India Emerges as Global Manufacturing Hub with Remarkable Growth

Syllabus: GS3/Economy

Context

• India’s manufacturing sector has witnessed remarkable growth this year, underscoring its transformation into a global powerhouse. 

About

• Toy exports grew by 239%, and mobile phone production by 600%. 
• By 2024, India ranked among the top four nations with the largest foreign exchange reserves, exceeding $700 billion.
• In the Global Innovation Index 2024, the country climbed to 39th place up from the 81st in 2015. 

India’s Manufacturing Sector

• Manufacturing exports have registered their highest ever annual exports of US$ 447.46 billion with 6.03% growth during FY23. 
• By 2030, the Indian middle class is expected to have the second-largest share in global consumption at 17%.
• India’s gross value added (GVA) at current prices was estimated at US$ 770.08 billion as per the quarterly estimates of the first quarter of FY24.
• India’s e-commerce exports are projected to grow from US$ 1 billion to US$ 400 billion annually by 2030, aiding in achieving US$ 2 trillion in total exports.
• India’s smartphone exports surged by 42% in FY24, reaching US$ 15.6 billion, with the US as the top destination.

Challenges faced by India’s manufacturing sector

• Technological gap: Indian manufacturing lags in the adoption of Industry 4.0 technologies such as automation, IoT, and AI, reducing global competitiveness.
• Skill Gap: There is a significant gap between the skills of the available workforce in India and the needs of modern manufacturing.
• Supply Chain Disruptions: High dependency on imported raw materials and components, especially from China, exposes the sector to global supply chain disruptions.
• Governance Issues: Frequent changes in industrial policies along with delays in their implementation create uncertainty for investors.
• Global Competition: India faces stiff competition from countries like China, where manufacturing costs are lower due to economies of scale and more efficient infrastructure.

Initiatives taken by Government

• Goods and Services Tax (GST): The introduction of GST streamlined indirect taxation and automated tax compliances, easing the burden for businesses.
• Reductions in corporate taxes along with simplified construction permits and the abolition of archaic laws were implemented to improve the ease of doing business.
• FDI policy: Nearly all sectors allow for 100% FDI, except for certain prohibited sectors.
  • For example the defence industry allows 74% FDI under the automatic route and 100% under the government route.
• Initiatives like Make in India and Digital India, improved infrastructure and ease of doing business, supported by various incentives, have stimulated domestic manufacturing and attracted foreign investments.
• Make in India Mittelstand (MIIM) , a collaboration between India and Germany, focuses on driving innovation and enhancing economic cooperation by encouraging small and medium-sized German companies to invest and manufacture in India.
• Japan-India Make-in-India Special Finance Facility: The fund aims to promote direct investment of Japanese companies and trade from Japan to India, including the development of necessary infrastructure.
• Production Linked Incentive (PLI) Scheme: The PLI scheme has prompted major smartphone companies like Foxconn, Wistron and Pegatron to shift suppliers to India, resulting in the manufacture of top-end phones in the country.

Way Ahead

• India approved the construction of three semiconductor plants with investments exceeding $15 billion.
  • This initiative aligns with India’s goal to bolster its semiconductor ecosystem and create numerous advanced technology jobs.
• The Mega Investment Textiles Parks (MITRA) scheme to build world-class infrastructure will enable global industry champions to be created, benefiting from economies of scale and agglomeration. 
• The Ministry of Heavy Industries & Public Enterprises initiative of  SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs,  is expected to increase competitiveness of the manufacturing sector in the capital goods market.

Source: AIR