India’s Manufacturing Sector, Growth, Challenges, and Opportunities

India’s Manufacturing Sector Growth and Performance: Insights from ASI 2022-23

• Impressive Sectoral Growth: Manufacturing output grew by 5% in 2022-23, with GVA increasing by 7.3%.
  • PLI-covered sectors like basic metals, petroleum products, food products, chemicals, and motor vehicles contributed 58% to total manufacturing output, registering an output growth of 5%.
  • The recovery from the COVID-19 pandemic disruptions is evident, with performance surpassing pre-pandemic levels.
• PLI Scheme Impact: The PLI scheme has enhanced productivity in sectors such as:
  • Mobile manufacturing
  • Electronics
  • Automobiles
  • Pharmaceuticals
  • Textiles
• This scheme underscores India’s ability to align policy support with industrial growth.

Challenges in the Manufacturing Sector

• Rising Input Costs: Input prices surged by 4% in 2022-23, leading to a notable gap between output growth (21.5%) and GVA growth (7.3%).
  • Import dependency for raw materials exacerbates the cost pressures.
• Regional Imbalances: Industrial activity is concentrated in five states — Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh — which collectively account for:
  • 54% of total manufacturing GVA
  • 55% of employment
  • Other regions lag in development, limiting nationwide manufacturing growth.

Opportunities for Growth and Expansion

• Extending PLI Coverage: Labour-intensive sectors such as apparel, leather, footwear, and furniture can benefit from PLI expansion.
  • Sunrise industries like aerospace, space technology, and Maintenance, Repair, and Overhaul (MRO) hold immense growth potential.
  • Focus on capital goods to reduce import dependency and promote domestic capabilities.
• Boosting MSMEs: MSMEs contribute 45% of India’s manufacturing GDP and employ 60 million people.
  • Tailoring PLI incentives for MSMEs by lowering capital investment thresholds and production targets could enable better integration into value chains.
• Increasing Women’s Workforce Participation: Women’s participation in manufacturing could boost output by 9% (World Bank estimate).
  • Infrastructure development near factories, such as hostels, dormitories, and childcare facilities, is essential to enhance inclusivity.
• Promoting Green and Advanced Manufacturing: Encouraging green manufacturing and R&D in advanced technologies can enhance sustainability and competitiveness.

Policy Recommendations for Overcoming Challenges

• Addressing Input Costs: Simplify import tariffs into a three-tier system:
  • 0-2.5% for raw materials
  • 5-5% for intermediates
  • 5-7.5% for finished goods
  • This strategy could reduce input costs, enhance competitiveness, and improve integration into global value chains.
• Reducing Regional Imbalances: Encourage state-level participation in implementing reforms related to land, labour, power, and infrastructure.
  • Invest in underdeveloped regions to balance industrial growth.
• Improving Ease of Doing Business: Streamline regulatory frameworks to attract domestic and foreign investments.
  • Reduce the cost of doing business to enhance global competitiveness.

Future Prospects: Towards a Developed Economy

• With sustained efforts, the manufacturing sector’s share in GVA could rise:
  • From 17% currently to 25% by 2030-31.
  • Further to 27% by 2047-48, aligning with India’s vision of becoming a developed economy.
• The sector’s transformation will require leveraging policy initiatives like the PLI scheme, fostering inclusivity, and enhancing domestic capabilities.

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