India's ambitions to become new-age factory of the world to get Budget boost
Union Budget 2023: India's economy boomed on the back of its services sector taking off in a big way mainly driven by the IT/ITeS space. Manufacturing was always given a short shrift in a country of a billion plus people with a burgeoning youth po...
India can establish its manufacturing prowess in new-age sectors and become a strong claimant to the title of new age manufacturer of the world
India needs jobs. There is no doubt about that in a country with nearly 1.4 billion people. However, what India needs first are factories. Jobs aren't created out of thin air.
India's economy boomed on the back of its services sector taking off in a big way mainly driven by the IT/ITeS space. Manufacturing was always given a short shrift in a country of a billion plus people with a burgeoning youth population wanting jobs.
The big shift came in the form of the Modi government's Make in India push emphasising the need to pull manufacturing out of the morass it had been for long. The PLI scheme announced in 2020 acted as the perfect booster and the results have started trickling in.
One only needs to look at the exports of Apple iPhone from India that have surged to record levels. Apple intends to turn India into a major manufacturing and export hub and its contract manufacturers have ramped up their focus on India.
The prescience of the PLI scheme can be gauged from the number of new-age sectors for which it has been implemented. That's a big positive going forward as the world speeds up transition to more greener sources of energy.
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That is also where a lot of jobs would be created as India becomes the new-age factory to the world.
"The government has meticulously selected a diverse set of sectors for PLI incentives. It has selected multiple new-age sectors such as mobile phones, Advance Chemistry Cell (ACC) batteries, high efficiency solar PV modules, drones, wearables, semiconductors and specialty steel. To be sure, 74% of the government incentives are directed towards these new-age sectors. These new-age sectors would help India to gain prominence as a manufacturing hub and become a leader in industry 4.0," said Hetal Gandhi, Director - Research, CRISIL.
India can establish its manufacturing prowess in these new-age sectors and become a strong claimant to the title of new age manufacturer of the world. This will also help India in taking a leadership position in sectors that will see a demand boom globally and move up the value chain in exports.
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"With 74% of the government incentives directed towards new age manufacturing sectors, the Government is positioning India as a contender for becoming the new age factory of the world. Furthermore this will also aid exports of new age technologies and products from India providing a leg up for attaining the 1 trillion dollar export target outlined by GOI. To be sure, PLI sector linked exports would account for 45-50% of incremental exports from India," Gandhi added.
One of the issues faced by global manufacturers is a limited supplier base in the country due to which the reliance on imports goes up creating unnecessary bottlenecks.
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"Strengthening the supplier base and increasing the amount of sourcing from India would create a strong manufacturing ecosystem and streamline the manufacturing supply chain in India. This would boost India’s attractiveness as a manufacturing hub, enable higher investments and enhance the success rate of the PLI scheme," Gandhi said.
Skilling in the right direction
Apart from incentive-based schemes like PLI, the government should allocate more funds to upskilling and vocational training in the upcoming Budget 2023-24. This is required to further sharpen the skills that are needed for new-age sectors that will drive the next leg of manufacturing growth.
"India is blessed with a massive workforce; however our labor productivity lags behind other emerging Asian countries. The government should increase allocation to skill development and vocational training efforts," said Ritika Chhabra, Quant Macro Strategist, Prabhudas Lilladhar PMS.
Not just that, India needs to remove the cobwebs that shackle the growth of businesses that want to grow. The Modi government has done well in improving the ease of doing business. There are areas like contract enforcement where improvement can instill confidence in investors as they plan to shift production away from China.
"The government’s continued focus on improving ease of doing business will attract more domestic and foreign participation in setting up new businesses. While India’s ranking has jumped from 142 in 2014 to 63, further improvement will attract more investments," Chhabra added.
Exporting our way to growth
In addition to India's vast domestic market, manufacturers look for the lucrative exports market before setting up production units. India's manufacturing exports are expected to touch $1 trillion by 2027-28, according to a Bain & Company report.
India needs to work on trade pacts to make exports lucrative for companies as they plan to diversify their production. FTAs could be the magnate for manufacturers to make those key production decisions.
India's share of exports in global trade is a mere 1.6%. FTAs will help integrate India into key global supply chains as they get reworked.
Centre's other key initiatives like the PM Gati Shakti and National Logistics Policy will provide the facilitating environment for India's manufacturing ecosystem to boom.
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