Manufacturing sector is one of the highest growing sectors in Indian economy. India accounts for around 1.8 percent of global manufacturing output. Prime Minister of India, Mr Narendra Modi had launched an exclusive program called as ‘Make In India’ to provide a global recognition for the development of manufacturing sector.
It’s an initiative to welcome investments into the sector in order to ease procedures and bring exponential growth. In recent times, the improved efficiency of the manufacturing companies has influenced profits in the sector which is a positive sign for its growth in India’s future.
Factors influencing the growth of manufacturing sector in India:
- Foreign Direct Investment
This investor-friendly policy has opened the floodgates for a large number of investments in the country which has boosted the manufacturing production. 49 percent FDI is allowed in the defence industry whereas 100 percent is allowed in the private sector. Services, chemicals, power industry, textiles industry, computer software & hardware, automobile industry, drugs & pharmaceutical industry, etc. are the industries which have grabbed FDI in higher proportion.
Big players of the global market are keen to target the burgeoning economy of India. The nation has benchmarked its higher growth trajectory that has received global recognition. The manufacturing sector of India is poised to become the third largest global manufacturing hub by the year 2020.
FDI has also boosted the overall sectors that supportively contribute in the manufacturing sector’s development. The massive retail space and strong domestic consumerism of the nation is able to attract large number of foreign investments. The performance of India’s foreign trade has been better in the recent times. India is expected to boost its export trade due to the major developments in manufacturing sector boosted by FDI.
- Government Schemes and Incentives
Apart from ‘Make In India’, Indian government has launched several schemes in order to boost the economy and bring it at a global level. ‘Skill India’ is one of those schemes where the government focuses on a multi-skill development programme with an objective for availing employments as well as entrepreneurship for all socio-economic classes. It focuses on providing skilled labour to the industries operating in India.
It’s a mission to enhance employments for the youth on the basis of skill development and providing workforce mobility. While ‘Make In India’ and ‘Skill India’ are burgeoning the economy, other schemes like ‘Digital India’ are also boosting up opportunities in the manufacturing sector progressively contributed by online retail and e-commerce.
Government offers certain incentives and concessions to the manufacturing sector to boost the overall industrial output of the nation. It provides sector specific subsidies to the industries dealing in a particular sector. Incentives are provided for industrial units working in SEZ or NIMZ zones in respective operations or setting up a new project in special states of North East Region, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.
Indian government provides higher weighted deductions of 200% on expenditure related to Research & Development. It also provides incentives like duty drawback, duty remission schemes, etc. under foreign trade policies to boost the export trade business.
The states have separate policies for different manufacturing sectors. The state governing bodies of India provide certain incentives which are mainly rebated land cost, relaxation in stamp duty, power tariff incentives, investment subsidies, tax incentives, backward area subsidies, special incentive packages for mega projects, concessional rate of interest on loans, etc.
- Major Economic Reforms
As the second decade of 21st century arrived, India has welcomed major economic reforms to advance its regulatory mechanism and facilitate the industries to boost the overall manufacturing output of the nation by eliminating the barriers in the path to sustainable growth. Following are the significant reforms-
Demonetisation is a memorable experience for the citizens of India. The government banned the use of Rs 500 and Rs 1000 denominations and disturbed the whole economy. It introduced a new denomination of Rs 500 and Rs 2000 eliminating Rs 1000 denomination permanently from the Indian economy. Nearly 90% of the total cash in circulation came back into the banking system.
Demonetisation transformed the economic scenario throughout the nation. It created a situation where lack of currencies jammed investment, consumption, production, employment, etc. Technically, it is a liquidity shock to the economy having a short-term effect.
Demonetisation has given short-term difficulties to the economy along with long-term benefits. Apart from destroying the counterfeit currency system in the country, demonetisation has enabled more transparency within the monetary system. It helped in reducing the volume of black money as well.
One of the biggest advantage of demonetisation is that people got aware about the cashless economy. Digital transactions are in huge demand and India is moving towards as a better economic nation with more convenience in transactions.
- Real Estate Regulatory Authority (RERA)
RERA stands for Real Estate Regulation Authority, a proposed government organisation to control and regulate the activities in real-estate sector. The RERA bill will bring clarity and transparency in the sector for both buyers as well as developers. The government will control the real-estate sector by certain measures and rules in order to boost business opportunities and attain sustainability. This historical amendment is considered as a key-reform in the Real Estate industry.
- Motor Vehicle Amendment Bill
The Transport sector of India has welcomed a new act that got recently passed in the Loksabha. The previously amended Motor Vehicle Act of 1988 is reformed with some new regulations. It’s a draft legislation to amend the Motor Vehicles Act to impose strict penalties on traffic rules violations. Its main objective is to protect the people of India from legal harassment. It is also focused on bringing significant transformation in the transport mechanism and obligations to bring more ease in the sector.
GST stands for Goods and Services Tax. It is considered as the biggest taxation reform in the history of Indian economy. It will subsume multiple taxes like VAT, Service Tax, CST, excise and additional excise duty, entertainment and luxury tax, etc. It is a single uniform taxation system which will help in eliminating time, cost and effort.
GST will transform Indian economy turning it into one common market based on a uniform taxation system. It will enhance the ease of doing business in India. Industries will make big savings in terms of logistics and supply chain due to GST. Some companies will benefit more as the GST rate will be lower than the current taxation. On the other hand, few sectors will have to pay more tax as GST will replace the old taxes uniformly, which may increase the rate respectively.
Logistics hubs will be able to develop on the basis of connectivity rather than state boundaries due to tax parity. The chances of crossing over tax jurisdictions in supply chain will become negligible as GST offers a tax-neutral environment.
The urban population is growing and developing economically. Around 35 cities in India are having million plus population. With such impeccable manpower, the industrial sector is rising rapidly and it has influenced the development of infrastructure as well. Conventional infrastructure to regulate transport and logistics and proper supply of power & electricity have improved the corporate sector performance.
Major development programs and upcoming mega-projects of smart cities have enabled the higher growth trajectory of India in terms of infrastructure. The logistics and supply chain of India is highly upgraded due to the emergence of big industries that have set up their branches and manufacturing units throughout the nation.
- Industrial Parks
Every state in India have developed special industrial parks which has enabled the industries to work in a dynamic environment for progressive growth.
- National Investment & Manufacturing Zones (NIMZ)
NIMZ are the special zones with the combination production units, public utilities, logistics, residential areas and administrative services. It provides a specific processing area to the industries where manufacturing facilities are available along with associated logistics and other services located nearby a non-processing area of residential, commercial and other social and institutional infrastructure.
- Special Economic Zones (SEZ)
India has also developed special economic zones that are treated as an international territory for the purpose of industrial, service and trade operations provided with less taxation and custom duties and a more liberal regime in respect of other levies and foreign investment.
- Sector specific clusters
The Government of India has developed sector specific parks that focus on a specific sector like electronic manufacturing clusters and mega food parks. It provides an incredible environment for the industries dealing in a specific sector to operate in a more progressive and competitive trajectory with co-operated support.
- Country specific zones
There are also few country specific zones that focus on industrial units of foreign nationals. For example- Neemrana Japanese Zone.
- Industrial corridors
Government is focusing on the development of various industrial corridors between several regions by utilizing the infrastructure and supply-chain. The Delhi-Mumbai Industrial Corridor (DMIC) is being developed rapidly as a global manufacturing and investment destination. It utilizes the 1,483 km long, high-capacity western Dedicated Railway Freight Corridor (DFC).
The government has also planned to create and develop other major industrial corridors like- Bengaluru-Mumbai Economic Corridor (BMEC), Chennai-Bengaluru Industrial Corridor (CBIC), Amritsar-Kolkata Industrial Development Corridor (AKIC), East Coast Economic Corridor (ECEC) with Chennai-Vizag Industrial Corridor (CVIC) as the first phase of the project.
The objective of developing economic and industrial corridors is to boost the share of manufacturing sector in the GDP of the nation and to create smart sustainable cities with manufacturing being the key economic driver.
- Ease of doing business
Doing business in India, especially in the manufacturing sector have never been so easy as it is currently. Government has implemented major reforms to make it more favorable for the industries to operate with more ease by providing a better infrastructure and lowering impositions.
The corporate tax rate imposed on companies is brought down by the government which has provided huge benefits to them. A full-fledged regulatory mechanism is formed by the government to examine and regulate the industrial operations which has enabled the companies to report their legal formalities at one place without running through different authorities and departments for permissions, licenses, trade treaties, etc.
The e-BIZ portal by Indian government has given a huge contribution in enhancing the ease of doing business in India. The portal enables the user to carry out almost all the legal process including filling forms, uploading attachments and making payments online.
The manpower cost in India is relatively low and domestic market has developed strong consumerism. Education is growing rapidly inculcating strong technical and engineering potential amongst the youth. On the threshold of major reforms in its regulatory framework, India can reach the milestone of becoming the third largest economy of the world by 2030.