Manufacturing sector has been a longstanding concern for generations of Indian policymakers and every new government, aiming to boost its share in the country’s GDP. According to the report by RBI, titled “India @ 100”, it is expected that India’s industrial sector should increase its share from the current 25.6% to 35% by 2047-48 with manufacturing occupying a 25% share in total value-added growing for 17% in 2023. This would require the industrial sector to grow at a nominal CAGR of 13.4%.
While recent government initiatives, particularly the PLI scheme, have made a major impact on manufacturing investments and output, industry has to keep a keen focus on the game changing impact of Industry 4.0 in the sector. If implemented in mission mode, Industry 4.0 can enable the transformation of manufacturing and help it achieve 25% share of GDP in the coming years.
Image Source: Shutterstock
The manufacturing industry plays an essential role in the global economy, contributing to 17% of global GDP, providing direct employment to 13% of workers, and accounting for a significant share of global trade. At the same time, economic and geopolitical factors can significantly impact manufacturing companies and their operations in both the short and long term.
Despite overall demand and production capacity reaching recent highs, there are indications that the near-term outlook may not be as bright for the global manufacturing industry. It is currently facing concerns related to inflation and economic uncertainty. Moreover, manufacturers continue to struggle with talent challenges. The industry faces a significant shortage of skilled workers.
Additionally, supply chain issues such as sourcing bottlenecks, global logistics backlogs, cost pressures, and cyberattacks are expected to remain critical challenges in 2023. These disruptors have impacted manufacturers’ optimism and business confidence, leading to a decrease in the second-quarter Manufacturing Outlook Index to 55, down by 4.2 points since the first quarter of 2022, as highlighted in the recent National Association of Manufacturers (NAM) survey in the USA.
Manufacturing sector has been a longstanding concern for generations of Indian policymakers and every new government, aiming to boost its share in the country’s GDP. The share of manufacturing, both in India’s GDP and overall employment has largely stayed stagnant. Most of India’s GDP comes from the services sector, while agriculture remains the source of livelihood for millions. Although agriculture only contributes about 20% of India’s Gross Value Added (GVA) – another measure of national income akin to GDP – it still employs only 55% of the country’s workforce.
Source: Ministry of Statistics and Programme Implementation (MOSPI)(Units in trillion INR)
The Indian manufacturing sector is facing stagnation due to various reasons. Productivity growth in Indian manufacturing is slowing down and lags significantly when compared to global benchmarks, as per a report by Achyuta Adhvaryu (University of California San Diego) and others. The report illustrates this by making a comparison between India and the US. In 2020, the level of manufacturing productivity per worker in India was $94,249, which is only around a fifth of manufacturing productivity in the United States (US$ 484,862). If you make adjustments for purchasing power, Indian productivity goes up to US$ 296,000 per worker — which is still only three-fifths of the figure in the US.
There are notable disparities in manufacturing productivity across different Indian states as well. Western and Central Indian states tend to have highest average productivity, while Southern & Eastern states have the lowest. Lastly, productivity is closely linked to firms’ investments in workers, which are not upto the mark in the Indian context according to experts.
To boost the share of manufacturing in GDP and employment, the Government of India has launched several initiatives from time to time like MUDRA Yojana, Emergency Credit Line Guarantee Scheme, Production Linked Incentives (PLI), Scheme of Fund for Regeneration of Traditional Industries (SFURTI) etc. to provide necessary and timely support to the MSME sector.
One key initiative is the Production Linked Incentives (PLI) scheme, which falls under the flagship program Aatmanirbhar Bharat Abhiyaan. The PLI scheme encompasses 14 manufacturing sectors, and in FY 2022-23, an incentive amount of approximately Rs. 2,900 Crore was dispersed across 8 sectors, including Large-Scale Electronics Manufacturing (LSEM), IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom & Networking Products, Food Processing, and Drones & Drone Components.
Although the PLI scheme was anticipated to have a substantial impact on production and boost it by Rs. 38 lakh crore in next five years, the current official figure is at around Rs. 60,000 crore, showing the distance we have to cover . The scheme has been more impactful in eight sectors, while the remaining six sectors, like high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, textile products, and specialty steel are restricted from taking full advantage because of the very short window for this scheme.
On the positive side, the PLI scheme has led to a boost in investments and interest in a few sectors. As per government data, it led to a significant 76% increase YoY in manufacturing FDI for 2021-22. For the smartphone sector in particular, the PLI Scheme has led to major companies shifting suppliers to India like Foxconn, Wistron and Pegatron. In recent news, Apple’s iPhone exports from India surged to ₹ 10,000 crore in May 2023, with smartphone exports crossing ₹ 20,000 crore in April and May, more than double the same period last year.
According to Secretary, DPIIT, “We have been able to increase the value addition in mobile manufacturing to 20% within a period of 3 years whereas countries like Vietnam achieved 18% value addition over 15 years and China achieved 49% value addition in over 25 years. Seen in this perspective, it is a big achievement.”
Micron Technology plans to invest over US$ 800 million in a new facility in Gujarat, reshaping India’s semiconductor landscape and creating jobs. Applied Materials and Lam Research Corporation is also planning to establish engineering centers and education programs to foster talent. AMD plans US$ 400 million investment for India’s largest chip design facility. Other semiconductor suppliers including Simmtech and Air Liquide are also exploring India operations.
The Indian manufacturing industry accounts for 16-17% of India’s GDP and is expected to be among the fastest-growing sectors in the country. There is a gradual shift towards more automated and process-driven manufacturing, leading to improved efficiency and increased productivity.
In FY22, India’s manufacturing exports reached an unprecedented US$ 418 billion, reflecting remarkable growth of over 40% compared to the previous year’s US$ 290 billion. However, the current year is expected to see challenges due to inherent weaknesses in the international market.
During the third quarter of FY22, manufacturing Gross Value Added (GVA) was estimated at US$ 77.47 billion, contributing approximately 16.3% to the nominal GVA over the past decade. India exhibits the potential to become a global manufacturing hub and has the capacity to add more than US$ 500 billion annually to the global economy by 2030. By 2030, the Indian middle class is projected to hold the second-largest share of global consumption, accounting for 17%.
A survey conducted by the FICCI revealed that capacity utilization in India’s manufacturing sector stood at 72.0% during the second quarter of FY22, indicating a significant recovery in the sector. India possesses the potential to export goods worth US$ 1 trillion by the year 2030, positioning itself as a prominent global manufacturing hub. With a 17% contribution to the nation’s GDP and employing over 27.3 million workers, the manufacturing sector plays a crucial role in the Indian economy.
According to the report by RBI, titled “India @ 100”, it is expected that India’s industrial sector should increase its share from the current 25.6% to 35% by 2047-48 with manufacturing occupying a 25% share in total value-added growing for 17% in 2023. This would require the industrial sector to grow at a nominal CAGR of 13.4%.
Compared to other developed countries that experienced structural transformations from agriculture to industry and then to the services sector, India took a leap and directly transitioned into the services sector, while its industrial sector remained relatively stagnant.
However, to ensure sustained growth in the coming 25 years, RBI admits that India needs to rebalance its economic structure by strengthening its industrial sector, which possesses strong backward and forward linkages. A more robust industrial sector not only creates employment opportunities but also enables India to meet the growing domestic demand.
India’s manufacturing sector holds immense potential, driven by its stable geopolitical environment, cost-competitiveness, and skilled workforce. With a focus on emerging technologies, sustainable practices, and export growth, India can become a preferred destination for global supply chain diversification.
By addressing infrastructure challenges and streamlining regulations, India can leverage its domestic market, dynamic workforce, and growing middle class to emerge as a global manufacturing powerhouse. Embracing innovation, sustainability, and international collaborations will secure India’s position as a key player in the dynamic world of manufacturing.
At the same time, India cannot continue to compete for the game of tomorrow with the rules of yesterday. AI is expected to bring unprecedented transformation in the manufacturing sector in the coming years. Going forward, the norm is geared towards smart, connected manufacturing plants where humans and robots can work together, and companies can leverage advanced data analytics to make better predictions. For instance, AI sensors and machines can predict where breakdowns will occur, so that companies can do their scheduling, logistical and inventory planning.
Generative design is another potential leap in manufacturing, where designers simply share parameters like materials to be used, size and weight, manufacturing method to be deployed, end product cost, etc, and systems are able to generate a wide selection of design options. Similarly 3D manufacturing is An example of this trend is 3D printing technology – a relatively new manufacturing technology, which enables us to literally ‘print’ a commodity whose design is available in soft copy either locally or via the web. Over time, this has expanded to commercial use for many products and is expected to be a major disruptive force in global manufacturing and trade in the coming years.
In a survey, titled Reimagining Digital Factories of Tomorrow by PwC India, it is seen that Indian companies are showing a surge in AI adoption, with a current adoption rate of 54%. This has been boosted by the changing customer preferences, new distribution models, geopolitical uncertainties, supply chain disruptions and ESG regulations. A majority of Indian manufacturing firms are taking recourse to advanced technology solutions such as additive manufacturing, analytics, artificial intelligence (AI), augmented reality (AR)/ virtual reality (VR), and smart devices in accordance with global trends.
Source: Survey of reimagining Digital Factories of Tomorrow by PwC India. (About survey, company size by gross revenue, US $ 10 billion- 7%, US $ 1 billion – 69%, US $ 1 billion to US $ 10 billion – 24%)
A report by NASSCOM and Capgemini last year expresses confidence that the manufacturing sector can aspire for a share of 25% in GDP with the help of Industry 4.0 technologies. The report reveals that investments in Industry 4.0 have grown by around 10X over the last decade and are expected to increase to US$ 200 billion by 2025. It can also be extremely beneficial for MSMEs, helping them outsource non-core activities, reduce costs of quality inspections, improve productivity and efficiency and minimise risks. Ananth Chandramouli, Managing Director and Head of the India Business Unit, Capgemini, commented, “It is evident that by 2025, more than two-thirds of the Indian manufacturing sector will embrace Industry 4.0. We have seen that Indian manufacturers today are talking about holistic digital transformation.” The need is for a rapid shift from proof of concept to a more ROI driven outcome-based deployment. At the same time, we need to drive awareness and adoption of AI in MSMEs across sectors, so that they are at the forefront of the next big revolution in manufacturing.
You must be logged in to post a comment.
Stay ahead in the dynamic world of trade and commerce with India Business & Trade's weekly newsletter.