Not long ago, India’s manufacturing industry was underwhelming. The country’s place in the global economy was more set in digital tech and services than material productions. During that space of time, when executives thought about global manufacturing, China was the first location to come to mind. But with recent initiatives, India has started to attract more attention and manufacturing has emerged as one of the high growth sectors there. The country has begun to evolve from industrialization to global competitiveness.
India only contributes around 3 percent of the world’s manufacturing output, around one tenth of what China does, but it has a lot of untapped potential. With a GDP of $2.972 trillion (2019 est.), in which only about 17% comes from manufacturing, there is a lot of room for growth in India. To put this in perspective, manufacturing accounts for 29% of China’s economic output.
Signs of Growth in India’s Manufacturing Sector
Intentions of growth in India’s manufacturing sector have been solidified by the 2014 launch of the Make in India initiative by its government. The goal of this campaign is to transform India into a global design and manufacturing hub. It hopes to raise manufacturing as a percentage of GDP from 17% to 25% within the next 10 years and create jobs for the numerous young population who enter the labor market each year. Additionally, momentum of this concept escalated last year by the announcement of a Budget by India’s finance minister, Nirmala Sitharaman, which focused on reinvigorating the manufacturing sector and bringing advanced technology industries to India.
Along with these initiatives, India’s location nearby to powerhouse China has played a part in the progression of its manufacturing sector. In the past India looked to China as a low cost sourcing option. As China’s economy changes as well, we are now seeing more foreign investment from China in India. Government agency Invest India estimates that around $12 billion US has been invested from China in the past 5 years.
India does have the advantage of having one of the larger pools of scientist and technicians in the world. Skilled manpower, strong design, and R&D capabilities are advanced and abundant, and the pool of cheap labor is only increasing. It’s very large domestic market is rapidly growing and has a lot of potential to support a larger manufacturing economy.
Challenges of Manufacturing in India
Despite all of its potential, India isn’t quite up to par with the big guys like China yet. Inefficient supply chains, infrastructure bottlenecks and structural impediments contribute to longer lead times and excess inventory across the value chain. It’s no secret that India’s underlying infrastructure still needs work. Between issues such as poor roads and limited power availability (electrical power generally is not available 24 hours per day in India), the pace of innovation may be slower here and output lower. These drawbacks also make transportation, power, and water resources more expensive, causing costs to accrue despite low labor wages.
This type of infrastructure can lead to slower shipping and higher overall costs incurred by Indian exporters. The good news is that India’s government is steadily working on investing in highway, railway, port, and airport development which will greatly help to improve efficiency in this area.
The Future of Manufacturing in India
Other initiatives promise to improve manufacturing processes. Traditionally India’s culture has always been to take a more artisan approach to manufacturing and produce at a small scale. While workers are skilled, the use of more manpower and less automation has created inefficiencies and allows more room for error. This may be ok for production for smaller companies, but the ability to scale is definitely valuable to large companies. China, for example, has done very well at this. By creating special economic zones, industrial clusters, and areas of expertise, manufacturers and suppliers are encouraged to be physically close to each other, providing higher flexibility and efficiency.
As India continues to work towards increasing automation and updating its manufacturing processes, we are sure to see an increase in productivity. Low labor wages and strong technical and engineering capabilities help to contribute to quality production runs and will keep India competitive as the rest of the pieces catch up.
An advantage for companies choosing to get in on the earlier side of India’s manufacturing “revolution” is that they can become established, creating relationships with suppliers before they are completely overrun by foreign brands, and perhaps earn themselves better rates down the road. English being one of India’s official language and its incorporation of British customs and legal systems may make creating these relationships and bridging cultural gaps easier.
Conclusion
Many foreign companies have had great success with manufacturing in India, just as many others have elsewhere as well. It mostly comes down to taking into account all factors that will affect your specific product to determine the best location for manufacturing. India has already made big strides in growing its manufacturing sector and it shows great promise to continue advances that will open up opportunity for excellent manufacturing there for many more. Manufacturing in India is sure to only get easier.