Can Budget 2023 help boost India's manufacturing ambitions amid cooling external demand?

The Narendra Modi government in the last few years has cemented its intentions of making India a manufacturing hub for the world with the Make in India campaign. However, global demand for goods is cooling amid a slowdown thereby putting the manufacturing sector under pressure and as a result, India’s exports might take a hit.

The Centre may need to tweak its policies in the upcoming Budget to address these concerns as it stands to take a toll on India’s export revenue and hamper economic growth.

Analysts have suggested that the manufacturing sector is likely to be impacted by the lower external demand amid global slowdown. The downtrend in the global economy can be attributed to multiple headwinds including geopolitical tensions and rising commodity prices due to elevated inflation. Global trade lost momentum in the first six months of 2022 owing to these factors.


The Modi-led government has been aiming to make India a global manufacturing hotspot, however, low external demand may turn out to be a stumbling block.

The export-intensive sectors of India, including gems & jewellery, ceramic & glassware, leather & leather products, drugs & pharmaceuticals, engineering & electrical goods and textiles & garments, are likely to be hit majorly amid a global slowdown in world trade.

Sectors like textiles and garments, gems & jewellery and leather products are highly labour-intensive as well. Hence, a slowdown in these sectors will have implications for the overall employment scenario in the economy as well, suggested the report.

Stakeholders from these export-intensive industries have been making some demands ahead of the budget. The Council for Leather Exports (CLE) demanded reinstatement of basic customs duty exemption on wet blue crust and finished leather to boost the shipments.

It also suggested to reinstate and maintain at 40 per cent export duty on raw hide and wet blue, besides permitting exports of crust leather of all types without any export duty.

In addition, the commerce ministry has also sought a cut in the import duty on gold in the upcoming budget. The decision comes with a view to push exports and manufacturing of the gems and jewellery sector.

See also: Budget 2023: Key dates you should keep in mind

India’s merchandise exports have also shown weakness in midst of the global slowdown.

“Overall merchandise exports during the last three months (September-November period) contracted by 2.5% y-o-y as against a growth of 16% y-o-y in the previous three months. The double-digit export growth during the June-August period can be partially attributed to high global commodity prices.”

India’s export destinations facing tough times
The surge in Covid-19 cases in major economies like China and the US are certainly going to disrupt the outbound shipments from the Indian markets.

Given that India has a large trade deficit with China, worsening growth prospects in China are worrying for the Indian economy. Moreover, with the US and EU slowing down, India’s trade surplus with these regions has also been falling.



Other significant factors which affect the trade, including movement of goods, adequate availability of containers and shipping lines, demand, stable currency and swift functioning banking systems, are also in a cluttered state.

India is likely to bear the consequences of these headwinds tampering growth of its major export destinations.

Lower demand worries to continue
The high raw material costs affected India’s manufacturing sector.

“The manufacturing sector GVA contraction of 4.3% in Q2 FY23 was worse than expected,” said the CareEgde report.

The commodity prices have remained up globally due to high levels across the countries. India’s lower external demand was also reflected by a sharp contraction of 4% in the IIP data for October 2022.

As we move into 2023, the external environment is likely to remain challenging, with major economies projected to record a sharp deceleration in growth if not a recession. This, in turn, means that India’s external demand may remain weak.

“The tightening of financing conditions globally will continue to impede growth while causing volatility in the financial markets. Given the volatile and uncertain global environment, India’s economy will have to brace for tough times ahead,” stated the report.

The FY24 budget is going to be the most significant one for the ruling government as it will be the last full budget before 2024 general assembly elections. It is expected to be centered around capital expenditure as a growth driver and give an impetus to manufacturing while continuing with the post-pandemic fiscal consolidation.