The Manufacturing Sector: Growth Story of India

2 . EVOLUTION OF MANUFACTURING: FROM LIBERALIZATION TO ‘MAKE IN INDIA’

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INTRODUCTION

The contribution of manufacturing sector to India’s GDP has remained relatively low for an extended period, hovering around 15-16%. Recognizing the need to diversify its economic landscape and create more employment opportunities, the Indian government has taken proactive measures to revitalize the manufacturing sector. Key initiatives such as the “Make in India” campaign and the “Production-Linked Incentive (PLI)” scheme have been introduced to foster a favourable environment for both domestic and foreign manufacturers. The importance of prioritizing the growth of the manufacturing sector in India extends beyond economic diversification. It holds great significance in terms of job creation, especially for the country’s burgeoning youth population. By nurturing the manufacturing sector and providing targeted training programs, India can absorb a significant portion of its semi-skilled labour force and offer them meaningful employment opportunities. This not only addresses the challenge of potential unemployment but also harnesses the demographic dividend, enabling sustainable and inclusive growth. India’s services sector currently constitutes a major portion of the country’s GDP and has been a significant contributor to its economic growth. However, the dominance of this sector, primarily driven by the IT BPM industry, has posed challenges for India’s labour force, particularly its growing population of young individuals with semi-skilled competencies. Without sufficient opportunities in the manufacturing sector, there is a risk of unemployment and underutilization of this vital resource. India’s significance as an alternativemanufacturing destination has become even more pronounced in recent times, given the global reliance on China and the need to adopt a China+1 diversification strategy. The COVID-19 pandemic and geopolitical tensions have exposed the risks associated with overreliance on a single country for manufacturing. As a result, many advanced economies are actively seeking alternative locations to mitigate these risks and diversify their supply chains. India, with its vast market potential, favourable policies, and competitive advantages, has emerged as a compelling option for global manufacturers. Moreover, the growth of the manufacturing sector also presents unique opportunities for the real estate industry. As the manufacturing sector expands, there is an increased demand for industrial and logistics spaces, creating prospects for real estate development, particularly in peripheral areas surrounding major cities. This symbiotic relationship between manufacturing growth and real estate development underscores the potential for mutual progress and economic advancement. The recent upswing in the industrial and logistics segment within the Indian real estate space serves as a precursor to what lies ahead. At Cushman & Wakefield, we are closely watching these developments and look forward to witnessing the growth narrative unfold. We hope this research paper provides our readers with an insightful exploration of the manufacturing growth story in India.

What started-off as an effort to arrest factories moving-out to more competitive locations globally, India is today attracting global manufacturers to set-up their base in the country basis availability of skilled labor and pro-active government support.

EVOLUTION OF MANUFACTURING POLICIES IN INDIA

PRE-1990 PRE-LIBERALIZATION • Bureaucratic control on production, trade, and investments in manufacturing • Highly regulated market • License on quantitymade. FDI inflow formanufacturing sectors restricted to 40% to certain large and heavy industries • Exports were not encouraged; Focus was on meeting domestic demand

1991-2014 POST LIBERALIZATION • Limited focus on growth of manufacturing. Polices largely focused on growth of services sector • Reduced restriction on industries • Except for certain critical areas like defence, FDI limits were gradually increased to almost 100% • Policies focused to sustain manufacturing and reduce dependency on imports 2014 - TILL DATE - MAKE IN INDIA • Higher focus on manufacturing and increasing its growth (to raise GDP share from average 17% currently to 25% by 2025) • Manufacturing GDP grew at 5% CAGR during 2015-21 to USD 0.44 Trn • Increased focus on improving ease of doing business and attract more FDI inflows (Ease of doing business ranking for India improved from 142 rank in 2015 to 63 rank in 2020) • Focus on improving export volume of many goods (Merchandise export)

• 2016 Exports – USD 267,951 Mn (INR 22,048 Bn)* • 2021 Exports – USD 395,425 Mn (INR 32,496 Bn)

*Source – WTO Merchandise Exports Database

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Cushman & Wakefield

The Manufacturing Sector Growth Story of India

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