The Manufacturing Sector: Growth Story of India

FACTORS THAT ARE EXPECTED TO IMPROVE INDIA’S ATTRACTIVENESS COMPARED TO REGIONAL ALTERNATIVES By 2031, India will add 97 million people (22 percent share) to the world’s working population 12 . With second largest labor workforce (among its South-Asian peers) currently, India can become a hub of skilled manufacturing workforce that is also cost competitive.

ALTERNATIVE LOCATIONS WITHIN APAC

• VIETNAM - Vietnam has successfully managed to raise its manufacturing share in GDP fromunder 17% in 2010 to above 25% as of 2022. In its master plan 2030, the country has planned many infrastructure developments across road, rail, air and sea transport. The World Bank’s Ease of Doing Business rank for Vietnam improved from 78 in 2015 to 70 as of the last reported year 2020. With a proactive stance by government, in 2022, the manufacturing sector accounted for 60.6% share of total FDI inflow of USD 15.8 billion. Electronics and Automobiles were key sectors in FDI investments 3 . According to Brooking Institute 4 , Vietnam is expected to be the 18 th largest global consumer market by 2030, with close to 56 million consumers. • THAILAND - Contribution of the manufacturing sector in country’s GDP has been hovering in a healthy range of 26-30% for almost a decade. Ease of Doing business rank for Thailand improved from 26 in 2015 to 21 in 2020. In 2022, Electronic & Electrical appliance sector and automotive sectors were the two large sectors attracting 20% of the total manufacturing FDI (or close to USD 3.6 billion out of a total USD 18 billion FDI Inflow) 5 . According to Brooking Institute, Thailand is poised to become the 17 th largest consumer market by 2030, with more than 60 million 6 consumers. • MALAYSIA - The GDP contribution of manufacturing sector in Malaysia was at 23% in 2021. This share remained in the range of 21-23% over the last decade. 7 The Ease of Doing Business rank for Malaysia has improved from 18 in 2015 to 12 in 2020. In the year 2021, 61.4% of the total USD 10.7 billion FDI flows in the country was directed at the manufacturing sector, particularly towards electrical & electronics, and transport equipment category 8 . In 2022 (January to September), Manufacturing FDI recorded ~USD 14 billion 9 . According to Brooking Institute, Malaysia is expected to be the 30 th largest consumer market by 2030. • INDIA - Contribution of the manufacturing sector in India’s economy remains relatively under-penetrated at close to 15.8% in 2021, thereby stagnating in the range of 13-17% in over two decades. However, India’s Ease of Doing Business (EODB) rank has steadily improved from 143 in 2015 to 63 as of 2020. In FY-22, the manufacturing sector attracted close to USD 21.34 billion (INR 1,756 Bn) of investment. 10 The policy push to uplift the sector through Production-Linked Incentive (PLI) scheme is likely to increase up FDI inflows into manufacturing in the coming years. As per the Brooking Institute 11 , India is estimated to currently have the second largest consumer base in the world, with close to 473 million consumers.

LABOUR FORCE AND MANUFACTURING WAGES IN SOUTH ASIA AND CHINA (2022)

900

793.8

8

800

7

700

7.1

6

600

4.7

5

500

471.3

4

400

2.6

3

300

Labour Force (mn)

Manufacturing Wage ($/hr)

1.6

1.5

2

200

139.2

1

100

56.2

43.8

39.1

1

16.3

0.8

0

0

China

India

Indonesia

Vietnam

Philippines

Thailand

Malaysia

Labour Force (mn)

Manufacturing Wage ($/hr)

Source: Morgan Stanley analysis, 2022 13

IMPROVED RANKING IN EASE OF DOING BUSINESS In the World Bank’s Ease of Doing Business Report, India had significantly improved its rank from 143 in 2015 to 63 rank as of latest survey available in 2020. This was the biggest jump witnessed among comparable nations, indicating a proactive approach taken by the Indian government to make business climate favorable for global manufacturers.

EODB RANK 2015

EODB RANK 2020

DIFF (+/-)

143

63

+80

India

114

73

+41

Indonesia

3 Ministry of Planning and Investment, Vietnam - FDI Investments Update 2022 4 Brooking Analysis: Top 30 consumer markets of this decade-2021 5 PR Newswire - FDI Investments in Thailand 6 McKinsey 2021 analysis

78

70

+8

Vietnam

95

95

-

Philippines

7 World Bank Data - GDP Contribution of Manufacturing Sector in Malaysia 8 Malaysian Investment Development Authority - Article on FDI inflows in Malaysia 9 Malaysian Investment Development Authority - Article on Investments in Malaysia 10 Press Information Bureau-Ministry of Commerce and Industry-dated Jul 2022 - Trends on FDI inflows in India 11 China and India: Future of Global Consumer Market: Brookings

26

21

+5

Thailand

18

12

+6

Malaysia

90

31

+59

China

12 Morgan Stanley Analysis of data from Euromonitor, the World Bank, International Labor Organization (ILO) and United Nations Industrial Development Organization (UNIDO) | 13 Business Standard article dated Nov-2022

14

Cushman & Wakefield

The Manufacturing Sector Growth Story of India

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