Growth of Industry in India

Industry or the secondary sector of the economy is another important area of economic activity. After independence, the government of India emphasized the role of industrialization in the country’s economic development in the long run. Accordingly, the blue print for industrial development was made through the Industrial Policy Resolution (IPR) in 1956.

In 1956, the government focused on building heavy industries, led by the public sector. This move aimed to ease the pressure on agriculture, boost consumer goods production, and support small industries, ultimately aiming for self-reliance.
Following the 1956 policy, there was significant industrial growth in the late ’50s and ’60s, particularly in the public sector. However, by the late ’60s, there was a decline in industrial investment, impacting growth.
The 1980s saw a reversal of this trend, with increased investment in industries. The focus was on strengthening infrastructure, such as power, coal, and railways.
By the early ’90s, it became evident that public sector undertakings were not performing well, leading to reports of mismanagement and financial losses. In response, in 1991, the government initiated liberalization, allowing greater private sector involvement and international competition.
Liberalization, Privatization, and Globalization (LPG) Model: The LPG model, introduced in 1991, aimed to enhance industrialization by encouraging private sector participation, dismantling rigid licensing systems, and opening doors to global players.
Post-1991, there were phases of growth, driven by increased infrastructure investment, reduced excise duty, and improved access to finance. However, by the late ’90s, growth slowed due to international competition and inadequate infrastructure support.
Between 2002 and 2008, there was a recovery, attributed to an increase in the savings rate and competition from foreign companies. Domestic companies adapted by enhancing internal strengths like quality control and customer care.
After 2008-09, industrial growth faced challenges due to rising petroleum prices, increased interest rates, and higher borrowings from abroad, leading to financial burdens for domestic companies.

Market Size

In the financial year 2020-21, the manufacturing sector contributed significantly to the economy, with a gross value added (GVA) of US$ 348.53 billion, according to the second advanced estimates. The IHS Markit India Manufacturing Purchasing Managers Index (PMI) showed positive growth, reaching 55.5 in April 2021.
Interestingly, manufacturing GVA makes up 19% of the country’s real gross value added, underlining its importance. A recent survey indicates that the capacity utilization in India’s manufacturing sector was at 66.6% during the third quarter of FY21, showcasing the industry’s resilience.
Looking at the Index of Industrial Production (IIP), the manufacturing component recorded a value of 116.9 between April 2020 and March 2021. This reflects the sector’s substantial contribution to overall industrial output in the country.
In March 2021, the industrial output, as measured by the IIP, stood at 143.4, according to the Ministry of Statistics & Programme Implementation. These figures collectively highlight the robust performance and significance of the manufacturing sector in India’s economic landscape.

Investments

With the push from the Make in India initiative, India is making significant strides toward becoming a hub for advanced manufacturing. Global giants like GE, Siemens, HTC, Toshiba, and Boeing have either established or are in the process of setting up manufacturing plants in India, drawn by the vast market of over a billion consumers and increasing purchasing power.
In May 2020, the Indian Government raised the cap on foreign direct investment (FDI) in defense manufacturing under the automatic route from 49% to 74%, aiming to attract more international investments.
India has emerged as an attractive destination for investment in the manufacturing sector, with a total FDI inflow of US$ 81.72 billion in FY21, marking a 10% year-on-year increase.
On February 16, 2021, Amazon India revealed plans to manufacture electronic products in the country, starting with the production of Amazon Fire TV sticks. The manufacturing is set to commence by the end of 2021 in collaboration with Cloud Network Technology, a subsidiary of Foxconn, located in Chennai.
Samsung, in April 2021, initiated the production of mobile display panels at its Noida plant and has intentions to expand manufacturing to IT display panels. The company invested Rs. 4,825 crore (US$ 650.42 million) to relocate its mobile and IT display manufacturing plant from China to Uttar Pradesh, receiving special incentives from the state government.
Bharti Enterprises Ltd. and Dixon Technologies (India) Ltd. joined forces in April 2021 to leverage the government’s Production-Linked Incentive (PLI) scheme for manufacturing telecom and networking products.
Godrej Appliances, in April 2021, introduced a range of air conditioners made in India. The company plans to invest Rs. 100 crore (US$ 13.48 million) in its manufacturing units located in Shirwal and Mohali to increase AC production capacity to 8 lakh units by 2025.

Government Initiatives

The government has given the green light to a scheme supporting the setup of 16 plants for crucial pharmaceutical components. This initiative, with a total investment of Rs. 348.70 crore (US$ 47.01 million), is set to create around 3,042 jobs. The plants are expected to kick off commercial operations by April 2023, contributing to the growth of the pharmaceutical sector.
In a bid to strengthen the smartphone assembly industry and enhance the electronics supply chain, the government announced a substantial cash injection of US$ 1 billion for semiconductor companies establishing manufacturing units in India. This move is aimed at boosting local production and fostering technological advancement.
The upcoming Union Budget for 2021-22 is anticipated to play a pivotal role in fostering India’s domestic growth across various sectors, including manufacturing and trade. A significant focus is on developing a robust infrastructure, logistics, and utility environment to support the manufacturing sector’s expansion, signaling a commitment to overall economic development.

Some of these initiatives are as follows:

In May 2021, the government gave the nod to a scheme worth Rs. 18,000 crore (US$ 2.47 billion) to produce advanced chemical cell (ACC) batteries. This move is expected to bring in investments worth Rs. 45,000 crore (US$ 6.18 billion), making India a global hub for clean energy.
The demand for grain-oriented electrical steel sheets is soaring in India, thanks to the growing need for electric power and the rise of renewable energy. In May 2021, JFE Steel Corporation teamed up with JSW Steel Limited to explore setting up a joint venture for manufacturing and selling these steel sheets in India.
TEMA and ICCC joined forces in May 2021 to boost manufacturing and investments in sectors like ICT and telecom. Their collaboration aims to support the ‘Make in India’ and ‘Self-reliant India’ initiatives.
India’s display panel market is projected to jump from around US$ 7 billion in 2021 to a whopping US$ 15 billion in 2025, signaling significant growth opportunities.
The Mega Investment Textiles Parks (MITRA) scheme aims to build top-notch infrastructure, fostering global industry champions. Over the next three years, seven Textile Parks will be established, benefiting from economies of scale.
The government plans to invest substantially in modern fishing harbours and fish landing centers, with a focus on locations like Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat. Additionally, a multipurpose Seaweed Park is in the works in Tamil Nadu to boost exports from the textiles and marine sectors.
Operation Green Gets a Boost: The Ministry of Food Processing Industry expanded the ‘Operation Green’ scheme from covering just onions, potatoes, and tomatoes to 22 perishable products. This move aims to encourage exports from the agricultural sector, facilitating infrastructure projects for horticulture products.
In the Union Budget 2021-22, Rs. 1,000 crore (US$ 137.16 million) was allocated to support the welfare of tea workers, particularly women and their children. Around 10.75 lakh tea workers, including 6.23 lakh women in large tea estates in Assam and West Bengal, stand to benefit from this initiative.

Road Ahead

India has become a magnet for foreign investments in manufacturing, attracting major players in mobile phones, luxury goods, and automobiles. Many of these brands have either already established or are actively considering setting up their manufacturing units in the country.
The manufacturing sector in India holds tremendous potential and is poised to reach a significant milestone of US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) is a game-changer, transforming India into a unified market with a substantial GDP of US$ 2.5 trillion. The sheer size of the market, with a population of 1.32 billion people, is a compelling draw for investors.
According to the Indian Cellular and Electronics Association (ICEA), strategic policy interventions could propel India’s cumulative laptop and tablet manufacturing capacity to an impressive US$ 100 billion by 2025.
The government’s focus on developing industrial corridors and smart cities is a key strategy for ensuring comprehensive national development. These corridors not only aim to integrate and monitor industrial activities but also create a conducive environment for manufacturing advancements. The vision is to foster innovative practices in manufacturing and promote overall industrial development.

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