Why India is Poised to Become a Global Manufacturing Hub
Why India is Poised to Become a Global Manufacturing Hub
Our new guest writer Sanjay Pendharkar is a seasoned professional with over 30 years of experience in sales and business development across India and South East Asia. His expertise spans market research, channel partner management, and strategic business growth. After 32 years with JCB, Sanjay founded his own consultancy in 2020, advising multinational corporations in the earthmoving, material handling, concrete, and metal processing equipment sectors. He excels in developing engagement strategies, sales forecasting, and competitive analysis. An industry thought leader, Sanjay contributes articles to niche magazines and serves as a jury member for prestigious awards, keeping him at the forefront of industry trends and innovations. His first blog post for Learning Without Scars is “Why India is Poised to Become a Global Manufacturing Hub.”
Introduction
By 2024, India has solidified its position among the top 7 global manufacturing nations, with the sector accounting for nearly 15% of its GDP. With increasing investment, a skilled workforce, and supportive government policies, India is emerging as a key player in global manufacturing.
The global landscape for manufacturing is undergoing a seismic shift. Countries and multinational corporations (MNCs) are reassessing their supply chains and production bases in response to economic, political, and technological changes. India, with its expanding industrial base and strategic policies, has gained attention as a formidable contender for global manufacturing.
Historical Context
India has a rich history in manufacturing, with industries like textiles and steel forming the backbone of its economy. In the mid-20th century, India was among the world’s leading textile producers, and sectors like steel, automobiles, and machinery began to flourish post-independence.
Despite this promising start, India’s manufacturing potential remained largely untapped on a global scale. Factors such as bureaucratic hurdles, lack of infrastructure, and limited foreign investment slowed growth. India’s manufacturing was also overshadowed by rapid industrialization in China, which became the preferred destination for MNCs.
Current Landscape
Economic Growth
India’s economy continues to be one of the fastest-growing major economies globally, with an average annual GDP growth rate of 6.8% over the past five years. The International Monetary Fund projects India to be the world’s fastest-growing major economy in 2024-2025, with an estimated growth rate of 6.5%. A young, vibrant population coupled with a burgeoning middle class is creating a favourable environment for manufacturing, with rising domestic demand for goods and services.
Government Initiatives
The Indian government has launched and expanded several initiatives to boost manufacturing:
- Make in India 2.0: Launched in 2022, this program builds on the original 2014 initiative, focusing on 27 sectors with an emphasis on cutting-edge technology and sustainability.
- Production-Linked Incentive (PLI) Scheme: As of 2024, the scheme covers 14 key sectors with an increased outlay of $30 billion.
- Ease of Doing Business Reforms: While the World Bank discontinued its Ease of Doing Business rankings in 2021, India has continued to implement reforms, with the government claiming significant improvements in areas such as starting a business, getting construction permits, and cross-border trade.
Infrastructure Development
India continues to invest heavily in infrastructure development:
- $1.8 trillion allocated for the National Infrastructure Pipeline (2019-2025)
- 375+ operational Special Economic Zones (SEZs) as of 2024
- Significant progress in industrial corridors like the Delhi-Mumbai Industrial Corridor, with several nodes operational
Key Advantages of India
Skilled Labor Force
India’s skilled labour pool continues to grow:
- 550 million people of working age
- 1.8 million engineering graduates annually
- World’s largest youth population (aged 15-24)
Cost Efficiency
India offers significant cost advantages:
- Labor costs 15-50% lower than in China
- Competitive real estate and utility costs
- Abundant natural resources
Technology and Innovation
India is making significant strides in high-tech manufacturing:
- 4th largest auto industry globally, with a strong push towards electric vehicles
- Growing aerospace manufacturing sector, with indigenous projects like Tejas fighter jets
- 2nd largest smartphone manufacturer globally as of 2024
- Emerging hub for semiconductor manufacturing with major investments announced.
- Rapid advancements in 5G technology, artificial intelligence, and quantum computing, further enhancing manufacturing capabilities.
Global Supply Chain Realignment
Shift from China
The trend of companies diversifying their supply chains away from China has continued:
- According to a 2023 Deloitte survey, 70% of surveyed companies were considering or actively shifting manufacturing out of China, with India being a top alternative destination.
- India captured 33% of relocating companies from China between 2021-2023 (JP Morgan Research, 2023)
Trade Relations and Market Access
India’s strategic location and trade agreements offer significant advantages:
- Access to domestic market of 1.4 billion consumers
- Free Trade Agreements with ASEAN, Japan, South Korea, and others
- Part of Quad Alliance, strengthening ties with US, Japan, and Australia
Sustainability and Future Trends
Sustainability Initiatives
India has reinforced its commitment to sustainable manufacturing:
- On track to achieve 500 GW renewable energy capacity by 2030
- Net-zero emissions target by 2070 reaffirmed at COP28.
- National Green Hydrogen Mission launched in 2023, aiming for annual production of 5 million tonnes by 2030.
- National Electric Vehicle Policy 2023 targeting 30% of new vehicle sales to be electric by 2030.
Digital and Industry 4.0
India is embracing the fourth industrial revolution:
- $2 billion allocated for AI, Machine Learning, and IoT under the Digital India initiative.
- ‘Industry 4.0 India’ platform expanded to include 100,000 MSMEs by 2024
- 25% of large manufacturing plants have adopted Industry 4.0 technologies as of 2023.
Challenges and Solutions
While India’s manufacturing potential is immense, challenges remain. However, significant progress has been made in addressing these issues:
Infrastructure Bottlenecks
- Challenge: Ongoing need for improved transport and power infrastructure
- Solution:
- National Infrastructure Pipeline (NIP) expanded to $1.8 trillion for FY 2019-25
- ‘PM Gati Shakti’ – National Master Plan for Multi-modal Connectivity launched in 2021, with a digital platform to ensure integrated planning and implementation of infrastructure projects.
- 11 industrial corridors being developed across the country.
- Dedicated Freight Corridors (Eastern and Western) operational since 2021, significantly reducing logistics costs.
Skilling the Workforce
- Challenge: Continuous need for upskilling to meet evolving industry demands
- Solution:
- Skill India Mission 2.0 launched in 2021, focusing on digital skills and Industry 4.0 technologies.
- National Education Policy 2020 emphasizing vocational education and skill development.
- Pradhan Mantri Kaushal Vikas Yojana 3.0 (2020-2024) aiming to skill 8 million youth.
- National Skills Qualification Framework (NSQF) aligning skills with industry requirements.
Regulatory Environment
- Challenge: Complex regulatory landscape
- Solution:
- Implementation of Goods and Services Tax (GST) has simplified the tax structure.
- Labour reforms: 4 labour codes consolidating 29 central labour laws, implemented in 2022.
- Reduction in corporate tax rates to 15% for new manufacturing companies
Supply Chain Resilience
- Challenge: Need for robust and flexible supply chains
- Solution:
- Production Linked Incentive (PLI) Scheme expanded to 14 key sectors with an increased outlay of $30 billion.
- Self-Reliant India (Atmanirbhar Bharat) initiative promoting domestic manufacturing and reducing import dependence.
Adapting to Global Events
- Challenge: Disruptions caused by events like the COVID-19 pandemic and geopolitical tensions
- Solution:
- Rapid digitalization of manufacturing processes to enable remote operations
- Diversification of supply chains to reduce dependency on single sources
- Government support through economic stimulus packages and policy reforms to boost manufacturing sector resilience.
Conclusion
As the world seeks resilient, diversified, and technologically advanced supply chains, India offers a compelling proposition. For multinational corporations looking to optimize their manufacturing footprint, India presents an opportunity that is hard to ignore. The time to invest in India’s manufacturing potential is now – those who act early stand to gain the most from this rising global manufacturing powerhouse.