India is on a transformative journey to establish itself as a global manufacturing hub, driven by strategic policy initiatives such as the PLI scheme which is laying the groundwork for India’s manufacturing resurgence.  

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Why is Revival of India’s manufacturing essential? 

• Boost Economic Growth: Manufacturing contributes significantly to GDP and has the potential to elevate its share from 17% to 25% by 2030-31.
• Create Jobs: The sector can absorb a large workforce, particularly in labor-intensive industries and MSMEs, addressing unemployment challenges.
• Reduce Import Dependency: Strengthening domestic manufacturing reduces vulnerability to global supply chain disruptions and trade imbalances.
• Promote Inclusive Growth: Reviving manufacturing can drive equitable regional development and increase women’s workforce participation.
• Enhance Global Competitiveness: A robust manufacturing base positions India as a key player in global value chains.

Achievements of the PLI Scheme

The Annual Survey of Industries (ASI) for 2022-23 provides compelling evidence of the PLI scheme’s impact. Key findings include:

• Robust Manufacturing Growth: Manufacturing output grew at an impressive 21.5%, while the gross value added (GVA) increased by 7.3%.
• Sectoral Contributions: Industries such as basic metal manufacturing, coke and refined petroleum products, food products, chemicals, and motor vehicles contributed 58% of India’s total manufacturing output. 
  • Collectively, these sectors, many under the PLI scheme, grew at an impressive rate of 24.5%.

These outcomes indicate a strong recovery in the manufacturing sector, marking a steady return to pre-pandemic growth levels.

Challenges in the Manufacturing Sector

• Cumbersome Licensing Processes: Lengthy and bureaucratic procedures for obtaining licenses create delays and discourage investments.
• Ineffective Contract Implementation: Weak enforcement of contracts undermines investor confidence and hampers growth.
• Slow Overall Growth: Despite potential, the sector’s expansion remains sluggish due to structural and operational inefficiencies.
• Gap Between Output and GVA Growth: The significant gap between manufacturing output growth (21.5%) and GVA growth (7.3%) in 2022-23 highlights a critical issue: soaring input costs, which increased by 24.4%. 
  • While production volumes are rising, industries are grappling with reduced profitability due to high raw material expenses(input costs).

Way Forward

• Restructuring the Tariff System: Restructuring the import tariff system for raw materials, intermediates, and final goods can help maintain competitiveness and better integrate Indian manufacturing into global value chains.
• Expanding the PLI Scheme: To maximize its impact, the PLI scheme should be extended beyond traditional industries to include:
  • Labor-Intensive Sectors: Apparel, leather, footwear, and furniture.
  • Sunrise Industries: Aerospace, space technology, and Maintenance, Repair, and Overhaul (MRO).
  • High Import-Dependency Sectors: Capital goods with untapped domestic potential.
• Fostering Research and Development: Incentivizing research and development in green manufacturing and advanced technologies can improve sustainability and competitiveness. This would position India as a leader in environmentally responsible production.
• Reducing Imports to Decrease Vulnerability: Reducing reliance on imports, especially in critical sectors, will mitigate vulnerabilities from global supply chain disruptions and trade imbalances.
• Boosting MSMEs: Micro, Small, and Medium Enterprises (MSMEs) contribute 45% of manufacturing GDP and employ around 60 million people. 
  • Tailoring PLI incentives for MSMEs by lowering capital investment thresholds and easing production targets would:
    • Enable MSMEs to scale operations.
    • Foster innovation.
    • Integrate them effectively into larger value chains and enhance international connectivity.
• Enhancing Women’s Workforce Participation: Increasing female workforce participation can boost manufacturing output, with the World Bank estimating a 9% growth for India. 
  • To achieve this, industries should develop infrastructure like hostels, dormitories, and childcare near factories and adopt supportive policies, as demonstrated by Apple’s efforts to empower women in its Indian units.
• Addressing Regional Imbalances: The concentration of manufacturing activity in a few states. 
  • Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh account for over 54% of total manufacturing GVA and 55% of employment. 
  • This regional imbalance hampers equitable development. To address this:
    • State-Level Reforms: Streamline land, labor, and power markets to attract investments.
    • Infrastructure: Enhance connectivity and logistics in underserved regions to boost industrial growth.
    • Active Role of States: Foster balanced and inclusive manufacturing ecosystems through proactive state participation.
• Ease of Doing Business: Streamline regulations to reduce bureaucratic hurdles, making it easier for businesses to operate and expand.
  • Simplify tax regimes, improve logistics, and provide affordable energy to reduce the overall cost of doing business.
• Policy Continuity: Maintain and expand the PLI scheme, addressing emerging challenges to ensure continued support for the manufacturing sector’s growth.

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Conclusion

For India to transform into a developed economy by 2047, the manufacturing sector must play a pivotal role. The Confederation of Indian Industry (CII) projects that the manufacturing sector’s share in GVA could rise from 17% currently to over 25% by 2030-31 and 27% by 2047-48 with sustained efforts.

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