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Unlocking India’s Manufacturing Potential

31 Aug 2022

The last two years have undoubtedly left an indelible mark on the Indian industry, and manufacturing has been one of those key industries that were impacted the most. Capacity planning, inventory management, logistics, and labour – all were completely upended for manufacturing units.

The last quarter demonstrated a slow GDP growth of 4.1% and the geopolitical situation is further expected to put pressure on the supply chain and contribute to escalating prices. Emkay and Barclays have cut the GDP growth outlook to 7% in FY 2023. However, the GDP growth in the first quarter of FY 2022 is expected to be in double-digits, largely benefiting from the lower base effect, economists say.[1]

There are multiple factors contributing to the slow growth. One is that Indian manufacturers tend to create limited value, perhaps due to the cost of infrastructure and inputs. The global scenario hasn’t been forgiving for the Indian market either – raw material prices such as steel are skyrocketing, putting pressure on the global supply chain, and threatening the survival of MSMEs and small suppliers.

Third, the lack of a good logistical infrastructure causes delays and raises inventory costs where high prices for power and credit inflate operating expenses in factories. Fourth, small, fragmented companies that make up some value chains cannot innovate quickly enough to keep up with competitors and thus, do not operate productively.

However, at the same time, the entire manufacturing value chain also enjoys the ‘Indian advantage’ that can propel the industry towards a rapid growth cycle. India is a land of natural resources such as iron ore, bauxite, solar energy, etc. Coupled with low-cost and ready labour, the metal, textiles, and chemical industries benefit from reduced operational costs.

Skill-intensive value chains such as pharmaceuticals, capital goods, and automotive components enjoy the vast skilled worker base available in the country. The biggest plus for Indian manufacturers is their proximity to domestic markets that have ready access to millions of Indian consumers.

The Indian Government’s thrust on an AatmaNirbhar Bharat and Skill India programme, accompanied by reforms such as the codification of labour laws, reduction in corporate tax rates, transparent tax system, semiconductor mission, PLIs in 14 identified sectors, and digitization & simplification of business regulations strengthen India’s manufacturing competitiveness.

Digitization of inventories and the shift from just-in-time (JIT) to just-in-case (JIC) models have improved the visibility of inventory management and the creation of buffer stocks. Reforms in FDI and thrust on exports have opened up the scope of defence, space, and nuclear energy sectors to explore international investment and global markets.

The government’s strategy is to make India a manufacturing leader in the world by enhancing the production of scale and helping MSMEs adopt technology and other modern practices, creating a vibrant ecosystem to support the manufacturing of Original Equipment Manufacturers.

Focusing on building competencies and localization will create opportunities for stable sustainable volumes and ensure business continuity in the country. Utilizing technology such as advanced analytics and advanced manufacturing can drive efficiency across the supply and value chain and inculcate innovative and sustainable approaches to value creation, benefitting various stakeholders.

A great asset for the economy right now is the startup boom which has massive potential to rig in investments to bring scale in manufacturing. There must be a collaborative model to incentivize the industry and a shared vision that supports fragile stakeholders in the path towards resiliency, starting with suppliers and other important players along the value chains.

Utilizing India’s manufacturing potential is the key to unlocking India’s ascension as an industrial superpower. I urge all industry stakeholders to strive hard on the competency and competitiveness scale and wish to see more young and women entrepreneurs come forward to contribute to this dream of India being a global hub for the industry.

This article was contributed by Mr Deepak Jain, Deputy Chairman, CII Northern Region & Chairman & MD, Lumax Industries Ltd and was first published in CII Northern Insights, July issue.

[1] Online, F. E. (2022, June 1). India’s manufacturing PMI expands in May despite inflation headwinds; export orders at 11-year high. Financial Express. https://www.financialexpress.com/economy/indias-manufacturing-pmi-expands-in-may-despite-inflation-headwinds-export-orders-at-11-year-high/2544799/

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