Boosting India’s Manufacturing Sector
Context:
The Indian Finance Minister has recently emphasized the need for the country’s manufacturing sector to focus on creating more sophisticated products. The government is committed to providing policy support to help achieve this goal.
Relevance:
GS-03 (Economics)
Current Status of India’s Manufacturing Sector
- Economic Contribution: The manufacturing sector accounts for 17% of India’s GDP and employs over 27.3 million workers, highlighting its crucial role in the economy.
- Government Targets: Under the “Make in India” initiative, the government aims to increase the sector’s contribution to 25% of the GDP by 2025.
- Sector Performance: Key industries such as automotive, engineering, chemicals, pharmaceuticals, and consumer durables are driving growth.
- Export Growth: Manufacturing exports reached a record USD 447.46 billion in FY23, a 6.03% increase from FY22’s USD 422 billion.
- Recent Slowdown: In January 2024, India’s key industrial sectors (8 core industries) experienced their slowest growth in 15 months, dropping to 3.6% from December 2023’s 4.9% and January 2023’s 9.7%.
- Industrial Production: The Index of Industrial Production (IIP) from April to October 2023 was 143.5, indicating a 43.5% growth from the base year (2011-12).
- Capacity Utilization: Increased to 68.3% in Q2 of 2021-22 from 60.0% in the previous quarter due to the easing of the second wave of the COVID-19 pandemic.
- Foreign Direct Investment (FDI): Sectors like Drugs and Pharmaceuticals (+46%), Food Processing Industries (+26%), and Medical Appliances (+91%) saw increased FDI inflows.
- Employment Growth: Total employment in the manufacturing sector rose from 57 million in 2017-18 to 62.4 million in 2019-20.
- Economic Survey Insights: Despite COVID-19 disruptions, there has been positive overall growth in Gross Value Addition (GVA) in the manufacturing sector.
Opportunities for India’s Manufacturing Sector
- Domestic Market and Demand: There is strong demand for manufactured goods from both domestic and international clients. The Purchasing Managers’ Index (PMI) for May 2024 was 58.8, indicating expansion.
- Sectoral Advantages: Key sectors such as chemicals, pharmaceuticals, automotive, electronics, industrial machinery, and textiles have shown significant growth. Pharmaceutical manufacturing costs in India are 30%–35% lower than in the US and Europe.
- Global Market Outreach: India’s integration into Global Value Chains (GVC) has shifted from Europe to Asia, with the share of foreign value-added in domestic final demand from Global Southern partners rising from 27% in 2005 to 45% in 2015.
- MSME Growth: Micro, Small, and Medium Enterprises (MSMEs) contribute about 30% to GDP and nearly 45% of total exports, playing a vital role in economic growth.
- Robust Demand: Indian manufacturing products are seeing increasing demand both domestically and internationally, with the sector having the potential to reach USD 1 trillion by 2025.
- Competitive Edge: The sector’s growth is driven by increased production capacity, cost advantages, supportive government policies, and private investment, positioning it for sustained economic expansion.
Conclusion
By focusing on developing sophisticated products and leveraging these opportunities, India’s manufacturing sector is poised for significant growth and increased global competitiveness.
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