India is set to become a trillion dollar manufacturing powerhouse

A Bain & Company reports highlights the key sectors fuelling India's manufacturing ambitions

Imagine living in an alternate reality and purchasing a swanky new Apple iPhone at a really low price (Apple’s everywhere these days). How, you ask is the iPhone suddenly affordable, even in an alternate reality? The reason is that it is mostly indigenously produced: Most components including the display and system on chip (SoC) are produced indigenously. However, one does not have to transverse to an alternate reality for such a possibility to happen, as it is likely to be very real in our near future. The really affordable iPhone or a gadget of your choice, as India is on the verge of realizing its manufacturing ambitions.

Presently, imported goods are becoming increasingly expensive as the domestic purchasing power diminishes. Despite the large capital outflows, rising geopolitical tensions and inflation, there is perhaps a silver lining.

To put things into context, until recently, India had established itself as a globally preferred destination for knowledge processing and software services. The country still found itself in the shadow of China’s manufacturing prowess, where China was often alluded to as being the factory of the world. Despite a realization that India had to ramp up its manufacturing prowess, the country has struggled.

A Bain & Company report highlights that India’s efforts are finally paying off and the country shall soon realize its manufacturing ambitions that will also help propel exports. So, what are the key factors driving a narrative shift in India’s manufacturing sector according to Bain & Company?

  • Prior to the Covid-19 years, India’s manufacturing exports had a growth rate between 5 and 10 percent, but over the last two years, exports have expanded dramatically, with a compound annual growth rate (CAGR) of 15 percent. India’s manufacturing exports hit $418 billion in fiscal year 2022. (FY22).
  • Six megatrends that accelerated over the last two years have fuelled India’s export growth and increased the country’s overall export attractiveness across a number of industries. The government initiatives to support manufacturing in the nation, supply chain diversification, advantages for India in some manufacturing sectors, capital expenditure infusion into manufacturing sectors, increased merger and acquisition (M&A) activity, and private equity/venture capital (PE/VC)-led investment in manufacturing are the six megatrends.
  • Manufacturing exports are anticipated to surpass $1 trillion by FY28 thanks in part to industries like chemicals, pharmaceuticals, electronics, automobiles, industrial machinery, and textiles.
  • Indian enterprises should concentrate on having a clear export strategy, the necessary execution skills, the appropriate alliances to facilitate exports, and an optimal capital expenditure (capex) efficiency focus to expand manufacturing capacity if they want to take advantage of the manufacturing exports opportunity.

The government’s emphasis on boosting manufacturing exports has clearly paid off.  Sushil Pasricha, Partner, Bain and Company highlights in the report that electronics, which would continue to be among the most widely traded goods, has the biggest growth potential for exports. The other top 4 industries that have the ability to significantly contribute to the $1 trillion targets are machinery, automobiles, pharmaceuticals, and chemical products. It is also possible to step up traditional industries with strength like textiles and apparel, food processing, and leather goods.

News reports highlight that India has received proposals totalling $20.5 billion to develop display and semiconductor fabs from 5 businesses, which will give the country’s electronics industry a renewed impetus.

The other sectors that will lead this growth include industrial machinery ($70-75 billion), electrical and electronics ($120-145 billion), automotive ($45-55 billion) and textile & apparel ($95-110 billion)

What does India need to do to capitalize?

However, the report advised Indian businesses to concentrate on having a clear export strategy, the necessary execution skills, the appropriate partnerships to facilitate exports, and the best capital expenditure efficiency focus to expand manufacturing capacity if the nation is to scale up its manufacturing exports.

India has already established itself as a rich reservoir for talent and leveraging this best-in-class workforce with cutting edge technology will help consolidate the country’s position as a manufacturing powerhouse in the near future. The performance of key sectors like chemicals, automotive, pharmaceuticals, engineering and consumer durables is going to be critical to India’s manufacturing ambitions.

The country is already known as the pharmacy of the world. Thanks to a further reduction in raw material imports for pharma, by FY28, it is anticipated that India’s exports of medications and pharmaceuticals will increase at a CAGR of 16 to 18 percent, or $45 to $50 billion.

India’s leadership in the pharmaceutical industry, along with recent developments like PLI incentive programmes, robust capex, increased mergers and acquisitions, and PE/VC investments with 100% FDI, and growing labour costs in rival nations like China, will give a boost to India’s manufacturing exports.

Presently, the country finds itself on the cusp of a becoming a global manufacturing power center. The challenge is sustaining the growth momentum and overcoming major geopolitical challenges.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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