Ease of doing business and a strong push towards the “Make in India” initiative help India to become a global manufacturing hub in the coming decade. Incremental export trends, ease of doing business, massive infrastructure development, and strong foreign policy help India to grow as the world’s biggest manufacturing destination for many companies.
Strong history encourages nationalist Indians to create a global manufacturing hub before and after Independence.
Before going into how India will emerge as a global manufacturing hub lets us understand where India stands in 1947! currently, India is in the 5th spot in the world economy by 13.5% There is significant growth observed after independence from 3% GDP to 13.5%.
Before independence things were very different, Indian exports were roughly $1 billion through handicrafts, cotton, agricultural products, tea, coffee, and spices.
Britishers then started procuring these raw materials to the United Kingdom and producing the product for the European and Indian markets. In this way slowly they ruined Indian trade with Europe.
Later on, private nationalist business communities started new ventures during World War I and set up business empires.
Renowned names link Tata, Birla, Walchand, Dalmia, and many more to see the expansion opportunity during wartime and set up their business to not only support Indian people and start doing export of these products into to European market.
Tata started its steel and iron plant, Birla launched its textile, Dalmia into sugar mils & Walchand started its construction, railway infrastructure, and automobiles.
After independence, the Indian government’s Industrial policy resolution from 1948 to 1956 pushed toward a mixed economy and introduced the Public and Private sector concepts.
Heavy Industries such as Railway, Infrastructure development, Financial, Civil Aviation, and the Power sector came under the public entity, and the rest of the other sectors like Retail, internal & international, and agriculture fall under the Private entity.
In this way, procedural delays and policy controls made these private business communities unhappy, and the development of business and rapid expansion affected the private sector growth.
Structural reforms in India’s industrial history have four phases that we can understand from before independence till 2022 how the policies took place and encourage investors and companies to invest in India and make India a global manufacturing hub in the coming decade.
Policies that make India towards its vision to become a global manufacturing hub in the upcoming decade.
We will be discussing the top 10 factors where the dream of becoming the global manufacturing hub for India is likely to its correct path.
Details analysis and data show how it will break the path and become the fastest economy and manufacturing hotspot in the world.
IMF has projected more than 6% GDP growth in the year 2023 for India and it is the highest growth percentage among the top countries.
This growth will be majorly driven by the manufacturing sectors followed by IT and other industries.
The government is working hard to realize its Make In India vision which aims to make India a global manufacturing destination.
India has emerged as one of the top three destinations in terms of cost competitiveness and quality. This makes it an attractive location for multinationals looking at cost reduction, scale, and quality improvements by leveraging Indian resources.
The country has also seen an increase in FDI inflows over previous years with an estimated $58 billion being invested in sectors like IT-BPO (business process outsourcing), software services, and pharmaceuticals during 2013-14 compared to $55 billion during 2012-13.
In addition to this, there are a number of government initiatives that have been introduced to boost Indian industry such as the “Startup India” program which aims at encouraging entrepreneurship among students through funding assistance from various sources such as banks, non-banking financial companies (NBFCs), NREGA and other schemes including tax rebates on start-up capital investments.
A strong push towards “Make in India”, a 100 % FDI in most sectors, and the 6th largest industrial sector drive the manufacturing sector.
India has emerged as one of the top destinations for foreign direct investment (FDI) with more than USD 200 billion being invested across sectors such as automobile, IT & software, pharmaceuticals, etc.
India has emerged as an attractive manufacturing hub for global investors due to several factors such as its huge domestic market, low-cost labour force, high growth rate, skilled workforce, etc.
Manufacturing sectors contribute to 17 % of India’s GDP and employ 16 % of our labour force.
To Strengthen national manufacturing policy government has introduced a national investment & manufacturing zone (NIMZ) to take its GDP from 17% to 25% by the end of 2022 and later on this can go up by 34%.
It is a collaboration with the state government and the state will identify the land and send it for approval to the department of industrial policy & promotion (DIPP).
DIPP will consider each requirement under the guideline and provide necessary approval for the industrial park to the state government.
These special economic zones can help the private & public sectors set up manufacturing units to help the government achieve 100 million job creation by the end of 2022.
The annual incremental export growth is expected to grow at 11.9 % between 2020-2025. This is higher than China’s incremental yearly export growth of 8.3 % during 2015-2019.
Source From – www.macrotrends.net
The economy is expected to grow at an annual rate of 8% over the next five years, which will be faster than China (6%), the US (4%), Japan (3%), Germany (2%), and UK (1%).
The manufacturing sector is expected to grow at an annual rate of 11%, which will be higher than that of the service sector (9%).
The government is looking for its export target of $1 Trillion by the end of 2025, Goods & Service sectors contribute the major export chunk.
This way, India will be a $5 Trillion economy by 2025. Manufacturing units will help India to achieve its target.
Major companies like Apple, Samsung, and many other top brands are now shifting their manufacturing units to India due to its ease of doing business and industrial parks are helping them to set up their factories.
Expressway connectivity, port accessibility, stable policies, cheap labour, and industry tax reforms help the business sector to gain confidence.
Macro Economic Drivers for manufacturing sectors in India
Macroeconomic drivers help India’s ambition in making a global manufacturing hub by 2025. Socioeconomic growth, infrastructure expansion, green energy, high middle-income group, and many other indicators enable stable growth in industrialization.
India rapidly grew after COVID-19 and saw 8.2% growth FY2021-2022.
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Robust government policies & inflation management by RBI doing hikes on the Repo rate, by doing so banks borrow money from RBI.
Hiking the interest rate investor plunged money into government bonds for high returns helps RBI to control inflation. Less circulation of money is a good option for RBI to control inflation.
High-growth sectors like healthcare, tourism, IT & Technology services, real estate sector help India to grow as planned.
The contribution of manufacturing units enables a direct economic launch pad for India to achieve its $5 Trillion economy by 2025-2030.
Government Policies to make India a global manufacturing hub
The government of India has introduced many policies that provide more push toward its global manufacturing hubs.
Production Linked Incentive (PLI) – To boost local electronic manufacturers to incentives from 4% – 6% for the period of 5 years. This will boost local electronic, and white goods manufacturers to incline for setting up a manufacturing unit.
PM Gati Shakti – Pure infrastructure connectivity project launched by the government. Bhratnmala and Sgaramala projects connect the Industry corridors to get seamless logistic infrastructure. The government has planned 5771.8 kilometers of the expressway by 2024.
Aatmnirbhar Bharat – Campaign launched in 2020 to boost India as a self-reliant country. 20 Lakh crore equivalent to a $307.65 billion investment in developing Indian manufacturing sectors.
5 pillars were set for this entire scheme and special focus was given to the MSMEs, agriculture and farmers, and many other government reforms.
Aatmanirbhar Bharat is a stimulus package to fight against the pandemic. The total allocated budget is close to 10% GDP of India.
This scheme encourages the manufacturing industry by enjoying tax reforms, clear laws, and many more.
Infrastructure Development helps with logistic support to the manufacturing unit
Infrastructure development will help India to connect industry corridors in a larger manner. It creates smooth transportation of goods. To become a $1 Trillion economy by 2025 India needs to revamp its infrastructures very fast. The government has launched several schemes to support its aspiration to become the manufacturing hub for the world.
The national logistic policy is one of them to facilitate the transportation of goods much faster and cheapest manner. This policy will cut down the GDP contribution from 14% to 10%.
4G connectivity all across the rural areas, airway connectivity, and waterway to connect all major rivers for trade. Investment in railways, expressways, and highways helps connectivity much faster.
Approximately 34 Lakh crores will be pumped in by the government and the private sectors to create coastal, railways, highways, and airports to be built in the next 5 years.
4G services to all rural areas to help e-commerce business to grow. This way a single window clearance will be placed among the states for e-commerce business.
India’s rank improves in ease of doing business
India in 2022 is in37th rank in the ease of doing business (EoD) as per the report. Past few years India has gained the top position in the EoD ranking.
India has come up 65 out of 142 in 2015 and in 2022 it is in 37th rank. This clearly shows that policies by the government have encouraged the business fraternity to invest more in India.
Local businesses have started under the MUDRA scheme and the “vocal for local” slogan given faith in our local industries.
From electronic manufacturers (like mobile phones, white goods, etc.) to semiconductor plants in Gujrat showed how India encourages local manufacturing and helps 100 million job creation in India look possible in coming years.
Not only in IT sectors, but India is also now focusing on the major industries to where the world now looking to India for an alternate and more stable global manufacturing hub in the upcoming decade.
India’s Foreign Direct Investment (FDI) growth helps to ensure more manufacturing hubs.
India introduced FDI in the early 90s and from that India has made its journey a very planned planner. Current India restructure its FDI policy in such a manner that they are eying of $100billion investment in FYI 2021-2022.
The ease of doing business makes FDI attractive among foreign investors. The government has introduced two types of FDI routes, one is the automatic route and the other one is via the government route.
India has emerged as a global manufacturing hub in the coming decade through its strategic industry corridors. Sectors like defense, retail, e-commerce, real estate, manufacturing, pharmaceutical, and many more.
SMEs and local players are also benefited from this FDI policy where they can now fulfill the “Make in India” dream.
Job creation also takes upward trends in coming years. Encouragement of youth in more research the new technologies that will help India to become its global manufacturing presence in the world market.
Many policy reforms under this FDI made India 7th rank in the world in terms of ease of doing business.
FYI 2014 to 2021 India’s growth in the FDI is 68.6% and 76% in the manufacturing sectors growth seen in the FYI 2021-2022.
If the government creates this industry environment the FDI will jump up rapidly in the coming years and India can make it into the top 3 positions quickly.
Strong foreign policy and infrastructure development in the country lead to growth in manufacturing facilities.
In the current geopolitical scenario, investors are looking for an alternative to China and see India as a potential partner to move their business to India.
Strong leadership and diplomacy by India attract global investors to invest in India.
Labour cost increment affects China’s manufacturing sectors. If we see that the avg. labour cost of China in 2012 was $5791.96 which landed $12857 in 2021 growing by 122%. This is a clear indication of why the businesses start moving.
Not only that but how the pandemic breaks and how China reacted makes them very uncomfortable to the rest of the world. Also, many situations inside and outside China directly affect Chinese business directly.
Where India made the correct diplomacy during that time and give a clear and strategic message to the world that it start giving the direct benefit to India.
Minimum wages in India FY 2022 was $1764.44 and this will further increase in 2023 will be $1862, which is a 6% incremental growth rate project in the minimum wages in the manufacturing sectors.
This figure clearly shows that India can be the most desired nation for the upcoming world’s manufacturing hub.
We believe that in the coming decade, India will emerge as the manufacturing hub of the world, thanks to its strong domestic market, low labor costs, and improved infrastructure.
It has already started catching up with its Asian peers such as China and Japan in manufacturing, but it still will take another decade for India to completely dominate the global market.
However, a strong domestic market and numerous other advantages cannot be ignored if we look to be the world’s most preferred manufacturing destination.
India is expected to be the world’s leading exporter by 2034. However, to become the world’s leading manufacturing hub, India needs to continue with its initiatives and pave the way for ease of doing business.
In addition, the country has to focus on promoting digitalization and upgrading its technological parameters. Becoming the world’s largest manufacturing hub will have a positive impact on its economy as it will create more jobs, boost export revenue, and attract foreign direct investments (FDI).