Manufacturing industry in India to reach US$ 1 trillion by 2025

The annual growth rate of production in the Indian manufacturing industry between the financial years 2013 and 2017. The fiscal year of 2017 shows an annual growth rate of 14.4 percent, up from 12.8 percent in the previous year.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Key Market Players

Definition / Scope

Manufacturing industry are those industries which involves in the transferring of the materials to create a new commodity or in value addition in a larger scale. Manufacturing sector is the backbone of any economy.

India is the 7th largest manufacturing country in the world. It encourages growth, productivity, employment, and strength in agriculture and service sector. ‘Indian Manufacturing’ sectors are divided in different categories:

Chemicals, Petroleum, Chemicals & Fertilizers
Packaging
Consumer non-Durables
Electronics, IT Hardware & Peripherals
Gems & Jewelry
Leather & Leather Products
Mining
Steel & non-Ferrous Metals
Textiles & Apparels
Water Equipment

Market Overview

Industrial leaders in India are looking at digitalizing their vertical and horizontal value chains from product development and purchasing to manufacturing, logistics, and services.

Apart from investing in new product development, manufacturers are moving to product and service offering from earlier product only.

Efforts are on in forming multi-national partnerships, alliances, and joint ventures in order to secure FDI, benefit from advanced technologies and improve productivity through factory automation.

While focus continues on penetrating in the domestic market, Indian manufacturers are also looking to gain a foothold in the global market by increasing sales in existing markets and by identifying new geographies.

Market Risks

Regulation and traceability: Manufacturing sector is facing increasing regulation and compliance measures. Everything from health and safety to waste management is surrounded in red tape. While it is undeniable some regulations are essential, other can be a massive burden to manufacturing companies – particularly when they vary from country to country.
Product development and innovation: As such product development and innovation moving at a lightning pace – to stay relevant, manufacturers need to be able to keep up with the pace. As companies vie to be first to market with a new concept, the temptation to compromise on quality can be huge, however manufacturers need to be stringent and avoid cutting corners.
The manufacturing skills gap: The baby boomer generation is reaching retirement age and leaving a considerable skills gap in the workforce. While manufacturing firms are doing what they can to inspire a new generation of manufacturing employees and experts, there is still a considerable void when it comes to skills and experience.
Healthcare costs: The manufacturing sector is certainly not the only one to be hit, but rising healthcare costs for workers is putting a considerable strain on already fragile manufacturing cost structures. Manufacturers in the U.S. in particular face the burden of providing healthcare while their competitors in other countries are not required to. Manufacturers need to be aware of this rising cost, and managed budgets accordingly, to ensure healthcare doesn’t push up the price of products beyond commercial viability – it can be a balancing act.
Environmental concerns and considerations: While it is undeniably good news for the local environment and employee wellbeing, sustainability and environmental regulations can be expensive for manufacturing firms. Manufacturers need to be aware of these costs when outlining their quarterly budgets.
Balancing maintenance with throughput: Keeping equipment functioning is an essential part of running a manufacturing facility. Regular preventive maintenance can help increase throughput and ensure customer satisfaction with delivery lead times.

Top Market Opportunities

Make in India campaign: The ‘Make in India’ Campaign implemented by government of India 25th September, 2014 is giving priority and lots of attention on the manufacturing industry, including significant investment and development which make India more attractive manufacturing choice.
Familiar Legal System: The Indian commercial law system is based on British common law, which is most similar to the US legal system. Although there are some regulatory hurdles, a similar system makes it easier to understand for people from other common law countries (like the US).
Cheap Labor: Manufacturing labor is very cheap in India, even compared to China. In 2014 the average cost of manufacturing labour per hour was $.92 in India and $3.52 in China. While this cost seems much lower, you have to take into account the extra costs you will incur due to India’s significantly worse and more expensive transportation, power, and water costs.
Availability of Labor: India has a huge labor force (nearly 500 million people), which includes unskilled workers as well as a rich talent pool of skilled worker, such as researchers and engineers, capable of lending cost-effective research and development support to manufacturing operations. Last year the Wall Street Journal reported that 12 million people enter the Indian labor market each year. Furthermore, India has the second largest English-speaking population in the world, behind the US of course.
High Quality Production: Most Indian factories produce high quality goods because they use high quality (Japanese) equipment and tools and they take pride in their work. Many Indian factories are family-run and well-known for the care and transparency of their work and business dealings. Unlike China, India does not carry the stigma of poor-quality production.
Domestic Market: India has an attractive domestic market that will be easier to enter and compete in with in-country manufacturing operations. Even if this isn’t your primary goal, it will open up a new market for you to take advantage of.

Market Drivers

Huge domestic market with rapid increasing middle class and overall population
Investment in Indian manufacturing sector has been on a rise, both domestic and foreign.
Initiative like ‘Make in India’ is aiming to make India a global manufacturing hub
Increasing share of young in the total population. India can achieve its full manufacturing potential as it looks to benefit from its demographic dividend and larger work force over a last two to three decades.

Market Restraints

Infrastructure: Infrastructure is the top most issue faced by Japanese manufacturers. Roadway pose a huge challenge for the growth of the country and successive government.

Railways projects are taking longer than that of road sector. Also, rail transport is 70% more expensive in India as compared to the United States which makes it inefficient.

Skill: The countries with high skilled labor can do much better than others. But the situation in India is very gloomy with huge skill gaps. 75% of IT graduates are deemed “unemployable‟, 55% in manufacturing, 55% in healthcare and 50% in banking and insurance graduates are deemed unemployable. As per NAAC report “the quality of education in 90% of the Universities and 70% of the colleges is below par.

MSME: The Micro, Small and Medium Enterprises of India play an important role in providing huge employment and contributing considerably in manufacturing output. Their presence in the rural areas checks the migration of workforce to urban areas.

They are the ancillary units to the large industries providing them various consumables and other services. This sector contributes nearly 45% of manufacturing output and 40% of total exports of the country and employs around 69 million persons in over 29 million units throughout the country. Despite such a big contribution from MSMEs there are various challenges still suffered by them in the areas of skill, credit, infrastructure, technology, etc.

MSMEs are the highest credit defaulters which accounts for 5% of advances for the last three years (Bhattacharya, Bruce, & Mukherjee, 2014, p. 23). Even the process of providing loans to these enterprises is costly as there is a need of intensive field work and high levels of scrutiny for the processing of each application.

The US based Entrepreneurial Finance Lab (EFL) states that there is a credit gap of 56% in the MSME finance sector in India. The Demand for the credit is around Rs. 28.03 trillion and the supply is just Rs. 10.39 trillion, as of July 2014

Exports: Exports play a major role in the growth of the manufacturing sector. But the share of India in global merchandise exports has been very low as compared to other countries like it rose from 0.5% in 1990 to 1% in 2006 and 1.8% in 2013.

Whereas the developing countries‟ share in global merchandise exports rose from 24% in 1990 to 38% in 2006 and 45% in 2013 (Frances, 2015, p. 2) Of India’s export basket, 62% comprise of manufacturing exports (as of 2013) which is the lowest among most Asian economies with China having 94%, Japan 88%, Philippines 77%, Singapore 70% and Thailand having 74% (“Make in India‟- Pressing the Pedal,” 2015, p. 5).

The major reasons behind the declining manufacturing exports are the slow rate of growth of the sector, the small share of high tech exports, inadequate infrastructure, etc.“

Industry Challenges

Manufacturing industries includes lots of different types of industries which have different types of challenges for various sector. Here is the list of industries with their challenges

Pharmaceutical industry

Quality of Medicine: The World Health Organization (WHO) appraises that up to 30 for each penny of marked medications sold in creating countries are fake which can have significant ramifications for patients. For instance, tuberculosis and Malaria fakes, which to a great extent start in India and China, are evaluated to execute somewhere in the range of 700,000 individuals every year! Forgers, like honest to goodness sedate produces, are quick to profit by assembling costs in India that are around 40 for every penny less expensive than different markets. Subsequently, India’s fake market has allegedly developed at a rate of around 25 for each penny for every annum, and speaks to a critical extent of the worldwide fake medication advertise (thought to be worth between $75 billion and $200 billion a year).
Highly fragmented industry: The Indian pharma industry is highly fragmented. The market is overloaded with generic manufacturers.
Low margin of profits due to government pricing policies– Drug Price Control Order: The main issue raised by most of the pharma companies is that the profits which they earn are basically peanuts and this income is not sufficient enough. The companies’ sight that the reforms of the Government for the essential medicines has caused them to lower the price of drugs. This has been done by the Government for the betterment of the public. So, the Government has to think of a way to promote the pharma companies as well. Funding for the pharma companies might be a way to move forward.
Low input for research and development due to pricing norms: The lower the profits for the companies, the lower the investments. So, the companies’ sight that due to the low income they are not able to develop products the way they want.
Stronger IP regulations: IP regulation has always been a thorn in the skin for the companies, especially the foreign companies. The companies strongly feel that the rules have to be amended and the so-called victim of the lax regulations have been the foreign entrants.

Steel industry

The Indian Steel Industry continues to grapple with uncertainties pertaining to the availability and consistent supplies of raw materials i.e. both coal and iron ore still remain a challenge, with the recent closure of mines in Goa adding to the woes of the industry.

Even though the marked shift from an allocation process to an auction process of getting mining blocks has brought about considerable transparency; issues pertaining to transport logistics from the mining areas need to be sorted out to mitigate lag in an evacuation of iron ore, coal, and other minerals.

Indian Steel Association has identified that “handholding” from the various state governments in such matters is very essential and has embarked upon bringing such issues to the attention of state government authorities, beginning with Odisha.

Additionally, the resolution process of debt-ridden steel companies currently underway at the NCLT shall necessitate a marked change in the structure of the industry.

Electronics industry

The inefficient supply chain for the required electronic components
The unfair playing field, since companies from competing countries (China, Vietnam, Indonesia, etc.) have access to finance at a much lower cost
Logistics inefficiencies and infrastructural bottlenecks, resulting in greater turnaround time and costs
The higher cost of infrastructure
Shortage of skilled manpower
Limited support from the government

Chemical industry

Lack of Raw Material: The raw materials or feedstock used in the organic, as well as the inorganic chemical industry, are not easily available in the market. Chief feedstock like naphtha and natural gas are available at a very high price in India as compared to other countries like the Middle East, China, and other South East Asian countries. This lack of feedstock makes India uncompetitive in the global chemical market.
Ease in Cheap Import: One of the biggest challenges faced by the Indian chemical industry is the ease in the availability of cheaper chemicals via import. The tariff and other entry barriers on the import of various chemicals have been waivered off by the Indian government. This has led to an increase in the import of different chemicals available in the global market at a much cheaper rate.
Outlying Location and Inadequate Infrastructural Facilities: The major Indian chemical industry has been set up along the west coast in Gujarat, while the highest demand for chemicals is in southern and eastern India. This gives rise to logistical transportation costs, thus increasing the overall cost of chemicals. In addition to that, there are several infrastructural problems faced by the industry. The ports do not have adequate facilities, the pipeline connectivity is quite poor, the power supply is insufficient and even the railway depots are a mess; making it difficult for the chemical industries to procure raw material from the various chemical and chemical products suppliers in India.
Complex Regulatory Issues and High Taxes: The heavy-duty tax imposed on various raw materials surpasses the tax imposed on the finished products. This discourages the Indian chemical industry from manufacturing more chemicals because of the high price of raw materials and encourages the import of the same chemicals because of negligible taxes on import of finished products. Plus, the regulatory process is very complex with a number of certificates and licenses that are required for setting up a chemical industry in India.

Automobile Industry

Low investment in Research and Development
Limited knowledge of product liability and offshore warranty handling
The limited domestic market for various components inhibiting capacity creations.
Poor infrastructure for supply chain and exports
Lack of experience in system integration

Gems and Jewelry industry

Unorganized sector: India’s gems and jewelry industry are vastly unorganized and 90% of the players having family owned businesses. However, the organized sector is also increasing. Even though the growth is slow.
Dependency on Imports: The gems and jewelry industry mainly depend on the supply of raw materials. In India, 90 percent of raw material is imported and its supply is limited. The raw material is processed to finish products to sale in the international market. Rough diamonds as raw material accounts for more than 50 percent of imports of raw material.
Changing trends: Global marketing requires a changing fashion of gems and jewelry particularly in the context of very high prices of diamond, gold, and silver. Exporters not having enough design development centers and to innovate latest designs to match with the changing trend of foreign buyers

Technology Trends

Internet of Things: Internet of Things (IoT) is everywhere, and the manufacturing sector is the leading market where Industrial IoT (llot) is significantly embraced and where most IoT investments are made.
Smarter manufacturing with artificial intelligence: Automation has consistently evolved over the past few years, helping manufacturers power and manage multiple tasks simultaneously. Artificial intelligence (AI) has been the driving force behind the new era of industrial automation, where processes are being restructured to make production decisions efficient, smarter and in real-time. Although it is just now finding its niche in the manufacturing sector, several recent developments are allowing AI to cross into the mainstream.
Predictive Maintenance is Keeping Production on Track: Predictive maintenance programs monitor equipment using any number of performance metrics. By automating the data collection process through the use of IoT technology, manufacturers can develop a better understanding of how systems work and when they will fail. The ability to predict when maintenance should be performed saves manufacturers valuable time, money, and resources.
Shifting focus from B2B to B2B2C: Many manufacturers who traditionally had a B2B business model are shifting to a B2B2C (business-to-business-to-consumer) model due to the many benefits selling directly to consumers provides including:
Increased Profit: You get the full manufacturer’s suggested retail price (MSRP) rather than wholesale prices for your products.
Faster Time to Market: You can prototype, test, and get products to market quickly instead of contending with the lengthy traditional retail sales cycle that requires locked-down product development far ahead of order and delivery. This agility gives you a competitive edge.
Brand Control: You own your brand. It won’t be diluted or misrepresented by third parties.
Price Control: You can reinforce your MSRP.
Better Customer Data: Selling direct to customers allows you to collect data about them that ultimately results in better products, stronger relationships, and increased sales.
Leveraging supply chain for competitive Advantage: Leverage simplifies supply chain management, which in turn delivers many competitive benefits. These benefits include being able to operate your business more efficiently, more visibility and control over inventory, reduction of operational costs, and improved customer satisfaction and retention.upply chain technology solutions address manufacturing needs in a variety of areas, including:
Manufacturing Optimization
Logistics Optimization
Sales and Operations Planning
Product Lifecycle Management
Business Intelligence
Network and Inventory Optimization
RFID
Procurement
Greater visibility into Big Data is helping manufacturers achieve more: IoT is transforming almost every surface into a sensor for data collection and providing real-time insights for manufacturers. This ability to collect data from so many sources combined with increasingly powerful cloud computing is finally making big data usable. Manufacturers can slice and dice data in ways that provide them with a comprehensive understanding of their business. This enables them to improve production, optimize operations, and address issues before problems arise.

Regulatory Trends

In September 2018, the Government of India exempted 35 machine parts from basic custom duty in order to boost mobile handset production in the country.
Government of India is in the process of coming up with a new industrial policy which envisions development of a globally competitive Indian industry. As of August 2018, the policy has been sent to the Union Cabinet for approval.
In Union Budget 2018-19, the Government of India reduced the income tax rate to 25 per cent for all companies having a turnover of up to Rs 250 crore (US$ 38.75 million).
Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of India increased export incentives available to labor intensive MSME sectors by 2 per cent.
The Government of India has launched a phased manufacturing programme (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
The Ministry of Defence, Government of India, approved the “Strategic Partnership” model which will enable private companies to tie up with foreign players for manufacturing submarines, fighter jets, helicopters and armored vehicles.
The Union Cabinet has approved the Modified Special Incentive Package Scheme (M-SIPS) in which, proposals will be accepted till December 2018 or up to an incentive commitment limit of Rs 10,000 crore (US$ 1.5 billion).

Other Key Market Trends

Invest India cell: An investor facilitation cell sets up by the government will act as the first reference point for guiding foreign investors.
Consolidates services and faster securities clearances: All central government services are being integrated with an e-Biz single window online portal while states have been advised to introduce self-certification. The ministry of home affairs has been asked to give all security clearances to investment proposals within 3 months.
Dedicated portal for business queries: A dedicated cell has been created to answer queries from business entities through a newly created web portal (http://www.makeinindia.com). The back-end support team of the cell would answer specific queries within 72 hours. The portal also boasts of an exhaustive list of FAQs answers.
Interactions with the users/visitors: A pro-active approach will be deployed to track visitors for their geographical location, interest and real time user behavior. Subsequent visits will be customized for the visitor based on the information collected. Visitors registered on the website or raising queries will be followed up with relevant information and newsletter.
Easing policies and laws: A vast number of defense items have been de-licensed and the validity of industrial license has been extended to three years.
With a view to providing flexibility in working hours and increased intake of apprentices for on the job training, the government plans to introduce a single labor law for small industries by December. An advisory has been sent to all departments/state governments to simplify and rationalize regulatory environment (which includes online filing of all returns in a unified form).

Market Size and Forecast

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country.

The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025 and India is expected to rank amongst the top three growth economies and manufacturing destination of the world by the year 2020.

The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors

Market Outlook

The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:

In September 2018, the Government of India exempted 35 machine parts from basic custom duty in order to boost mobile handset production in the country.
Government of India is in the process of coming up with a new industrial policy which envisions development of a globally competitive Indian industry. As of August 2018, the policy has been sent to the Union Cabinet for approval.
In Union Budget 2018-19, the Government of India reduced the income tax rate to 25 per cent for all companies having a turnover of up to Rs 250 crore (US$ 38.75 million).
Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Government of India increased export incentives available to labor intensive MSME sectors by 2 per cent.
The Government of India has launched a phased manufacturing programmed (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defense under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
The Ministry of Defense, Government of India, approved the “Strategic Partnership” model which will enable private companies to tie up with foreign players for manufacturing submarines, fighter jets, helicopters and armored vehicles.
The Union Cabinet has approved the Modified Special Incentive Package Scheme (M-SIPS) in which, proposals will be accepted till December 2018 or up to an incentive commitment limit of Rs 10,000 crore (US$ 1.5 billion)

Technology Roadmap

The manufacturing sector is increasingly undergoing innovation. Digital ways of manufacturing and supply chain management, such as artificial intelligence, machine learning, cloud computing and more, that are already established in leading global economies, are now taking a forefront in India, an economy which has till now been embedded in traditional ways of doing business.

The government’s reforms of demonetization, GST, Digital India and ‘Make in India’ has given a much-awaited digital push to the economy, tapping unexplored potential of a US$ 300 billion industry.

Distribution Chain Analysis

Investment into India’s supply chain infrastructure is gaining momentum. The introduction of the Goods and Services Tax (GST), liberalizing Foreign Direct Investment (FDI) rules, and increased government spending as helped spur growth in the sector.

India’s aspiration to become a global manufacturing powerhouse and the government spotlight on ‘Make in India’ also compels nationwide supply chain reform, prompting several federal and state-based schemes and investment incentives.

The supply chain industry has a cascading impact on almost all aspects of trade and retail. As India opens its economy further, financing the improvement of this linkage sector is vital for business growth.

A modernized and efficient supply chain improves the ease of doing business, scales down the costs of manufacturing, and accelerates rural and urban consumption growth due to better market access.

until recently, infrastructural woes had a crippling effect on the supply chain network in India. Suppliers, manufacturers, and retailers had to factor in delays in the movement of goods between state borders due to complicated taxes and transport lines running over capacity, increasing overall costs.

Competitive Landscape

During the past decade, the Indian economy focused on services rather than manufacturing. The Indian manufacturing industry was stagnant for many years, and for the 2013-2014 financial year showed a negative growth. Because of this, in 2014, the Indian Prime Minister launched the ‘Make in India’ Campaign. The aim of the ‘Make in India’ Campaign is to transform India into a global design and manufacturing hub.

In pursuit of this, India is focusing on the development of its infrastructure, increasing and/or tailoring its talent pool to the needs of the manufacturing industry, attracting investment through aggressive foreign direct investment initiatives, and increasing the ease of doing business through legal and tax reform.

Key Market Players

Ashok Leyland: Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned by the Hinduja Group. Founded in 1948, it is the second largest commercial vehicle manufacturer in India, fourth largest manufacturer of buses in the world and 12th largest manufacturer of trucks globally.
Bajaj Auto: Bajaj Auto Limited is a global two-wheeler and three-wheeler Indian manufacturing company. It manufactures and sells motorcycles, scooters and auto rickshaws. Bajaj Auto is a part of the Bajaj Group. It was founded by Jamala Bajaj in Rajasthan in the 1940s.Bajaj Auto is the world’s sixth-largest manufacturer of motorcycles and the second-largest in India. It is world’s largest three-wheeler company.
TVS motors: Tvs Motor Company is a multinational motorcycle company. It is the third largest motorcycle company in India.
Apollo tyres: Apollo Tyres Ltd is the world’s 11th biggest tyres manufacturer.
Asian paints: Asian Paints is India’s largest and Asia’s second largest paints corporation.
BPL Group: British Physical Laboratories is an Indian electronics company.