- With a target of becoming a $5 Trillion Economy, India is promoting Make in India, Assemble in India as well as Atmanirbhar Bharat to strengthen its local manufacturing
- Ease of Doing Business, Plug and Play Factories can bring foreign manufacturers to set up their facilities in India
- The huge consumer market, broad infrastructure connectivity, availability of skilled labour, political stabilities favour India as a manufacturing destination
Manufacturing in India has emerged as one of the high growth sectors within the country. The Prime Minister of India, Narendra Modi in his first term, launched the ‘Make in India’ program with the aim to secure the country’s position as the next manufacturing hub. As a part of this initiative, special concessions have been announced for multinational companies to create manufacturing bases in India.
The aim is to take India from the current $2.8 trillion to the targeted $5 trillion economies. It is too early to comment that India will soon compete with other manufacturing leaders like Germany, Japan and China, but the age-old inertia of the Indian manufacturing sector is gradually shaken off and a gradual transformation is already in sight.
As the world dealt with the impact of COVID19, 2020 has been an unfavourable year for economies and markets. The last three decades of globalization saw China emerge as the manufacturing hub of the world. With its labour cost rising in China, which entails higher operational expenses and reduced profits, the industry leaders are questioning the viability to keep China as a one-stop destination for manufacturing.
The COVID19 outbreak consequently leads to a disruption in the supply of finished goods for global markets. Companies are looking to reduce this skewed dependence on China and are fast realigning themselves with the China-Plus-One policy.
The altered situation could prove to be an advantage for India towards establishing itself as the next manufacturing hub. As per the India Brand Equality Foundation report, India was expected to become the fifth largest manufacturing country in the world by the end of the year 2020. The market size for manufacturing also continues to grow on an average of 8% year-to-year.
Factors conducive to the growth of Indian manufacturing
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Huge Consumer market
India with a population of over 1.32 billion people whose affluence has increased in past few years, the companies will never suffer the dearth of a vibrant and thriving consumer market. Many MNCs have registered their considerable growth in business and in their operations for the past ten years in India. As disposable income grows, MNCs target the Indian consumer to sell their products. The most cost-effective way to this end is to start manufacturing in India. As it turns out higher consumption will effectually boost their manufacturing operations in India.
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Availability of Skilled Labour
Companies eyeing the Indian market often choose to make the decision after assessing the comparative costs of labour. Regional manufacturing hubs are centred on major tier two and three cities in the northern, western, and southern parts of India, where a majority of India’s skilled labour resides. Industry experts note that the average salary increment manufacturing sector for 2017-18 was projected at 10.1 per cent.
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Political Stability
A stable political system is also a huge advantage on India’s part. It offers a secured condition to make the MNCs do the investment. India has an edge over its rivals when it comes to offering security and stability. It has a stable government committed to economic reforms, the Indian economy is sound and among the fastest growing in the world, institutions are robust. Manufacturing facilities being extremely cost-intensive, the companies can never afford sudden shutdowns and bear the financial distress against the investment they make. India’s political stability and socially tolerant merits are a great relief to the manufacturing companies for a problem-free environment to make manufacturing investments.
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Location for Export
India has been a part of many trade agreements. This has made India enjoy favourable terms of engagement with its neighbours and other South-East Asian nations. If a manufacturing company sets up its facility in India, it will easily be able to serve the markets of Nepal, Bhutan, Bangladesh, Myanmar, Thailand, Malaysia and Indonesia, etc. and even to the markets of Europe and the Australian continent. India’s geographical location can be utilized to great advantages. With the right amenities and infrastructure in place, India can prepare to be the regional export hub.
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Foreign Direct Investment in India
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. The Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 89.40 billion from April 2000 to March 2020. The FDI policy allows higher levels of investment from abroad in diverse sectors including railways, defence, civil aviation, pharmaceuticals, single-brand retail etc.
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Ease of Doing Business
World Bank’s flagship Doing Business (DB) reports India’s ranking improved from 142 in 2014 to 63 in 2019, with the Union government under Prime Minister Narendra Modi making concerted efforts to improve its business competitiveness ranking.
Need of the Hour
India should create manufacturing ecosystems that are conducive to global manufacturing so that once the pandemic crisis is over; MNCs can look at India as a trusted supply chain partner. This includes the creation of a world-class manufacturing ecosystem, efficient and highly trained manpower and supporting innovation.
To generate greater FDI India needs to foster innovation and boost manufacturing infrastructure to create greater mechanization skills in the country. There are high quality entrepreneurial and professional talents available in India.
To support the vision of becoming a significant manufacturing hub, the Indian government has its policies to attract businesses and boost the economy. Initiatives like Ease of Doing Business, Skill India, Digital India among others are complementing the Government’s Make in India. With internally strengthening on cost, quality, and supply chain, India is on the cusp to be the next manufacturing hub of the world.