So far, India has followed a unique growth trajectory. Over the past two decades, the services sector grew rapidly without a manufacturing boom, unlike other countries where manufacturing growth precedes services. The services sector’s contribution to GDP has risen from 45 percent to 55 percent while manufacturing has remained largely stagnant at 15 percent in 2017 and 17 percent in 2022.
Going forward, growth in manufacturing is a must if India wants to reach the projected target of $20 trillion by 2047. With the right measures and rigorous execution, India’s manufacturing sector can reach $4.5 trillion, taking its GDP share to 22 percent (against a base projection of
$2.5 trillion with a 17 percent share in GDP), which is both a necessity and an opportunity for India to shine.
Three areas highlight the fundamental necessity of growth in manufacturing:
Population: a boon and a bane. India has roughly 800 million working-age people and will add about 200 million more over the next three decades. Manufacturing employs 50 million to 60 million people today. Even with a conservative projection of $3.5 trillion output by 2047, manufacturing has the potential to create 85 million more jobs. Achieving $4.5 trillion through higher manufacturing growth could create 90 million jobs—a big boost for income and a multiplier for economic growth.
Trade deficit: a gulf to bridge. At about 2 percent, India’s trade deficit indicates a high dependence on imports, which will put pressure on budgetary expenditures, currency, export competitiveness, and domestic investments.Resilience: self-reliance for self-assertion. India needs to be self-reliant in its pursuit of becoming a global superpower in the geopolitically-sensitive world order. A thriving, self-reliant domestic manufacturing sector will give India a platform to reach its goals.
The government recognizes this necessity, and significant efforts have been made for a wide- ranging push on manufacturing. Broad government reforms have started showing momentum, from the Goods and Services Tax (GST) to the ease of doing business and the Production Linked Incentive (PLI) schemes. Furthermore, the global value chain reconfiguration post-pandemic has added positive pressure and presented an opportunity for India to become a manufacturing superpower.
Six areas will be essential for India to realize its full potential in manufacturing:
Focus on enhancing competitiveness in sectors of strength. India has strong capabilities in pharmaceuticals, chemicals, textiles and apparel, and automotive. However, gaps remain in terms of mega-scale facilities that can anchor large-scale exports, the reliability of supporting infrastructure and ancillary services (reflected in recurring instances of accidents in manufacturing), trade integration challenges, and productivity. Both public and private interventions will be needed to close these gaps.
Establish a stronghold in next-generation sectors. Opportunities are emerging in renewables, aerospace, and hi-tech semiconductors as the world transitions to a green and connected future. Building a solid foundation in these sectors will require focusing on R&D, investments in technology transfers, global tie-ups, and incentivizing private investments along with collaboration across academia, industry, and the government.
Drive a smart manufacturing stack similar to India Stack. India’s technology stack is a leading example of digital disruption at scale and showcases the country’s capabilities for innovative solutions. A similar innovative leap in manufacturing, oriented toward the next generation of smart industrial clusters, connected factories and high-productivity assets, end-to-end value chain transparency, and tech-enable real-time interventions can be big differentiators. This is possible with the ongoing 5G rollout.
Enhance capabilities at scale. Across industries, executives highlight the lack of an industry- ready qualified workforce as a major pain point. This is driven by a mixed set of issues, including a curriculum for institutions, the lack of focus on skill development, and the work environment as well as the emerging outlook of a new-age workforce. Skill building will be crucial, and it needs to be spearheaded by industry leaders—similar to how IT skill development was led by private players NIIT and Aptech in the early days.
Accelerate the transition to future-ready infrastructure. India has inefficiencies in terms of the large amount of goods transitioning within an industrial value chain as well as the high cost and lengthy time for the transition. India is solving both of these challenges with a variety of interventions. The goal is to reduce logistics costs to 8 percent of GDP by 2030 along with a $1.2 billion investment in industry-focused corridors. Time-bound execution of these projects and expansion of these initiatives will be vital.
Strategic investment in ESG. With a global pool of ESG-aligned capital at more than $120 trillion (assets under management of the signatories of the UN Principles for Responsible Investment), ESG has tremendous potential to become a differentiator for India. From adopting green bonds and achieving water neutrality, from expanding the realm of corporate social responsibility to creating a safe and healthy workplace, from responsible leadership to protecting shareholder interests—India Inc. can embed sustainability as a core value proposition to fuel growth in manufacturing.
Beyond these themes, a few more factors will be essential parts of India’s success story, including navigating the emerging geopolitical risks, handling the investment needs amid a heavier fiscal burden, and managing the risks of climate-change driven calamities.
In a nutshell, India has a lot going in its favor to become the next global manufacturing powerhouse. With an aggressive reform agenda, aligned public and private actions, a strong execution and steady navigation of the geopolitical risks, the next 25 years can truly be India’s golden age of manufacturing.
The writers are Partners, Kearney India.
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