India: Leading global manufacturing

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India: Leading global manufacturing

India: Leading global manufacturing

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Apr 16,24

On April 11, 2024, the Asian Development Bank (ADB) - following the International Monetary Fund (IMF), World Bank, and Moody’s - raised India’s GDP growth forecast for 2024-25 to 7 per cent from the 6.7 per cent projected in December 2023. The ADB’s growth estimate for FY25 is in line with the Reserve Bank of India's (RBI) forecast of 7 per cent GDP growth in the current fiscal year, based on expectations of moderating inflationary pressures, a normal monsoon, and sustained momentum in the manufacturing and services sectors.

Starting in 2010, India has surpassed the economies of the UK, France, Italy, and Brazil in terms of size. Japan, which was overtaken by Germany last year to become the world’s fourth-largest economy, is expected to be the next to be surpassed by India within the coming years. The country's average growth rate over the last decade has been about 7 per cent, which should be sustainable given that only about 35 per cent of its population lives in cities, with an expected increase in the speed of urbanization in the coming years.

Factors such as India's central location in the Indo-Pacific region, large population, and the country's rising economy are attracting companies from across the world. With governments in developed countries urging their companies to look for viable alternatives to China for sourcing their products and raw materials (also known as the China Plus One policy), India has emerged as one of the big beneficiaries of this trend.

As a result, India has drawn significant foreign direct investment (FDI) into its manufacturing sector. The Government of India's push for indigenous production with its Make in India drive and production-linked incentive (PLI) schemes have played a crucial role in fostering a favorable business environment, encouraging investments, and promoting indigenous manufacturing. For example, Apple now makes around 14 per cent of its iPhones in India, which is double the amount it produced there last year. In the interim Union budget for 2024-25, the GoI increased the allocation for PLI schemes to Rs 6,200 crore from Rs 4,645 crore in 2023-24 (budget estimate).

India has set a target to increase the share of manufacturing to 25 percent of GDP by 2047, up from about 17 per cent currently. Manufacturing exports hit a record high of $447.46 billion in FY23, a 6.03 per cent increase from $422 billion in FY22, reflecting underlying momentum. The sector's performance points to early evidence of India, which has outshone in the services sector (especially in information technology), developing into a global manufacturing hub.

Success in manufacturing heavily relies on well-functioning infrastructure for efficient transportation for export and import. Over the last few years, the government has been increasing its investment in infrastructure development to propel growth. With an 11.11 per cent increase in capital expenditure to Rs 11.11 trillion, India’s interim budget 2024-25 gave priority to infrastructure for enhancing logistics further.

India, the fastest-growing large economy, is on a trajectory to become the world’s third-largest economy by 2027, with manufacturing playing a lead role in development.