India's journey of independence has spanned 75 years, and now the nation stands at the threshold of a remarkable era. It is set to surpass the United Kingdom, becoming the world's fifth-largest economy, and is projected to reach a GDP of over $15 trillion by 2047, securing its place as the third-largest economy globally. In the face of a challenging global landscape, India emerges as a beacon of hope and promises to be the fastest-growing large economy in the coming decades.
What sets India apart is its unique growth trajectory. Unlike other countries where manufacturing precedes services, India has witnessed rapid growth in its services sector over the past two decades, without a significant manufacturing boom. The services sector's contribution to GDP has risen from 45 percent to 55 percent, while manufacturing has remained relatively stagnant at 15 percent in 2017 and 17 percent in 2022.
However, to achieve its ambitious target of reaching a $20 trillion economy by 2047, India must prioritize the growth of its manufacturing sector. With the right measures and diligent execution, India's manufacturing sector has the potential to reach $4.5 trillion, accounting for 22 percent of GDP (compared to a base projection of $2.5 trillion and 17 percent share in GDP). This growth in manufacturing is both a necessity and an opportunity for India to shine. Let's delve into the three crucial areas that highlight the fundamental importance of manufacturing growth.
Firstly, India's population, with roughly 800 million working-age individuals, presents both a boon and a bane. Over the next three decades, India is expected to add approximately 200 million more working-age people. Presently, manufacturing employs 50 million to 60 million people. Even with a conservative projection of $3.5 trillion output by 2047, the manufacturing sector has the potential to create an additional 85 million jobs. However, if India achieves the higher growth target of $4.5 trillion, it could generate a staggering 90 million jobs. This substantial boost in employment would not only increase income levels but also serve as a multiplier for overall economic growth.
Secondly, India's trade deficit, currently standing at about 2 percent, indicates a heavy dependence on imports. This reliance on foreign goods puts pressure on budgetary expenditures, currency stability, export competitiveness, and domestic investments. To bridge this trade deficit, India must focus on strengthening its manufacturing capabilities to increase domestic production and reduce the reliance on imports. By doing so, India can improve its economic self-sufficiency and create a more resilient and sustainable economy.
Thirdly, India's pursuit of becoming a global superpower in the geopolitically-sensitive world order necessitates self-reliance and resilience. A thriving domestic manufacturing sector plays a vital role in providing India with the platform it needs to assert its position on the global stage. By nurturing and expanding its manufacturing capabilities, India can establish itself as a self-reliant nation, enhancing its strategic autonomy and securing its economic and geopolitical interests.
Recognizing the significance of manufacturing growth, the Indian government has embarked on a wide-ranging push to bolster the sector. Significant reforms, including the introduction of the Goods and Services Tax (GST), improvements in the ease of doing business, and the implementation of Production Linked Incentive (PLI) schemes, have gained momentum. Additionally, the global reconfiguration of value chains in the post-pandemic era has presented India with a positive opportunity to become a manufacturing superpower.
To realize its full potential in manufacturing, India must focus on six key areas:
Enhancing competitiveness in sectors of strength: India already possesses strong capabilities in sectors such as pharmaceuticals, chemicals, textiles and apparel, and automotive. However, certain gaps need to be addressed, including the establishment of mega-scale facilities for large-scale exports, improvement in supporting infrastructure and ancillary services, overcoming trade integration challenges, and increasing productivity. Both public and private interventions are required to bridge these gaps and strengthen the competitiveness of these sectors.
Establishing a stronghold in next-generation sectors: As the world transitions to a green and connected future, opportunities are emerging in sectors such as renewables, aerospace, and hi-tech semiconductors. India must focus on building a solid foundation in these sectors by prioritizing research and development, investments in technology transfers, global collaborations, and incentivizing private investments. Collaboration among academia, industry, and the government is crucial to drive innovation and ensure India's presence in these high-growth sectors.
Driving a smart manufacturing stack: India's success with its technology stack, exemplified by the India Stack, demonstrates the country's capability for digital disruption at scale. Similarly, India can leap ahead in manufacturing by adopting smart industrial clusters, connected factories, and high-productivity assets. Emphasizing end-to-end value chain transparency and leveraging real-time technological interventions can be significant differentiators. The ongoing rollout of 5G technology will further enable this transformation in the manufacturing sector.
Enhancing capabilities at scale: Across industries, the lack of an industry-ready qualified workforce is a major challenge highlighted by executives. To address this issue, India needs to focus on skill development, revamp curricula in educational institutions, and create a conducive work environment for the new-age workforce. Industry leaders must spearhead skill-building initiatives, similar to how private players like NIIT and Aptech led the development of IT skills in the early days. Developing a qualified and competent workforce is essential to support the growth of the manufacturing sector.
Accelerating the transition to future-ready infrastructure: India faces inefficiencies in terms of the movement of goods within industrial value chains and high costs and lengthy transition times. The country is addressing these challenges through various interventions, including the reduction of logistics costs to 8 percent of GDP by 2030 and investments of $1.2 billion in industry-focused corridors. Time-bound execution of infrastructure projects and expansion of these initiatives are crucial to ensure a smooth and efficient transition, enabling manufacturers to compete on a global scale.
Strategic investment in Environmental, Social, and Governance (ESG) practices: With a global pool of ESG-aligned capital exceeding $120 trillion, ESG has the potential to become a differentiating factor for India. By adopting green bonds, achieving water neutrality, expanding the scope of corporate social responsibility, fostering responsible leadership, and protecting shareholder interests, India Inc. can embed sustainability as a core value proposition to fuel growth in manufacturing. Integrating ESG practices will not only attract investment but also contribute to a more sustainable and resilient manufacturing sector.
In addition to these key areas, India must navigate emerging geopolitical risks, manage the investment needs amidst a heavier fiscal burden, and address the risks associated with climate change-driven calamities. By embracing an aggressive reform agenda, aligning public and private actions, ensuring effective execution, and adeptly handling external challenges, India can make the next 25 years its golden age of manufacturing.
In conclusion, India's journey towards becoming a global manufacturing powerhouse is filled with immense potential. With its favorable demographics, focus on self-reliance, and government initiatives aimed at boosting manufacturing, India is well-positioned to seize this opportunity. By fostering competitiveness, embracing innovation, strengthening capabilities.
