Revitalizing Industry: The Evolving Manufacturing Sector in India
Manufacturing Sector in India

Revitalizing Industry: The Evolving Manufacturing Sector in India

Relevance: GS-III (Economic Development)

Overview of India's Manufacturing Sector

  • Rising Importance in Economy: Manufacturing is becoming a vital part of India's economic development, with significant contributions from sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. It represents about 15% of India's GDP and employs around 12% of its workforce.

  • Machine Tool Industry's Role: The machine tool sector forms the backbone of Indian manufacturing, where technological advancements and digital transformation are key to staying competitive.

  • Export Potential: India is on track to achieve a milestone of exporting goods worth US$ 1 trillion by 2030, aiming to be a significant global manufacturing hub.

  • Economic Contribution: The manufacturing sector contributes 15% to the nation’s GDP and employs over 27.3 million people, highlighting its critical role in India’s economy.

  • Government's Vision for 2025: The government aims for manufacturing to account for 25% of the country’s economic output by 2025 through various programs and policies.

  • Global Competitiveness: India's manufacturing sector is seen as a key driver for economic growth and job creation, with potential benefits including power growth, long-term employment, and skill development for international market engagement.

  • Advancing Towards Industry 4.0: India is moving towards Industry 4.0, guided by initiatives like the National Manufacturing Policy and the PLI scheme, which aim to elevate manufacturing to global standards by 2025.

  • Sector-specific Incentives: Plans are underway to offer incentives up to Rs. 18,000 crore (US$ 2.2 billion) to enhance local manufacturing in sectors like chemicals, shipping containers, and vaccine inputs.

  • 'Make in India' Initiative: Launched by Prime Minister Narendra Modi, this program aims to position India as a manufacturing hub globally and generate 100 million new jobs in the sector by 2022.

Data Insights:

  • Record Manufacturing Exports: Manufacturing exports reached an all-time high of US$ 447.46 billion in FY23, indicating significant growth and the increasing role of the Indian middle class in global consumption by 2030.

  • FDI Inflows: Substantial foreign investment in sectors such as automobile, chemical manufacturing (excluding fertilizers), pharmaceuticals, and food processing from April 2000 to June 2023.

  • Continued Sector Growth: The manufacturing sector showed robust growth in August 2023, with the S&P Global Purchasing Managers' Index reaching a three-month high of 58.6.

  • Industrial Production Index: The Index of Industrial Production from April to July 2023 stood at 142.8.

Challenges in Manufacturing Sector:

  • Infrastructure Hurdles: Issues in communication, transportation, and skilled labor infrastructure pose challenges to manufacturing competitiveness.

  • Economic Sector Disparities: Imbalances between sectors such as services and agriculture in terms of GDP contribution and workforce employment.

  • MSME Sector Issues: Financial constraints and limited resource access affect the growth of Micro, Small, and Medium-sized Enterprises.

  • Skilled Labor Shortage: A shortage of skilled labor in manufacturing restricts the industry’s expansion potential.

  • Regulatory Challenges: Complex laws and compliance issues burden the manufacturing sector.

  • Supply Chain Inefficiencies: Poor supply chain management leads to increased costs and reduced operational efficiency.

  • Global Competition: Intense competition on a global scale poses challenges for Indian manufacturing companies.

  • Dependence on Imports: Heavy reliance on imports for essential materials, highlighting the need for self-sufficiency.

Government Initiatives:

  • 2023-24 Union Budget Provisions: Tax incentives for startups, lower tax rates for new cooperative societies in manufacturing, increased turnover limits for MSMEs' presumptive taxation, and support for natural farming and textile parks.

  • ESDM Sector Support: Initiatives like Make in India, Digital India, and Startup India, along with schemes like M-SIPS, Electronics Manufacturing Clusters, and NPE 2019, bolster the Electronics System Design and Manufacturing sector.

  • SPECS Scheme: Promotes manufacturing of electronic components and semiconductors to strengthen the electronics product manufacturing value chain.

  • PM Gati Shakti Plan: A national infrastructure project focused on multimodal connectivity.

  • SAMARTH Udyog Bharat 4.0: Aims to enhance the competitiveness of the manufacturing sector in the capital goods market.

  • Mega Investment Textiles Parks (MITRA) Scheme: Establishing seven Textile Parks to create world-class infrastructure and promote industry growth.

  • Defence Sector Manufacturing: A significant tender for building submarines to bolster the 'Make in India' initiative.

Way Forward:

  • Attracting Foreign Investment: India is increasingly becoming a preferred destination for global manufacturing investments.

  • Growth Potential: The manufacturing sector has the capacity to reach a value of US$ 1 trillion by 2025.

  • Technology and Electronics Growth: Predictions of significant growth in laptop and tablet manufacturing capacity by 2025 through policy support.

  • Infrastructure Development: Focus on developing industrial corridors and smart cities, with improved infrastructure to attract more investment and enhance the industrial sector.

Advait IAS