Print Friendly, PDF & Email




Today, India is one of the most favoured investment destinations in the world. Powered by innovation, digitisation, automation, increasing investment, and policy reforms to enable ease of doing business, India is set to emerge as the global manufacturing hub in the post-Covid world. In this episode, we take a look at the Manufacturing sector that has been one of the high growth sectors in India and also a major focus area of the Union government. With schemes like Make in India and Performance Linked Incentive, the government is aiming not just to boost domestic productivity to make India Atmanirbhar, but also to strengthen India’s position in the global supply chain. The reforms have improved the job markets, ease of doing business, instilled investors’ confidence in the Indian economy, and significantly increased output. The government’s role has been changed from an authority to being a co-operating business partner. As a result, there has been a substantial rise in FDI in sectors such as Pharmaceuticals, Medical devices, Defence, and Automobiles. India is, currently, one of the top 3 Greenfield FDI destinations in the world, with top global companies setting up operations here. Riding on reforms, India climbed to 63rd rank on World Bank’s Ease of Doing Business Index, a massive improvement from 2014 when India stood at 142nd rank. With increasing investment, world class production, entrepreneurship and innovation, India is ready to emerge as the world leader in manufacturing.

Issues of manufacturing sector amid Lockdown:

  • India’s manufacturing activity contracted at its sharpest pace on record in April as a lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions
  • Asia’s third largest economy is taking a huge hit from the ongoing nationwide lockdown, which started on March 25, and its gross domestic product is expected to shrink for the first time since the mid-1990s this quarter
  • Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions.
  • With new orders and output shrinking at the steepest pace since at least early 2005 factories cut jobs at the fastest rate in the survey’s history, signaling a high chance of recession.
  • record slump in both input and output prices, suggesting a sharp fall in overall inflation which has held above the Reserve Bank of India’s medium-term target of 4% for six months, failed to stoke demand
  • Enterprises suffer from low productivity given that their small size and lockdown prevents them from achieving economies of scale.
  • The jobs the small enterprises create are low-paying ones.
  • Numerous regulatory roadblocks, unfavourable land and labour laws, inadequate transport, communication and energy infrastructure, among others.
  • India faces stiff competition from South-East Asian and other South Asian countries.
  • Global technological and geo-economic changes.
  • Impact of a strong rupee in recent times on Indian industry and the economy.

Opportunities For India:

  • There are, however, opportunities that appears to be emerging.
  • While there is hope for a quick recovery in India, we have to make concerted efforts to realise this including an integrated multi-pronged approach through public policy support, private sector participation and citizens’ support.
  • This presents a huge opportunity for India as many Companies plan to shift out of China. We need to prepare the ground forthwith to welcome such investment into India. We need to try and make life easy for investors.

Government Initiatives:

  • Make in India initiative with the primary goal of making India a global manufacturing hub.
  • ‘Zero defect zero effect’ for MSMEs to deliver top quality products using clean technology.
  • ‘SKILL INDIA’ – a multi-skill development programme with a mission for job creation and entrepreneurship.
  • Labour reforms through a dedicated Shram Suvidha Portal, Random Inspection Scheme, Universal Account Number and Apprentice Protsahan Yojana.
  • Defence Procurement Policy (DPP) under which the priority will be given to the indigenously made defence products.
  • Technology Acquisition and Development Fund (TADF) under the National Manufacturing Policy (NMP) to facilitate acquisition of Clean, Green and Energy Efficient Technologies by MSMEs.
  • Pradhan Mantri MUDRA Yojana (PMMY) for providing loans to small-scale businesses.

Aatmanirbhar Bharat Abhiyan: the right impetus:

  • India could be their destination of choice, provided we offer a conducive environment.
  • conducive business climate with better infrastructure and logistics, simplified land and labour laws and single window clearances can enable India to develop a robust manufacturing ecosystem.
  • This will help attract foreign capital, latest technology, create jobs and boost our exports.
  • We must also focus on Skill and Scale to be both quality and cost competitive and serve a global customer base.
  • Huge scope exists in sectors such as pharma, electronics, automobiles and defence machinery, not only to be self-reliant but also capture a decent slice of the global supply chain.

Way Forward:

  • Investor’s confidence must be improved.
  • Improving physical infrastructure from transport systems to the power sector is essential.
  • Importance should be given to electronic sector.
  • Improve access to finance for smaller enterprises.
  • Making firm entry and exit easier.
  • Inverted duty structure.
  • Enhancing the flexibility of labour regulations.
  • Low-cost manufacturing is important for India.
  • If India has to raise its share of manufacturing in GDP to around 25%, industry will have to significantly step up its R&D expenditure. This must be addressed by the new industrial policy.
  • The quantum of value addition has to be increased at all levels. Larger the value addition, greater the positive externalities.
  • FDI policy requires a review to ensure that it facilitates greater technology transfer, leverages strategic linkages and innovation.
  • Aim for higher job creation in the formal sector and performance linked tax incentives.
  • Attractive remuneration to motivate people to join the manufacturing sector.
  • Need to have a curriculum that focuses on soft-skills and value-based training that meets the demands of the industry.