FDI Opening New Avenues Of Growth For India's Manufacturing Sector

Given India's abundance in raw materials, low cost of labour and skills, and entrepreneurial abilities, the prospects to develop and make India a manufacturing hub are huge

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It is no hidden reality how the pandemic has impacted production and supply chains of goods and services across the country. With supply chains disrupted, and the fragility of operations exposed, India is now spearheading ‘vocal for local’, to reconfigure manufacturing and component sourcing abilities and depend less on imports. India’s manufacturing sector is a critical element of its gross domestic product (GDP). According to an analysis by McKinsey, India’s manufacturing-sector only contributed around 17.4 per cent to the GDP, a little more than the 15.3 per cent it had contributed in 2000.


Given India’s abundance in raw materials, low cost of labour and skills, and entrepreneurial abilities, the prospects to develop and make India a manufacturing hub are huge. Apart from the sectors in manufacturing, there are certainly new areas to drive economic growth and add more value to the GDP. With $300 billion value of GDP potential, India is cemented as a leading manufacturing destination globally. However, unlocking this value would require a significant capital investment that can only come from foreign direct investment (FDI). Here’s why global businesses and investors will look keenly to invest in the Indian market. 

Domestic sales across segments

This is one big opportunity for global manufacturers to look into consumer durables, FMCG and B2B segments such as agrochemicals, marine products and fertilizers, metals and renewable energy. Touted as segments that will pose the biggest opportunities, global manufacturers and investors will actively look to tap these segments over the next decade, bringing significant FDI prospects.


Exports and global competitiveness

‘Make in India’ for India and the world; exports present a huge future opportunity. While India has been exporting across many sectors, where it leads global production, there is a lot of scope for exports of manufactured goods from India which can easily add more than 25 per cent to the GDP. Sectors such as pharmaceutics, auto components, passenger vehicles, steel and processed goods, farm equipment and textiles will have to achieve scalability to meet international standards and attract more FDIs. Therefore, these areas will be on the radar of global businesses looking to tap the Indian market.

Atmanirbhar Bharat

India’s manufacturing also has the potential to produce and sustain its own domestic demand and compete with foreign products in segments such as electronics, capital and commercial goods, pharmaceuticals and petrochemical intermediates. The goal is to reduce India’s import bill with import substitution. An analysis by Mckinsey does suggest that efforts towards import localisation can bring down import spending by 15 per cent easily. This is where attracting the global companies to set up their base in India will be of strategic importance. These companies can bring the investment, scale of operations, technology and standards which makes the local products at par with global standards, while also calling for favourable policies that gives preference to localization.

Contract manufacturing for international markets and agencies: Given India’s massive, underutilized manufacturing capacity, it can also foresee contract manufacturing projects for international markets for many industries such as machinery and engineering, chemicals, commercial equipment, automotive and even electrical goods. Indian manufacturers could look at tolling or leasing or even contracts to utilize the idle capacities and perhaps add millions of dollars to the GDP.

For global companies looking to tap a market with over 1.3 billion heads and hearts, there could not be any more opportune time than today. In the coming years, the contribution of Make-in-India will be incremental to the country’s economic growth and GDP. With new opportunities and the drive towards localisation, India will certainly be the next global manufacturing hub, perhaps the largest in the world.