Spike in input costs, high interest rates and delay in implementing policies notwithstanding, does manufacturing in India stand a realistic chance of emerging from the shadows of the country’s services sector? If recent studies and assessments are to be believed, the answer is in affirmative. There’s belief that India has a newfound confidence in manufacturing.
In the automotive context, for several years now, global manufacturers have talked about their interest in making India a manufacturing hub for small/ compact cars. While there hasn’t been much movement up north, OEMs have found viable business possibilities through their investments in states like Tamil Nadu, Maharashtra and of late, Gujarat. The availability of sea ports has been a significant factor, for exports is top on the OEMs’ minds.
In their quest to diversify production to low-cost countries, multinationals have moved to countries beyond China. That, together with domestic demand, offers India with an opportunity to further strengthen its manufacturing sector. A recent McKinsey analysis stated that the manufacturing sector in India is likely to grow six-fold by 2025, to $ 1 tn, while creating up to 90 mn domestic jobs.
Recent results though could be counted as aberrations. A headline index designed to measure the overall health of the manufacturing sector has shown growth to be weakest in March 2012 over the last three months. Remedies lie within, experts point out. To begin with, there is a need for manufacturers in India to upgrade their competitiveness, preparing its people for the challenges ahead. There has to be a proactive approach from the central and state governments on redefining, and if required redrawing, our archaic labour laws. Land acquisition should be made simpler and infrastructure development needs a major boost.
Small cars and auto components could well lead India’s surge in manufacturing. Today, the sector contributes about 16 % to the country’s GDP, while the services sector account for 55 %. With its key competitor, China, upping the ante in software and services, can India respond with strong growth in manufacturing? Time will tell.