Manufacturing Sector

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Brief

The role of India will further grow in a post COVID world when most of the international manufacturers are looking forward to diversifying their supply chain by adopting a China+1 strategy. As organizations are diversifying their supply chain, production facilities, & sourcing destinations, India offers a suitable alternative. India’s large domestic market, growing middle class, favorable industrial policy alongside an abundance of human capital, and natural resources give it a natural advantage over its peers

Although a distant second to the service sector, India’s manufacturing is set to grow at a vigorous pace. Currently, manufacturing constitutes around 18% of the Indian GDP. However, GOI understands the role of manufacturing as a key economic growth driver and has underlined a host of initiative in the form of simplified FDI participation, systematic investments in developing the overall physical & social infrastructure, creating new land banks, lowered tax rates, numerous concessions & discounts on investments, etc. to boost the overall manufacturing sector in the country. The governing agencies are planning to take the manufacturing’s overall contribution to 25% of the GDP.

India’s Industrial

Output

India already has made a stronghold in numerous industries such as automobiles, electronic appliances, pharmaceuticals (generics), steel, etc. The country has huge potential in the defense & aerospace, API, household items, processed foods, construction materials, etc.

  • India is home to the world’s 4th largest automobile industry. The automobile industry in India is valued at USD 118 billion, out of which the automotive parts industry is valued at USD 57 billion. The country has produced ~ 31 million automobile units in 2019, which includes passenger vehicles, commercial vehicles, tractors, 2 & 3 wheelers, etc. The country is also home to a thriving auto-part industry including body parts & chassis, engine & transmission, equipment, suspension system, etc.
  • India’s pharmaceutical industry, which is pegged at ~ USD 40 billion has the potential to grow multifold. Nearly half of the pharma produce from India is exported to international markets. The country, which already plays a dominant role in the global generic drugs market is now aggressively moving up the curve to deepen its foothold in injectables, bio-similar, etc.
  • India’s pursuit of becoming a global leader in smartphone and mobile manufacturing remains undeterred. Presently, it is the 2nd largest handset manufacturing market in the world. Global giants such as Samsung & Apple are scaling up their production facilities in the country and it is estimated that in the next 5 years, India will produce handsets worth USD 143 billion. Out of this, around 60% will be exported. Aggressive growth on the back of a huge domestic market is also expected in other consumer electronics such as TV sets, ACs, refrigerators, and audio devices, etc.
  • India is home to a thriving food processing industry backed by a growing middle-class population, changes in consumer preferences, and a surge in disposable income. Processed food comprises of around 32% of the overall food basket. The country, where total food & agriculture exports amounted to USD 38 billion in 2019 has the potential to become a key node in the global food supply chain. The country is the largest producer of dairy and livestock. It is also the second-largest producer of cereals, fruits & vegetables, and marine livestock.
  • India has become the 2nd largest steel producer in the world after China, surpassing Japan & USA. In 2019, the total steel production amounted to over 111 million tons. As per the national steel policy, India is aiming to reach 300 million tons of annual production in 2030. The rise in exports, growing domestic demand, and the availability of plenty of iron ores will continue to drive the industry in a positive direction. The per capita steel consumption has risen to 74 KGs from 57 in the last 5 years. The country is also witnessing a steep rise in exports as the existing global supply chain has disrupted.

GOI understands how the positive impact of robust manufacturing industry can reverberate throughout the economy. Hence the governing agencies have formulated an exhaustive industrial policy underpinned on strategic acumen and principal handed approach. Mentioned below are the key steps taken by the government

  • In 2014, India announced the comprehensive Make in India Plan to transform India into a global manufacturing hub. The plan is aimed at increasing the share of manufacturing in Indian GDP to 25% through the help of policy impetus, simplified FDI investments framework, conducive private sector participation alongside skill enhancement, higher value addition in manufacturing, and technological enhancement.
  • In the wake of the current COVID crisis, India has notified the Aatm Nirbhar Bharat (Self Reliant India) plan aimed at lowering India’s dependence on import and promote local manufacturing. Already a massive stimulus package of USD 290 billion has been announced.
  • 42 Mega food parks have been announced with each food park having around 30-35 food processing units. Alongside this, the government is also working on 297 cold chain projects to facilitate the cohesive transfer of perishable food items.
  • The government has announced a USD 6.6 billion stimulus package for international & domestic smartphone manufacturers. The stimulus will be disbursed in the form of production linked incentive scheme, where manufacturers can earn up to 6% incentives.
  • India has apprised a USD 1.3 billion package for the Indian pharma sector aimed at improving domestic manufacturing and lowering reliance on the import of APIs, DIs, and medical devices. The package includes production linked incentives and financial aid to developing drug production parks and medical device parks in the country.
  • Dedicated corridors have been set up in the province of Uttar Pradesh & Tamil Nadu to give a facelift to the defense hardware and aerospace industry in the country. To further lure FDI, a host of policy incentives have been formalized including capital subsidies, concession in land prices, and interest subsidies, etc.

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