Manufacturing, the key to India’s economic growth

Manufacturing has emerged as a driving force for the Indian economy. It is critical, not just for economic value creation, but also for building future capabilities and creating sustainable income opportunities

April 4, 2020

The Government is targeting to have manufacturing represent 25 per cent of the national GDP while creating 100 million new jobs by 2022

Enterprises such as Samsung, Ford,, Pfizer, PepsiCo, Apple, Nestlé, GE, Boeing, among others, are operating manufacturing plants around India

Given the rising activity, cumulative FDI into India’s manufacturing sector totaled US$91.2 billion during the period of April 2000-June 2019

India jumped 12 positions to reach the 68th rank in trading across borders on the World Bank’s Ease of Doing Business (EoDB) 2020 report

Manufacturing has emerged as a driving force for the Indian economy. It is critical, not just for economic value creation, but also for building future capabilities and creating sustainable income opportunities. Herein, the Government’s Make in India programme with the support of a range of other initiatives such as Digital India, Skill India, Startup India, among others, has put the nation on the world map as the preferred destination for diverse manufacturing activities. With the skills enabled by these platforms, India is expected to come up as the fifth largest manufacturing destination in the world by end-2020. The Government is also targeting to have manufacturing represent 25 per cent of the national GDP while creating 100 million new jobs by 2022. Additionally, as part of a broader agenda, manufacturing is key to the Government’s aim of setting up a US$5 trillion economy by 2025. 

Rising investment in R&D and innovation through corporate as well as academic avenues, evolving skill sets surrounding new technologies, improved focus on infrastructure development have already led to a growing number of global companies setting up manufacturing operations in India. Enterprises such as Samsung, Ford, Procter and Gamble, Pfizer, PepsiCo, Apple, GE, Nestlé, Boeing, GlaxoSmithKline, among others, are operating manufacturing plants in India, attracted by India’s 1.3 billion consumer base as well as a rapidly-growing export market. Meanwhile, their activities in India have gradually expanded from basic manufacturing to include core innovation and development. Given the activity, cumulative FDI into India’s manufacturing sector totaled US$91.2 billion during the period of April 2000-June 2019. This is expected to grow as India further liberalises foreign investment. 

India has risen 79 spots in the World Bank EoDB ranking over the past five years, owing to its strengthened manufacturing prowess and improved role in global value chains

The Government of India has recently taken various steps, in addition to the ongoing schemes, to boost industrial production of India. They include: 

  1. Infrastructure: The National Infrastructure Pipeline (NIP) was launched in December 2019, under which expenditure of US$1.4 trillion is proposed as capital expenditure in infrastructure sectors in India during the fiscals 2020 to 2025.
  2. To reduce logistics costs in India, the Union Budget 2020-21 announced the release of a National Logistics Policy.
  3. Accelerated development of highways is being undertaken. This will include the development of 2,500 Km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways.
  4. Reduction in Corporate Tax: A new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any domestic company an option to pay income-tax at the rate of 22 per cent subject to the condition that they will not avail any exemption/incentive. For new manufacturing companies incorporated on or after October 2019, the rate was brought down to 15 per cent. Budget 2020-21 announced that this reduction of the corporate tax rate to 15 per cent for new manufacturing companies will be extended to new power generation companies as well.
  5. Startups: The Government has proposed to provide early life funding, including a seed fund to support ideation and development of early-stage startups. Further, the time period within which Employee Stock Options (ESOPs) can be issued by Startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10 per cent of equity shares, has been enhanced from five years to 10 years from incorporation.
  6. For easing Liquidity Problems of NBFCs and Banks: The Government has announced capital infusion of US$9.4 billion into public sector banks, formulated a Partial Credit Guarantee Scheme for the NBFCs after the Budget 2019-20, and merged 10 major Public Sector Banks into four.
  7. Measures to promote domestic manufacturing: Certain Trade Policy measures have been announced in Budget 2020-21 to promote domestic manufacturing such as increasing basic customs duties (BCD) on footwear, toys, and furniture; modification of Customs Act for strict enforcement of Rules of Origin norms for sensitive imports; strengthening of safeguard duties and anti-dumping duty, etc.
  8. Domestically Manufactured Iron and Steel Products Policy (DMI&SP) has been notified to encourage consumption of domestically produced steel by Government bodies. The Government has notified Steel and Steel Products Quality Control (QC) Orders and introduced Steel Imports Monitoring System (SIMS) to monitor steel imports.
  9. The Government on the recommendation of the Food Safety and Standard Authority of India has prohibited imports of different products from various countries to promote best practices. 
  10. To assess the impact of Free Trade Agreements, the Government holds regular stakeholders’ consultations and receives inputs from the Apex Chambers of Commerce and Industry, Industry Associations, exporters, trade experts, and concerned Ministries/Departments.

Owing to the proactive measures taken by the Government, India jumped 12 positions to reach the 68th rank concerning trading across borders on the World Bank’s Ease of Doing Business (EoDB) 2020 report. Overall, India has progressed 79 spots in the World Bank EoDB ranking over the past five years. Strengthening manufacturing prowess has also helped India rise in the global value chains. Beyond the fast-expanding local consumption, increasing global participation in manufacturing will make India a critical stakeholder of the world economy. India already contributes 3.5 per cent of the global GDP.