emerging as a vibrant manufacturing hub by attracting global investments and attention like never before. With 17% of the nation’s Gross Domestic Product (GDP) and over 27.3 million workers, the manufacturing sector plays a significant role in the Indian economy. By 2025, the Indian government has targeted that 25% of the nation’s GDP would come from the manufacturing sector, with the implementation of the right policies and programmes. Though China currently holds the top position as the world’s most leading production hub, India’s advancements in automation and worker training has largely reduced the production costs. This positions India to potentially surpass the US soon in becoming the world's number two manufacturer.

GDP (Shutterstock)

Manufacturing is evolving as an integral pillar in the country’s economic growth, as performance of key sectors like automotive, infrastructure, equipment manufacturing, pharmaceuticals, and consumer durables continue to grow at a rapid pace. India has followed a unique growth path by prioritising service sector’s growth over manufacturing sector.

Over the past two decades, India has seen a notable surge in the service sector, with its contribution to GDP rising from 45% to 55% by 2022. However, this growth contrasts with traditional global trends where the manufacturing sector typically leads, paving the way for the expansion of services. In India's case, the manufacturing sector has remained relatively static, contributing 16-17% to the GDP pre-pandemic. This is a deviation from the global norm, as in many countries, the manufacturing sector significantly outpaces services in GDP contribution. Despite being projected as one of the fastest-growing sectors, the Indian manufacturing industry's growth lags behind the booming service sector, creating a gap in the country's economic structure.

Now, it is time for India to venture its growth into manufacturing sector. With digital transformation being a critical element and technology an added advantage, the Indian manufacturers are steadily moving toward more automated and process-driven manufacturing, which is likely to improve efficiency and enhance productivity.

The nation's ambition to elevate the industry is underpinned by several key factors that are aligning to create an environment conducive to large-scale production and global competitiveness. India has the potential as it has abundant talent, technology, and better policies and social climate.

The government has rolled out a series of policy reforms and incentives aimed at boosting manufacturing. The Make in India initiative, which was launched in 2014, has been a cornerstone of this transformation. It has been encouraging both domestic and international companies to invest in manufacturing within the country. Recent enhancements to this initiative include the Production Linked Incentive (PLI) scheme, which offers financial incentives to manufacturers across sectors such as electronics, pharmaceuticals, and automobiles.

Massive investments in infrastructure are critical to India's manufacturing ambitions. The development of industrial corridors, dedicated freight corridors, and smart cities is creating a strong logistical network that enhances connectivity and reduces operational costs. By investing in the development of dedicating freight corridors, companies can reduce 30% of cut in overall production, thereby significantly reducing the product cost. This ensures fast dispatch of goods and paves way for sustainability and promoting green logistics.

India's attractiveness as a manufacturing destination is also reflected in its growing Foreign Direct Investment (FDI). The government has liberalized FDI policies, allowing 100% FDI in several sectors under the automatic route. This has led to a surge in foreign investments, with companies setting up manufacturing hubs in India. The manufacturing sector is experiencing substantial investments in production facilities from prominent multinational corporations.

The strategic push towards easing business regulations, simplifying tax structures, and improving the ease of doing business has further strengthened investor confidence. India is experiencing a surge in merger and acquisition (M&A) activity and capital expenditure, particularly in the automotive, electronics, and textile industries, which have drawn substantial investment and demonstrated promising growth. According to a Deloitte report, inbound M&A deals in India saw remarkable growth in 2023, with their share rising to 41% (totalling $55 billion) from 27% in 2022.

A skilled workforce is essential for any manufacturing powerhouse, and India is leveraging its demographic dividend by investing in extensive skill development programmes. Initiatives like Skill India and partnerships with leading global educational institutions are equipping millions of young Indians with the technical know-how required for modern manufacturing. Additionally, the emphasis on vocational training and apprenticeships is helping bridge the gap between education and industry needs. By embracing advanced technology and fostering a favourable business environment, India is poised to emerge as a leading player in the global manufacturing landscape.

This article is authored by VG Sakthikumar, chairman & managing director, Schwing Stetter India.