The sectors that would matter in India’s race to be a manufacturing powerhouse


Buoyed by global sentiments, government schemes, cheap labor and a skilled workforce, India’s manufacturing exports grew 40% year-on-year in FY22 to hit a record $418 billion. India is expected to scale up its manufacturing exports to $1 trillion by FY28 and analysts have said that much of this growth will come from a select few sectors.

As per a report by global consultancy firm Bain & Company, exports by the chemicals industry are estimated to grow at a CAGR of 19%–23%, or around $110–$130 billion by FY28, owing to the low cost of manufacturing and rising investments .

India’s drugs and pharmaceutical exports are expected to grow at a CAGR of 16%–18%, or $45 billion–$50 billion) by FY28.

“India’s strength in pharma—coupled with recent factors like incentivisation under PLI schemes, strong capex and PE/VC investments with 100% FDI, and rising labor costs in competing countries like China—is going to propel growth in exports,” it said.

The other sectors that will lead this growth include industrial machinery ($70-75 billion), electrical and electronics ($120-145 billion), automotive ($45-55 billion) and textile & apparel ($95-110 billion).

But if the country is to scale up its manufacturing exports, Indian companies should focus on having a clear export strategy, the right execution chops, the right partnerships for enabling exports, and an optimal expenditure capital efficiency focus to build manufacturing capacity, the report said.

Exports growth momentum

India’s merchandise exports jumped from $292 billion in FY21 to $418 billion in FY22. It also crossed the peak of $328 billion hit in the pre-pandemic year FY19. This momentum has continued of late, as exports jumped 24.22% YoY to $38.19 billion in April and increased 15.46% YoY to $37.3 billion in May.

India is the sixth-largest manufacturing economy in the world and contributes 3.1% to the world GDP. Despite this, India’s export contribution to global trade is only 1.6%.

“Building on the competitive advantage of a skilled workforce and lower cost of labor, the manufacturing sector is also witnessing an increased inflow of capex and heightened M&A activity, leading to a surge in manufacturing output and resultant increased contribution to exports,” said Sushil Pasricha. , partner at Bain & Company.

Among the trends that have fast-tracked India’s export growth in the last two years are supply-chain diversification, India’s sectoral advantages in key manufacturing sectors (chemicals, pharmaceuticals, automotive, electronics, industrial machinery, and textiles) and government-led initiatives.

Analysts say the Center’s PLI scheme with an outlay of $47.8 billion planned over five years, starting in 2021 has increased in-country production and helped manufacturing-led exports. India has also signed key free-trade agreements (FTAs), including India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA) which will boost bilateral trade, creating an environment for export growth, Pasricha said.

India’s acceleration of capex cycle will help cater to the increased demand, analysts said. The Indian government has budgeted a 35% YoY rise in capex for FY23 to around $100 billion.

Mergers and acquisitions, PE/VC-led investments have also gained traction in the momentum in recent years. Data shows that much as 18% of the total PE/VC investments in 2021 were in the manufacturing sector, with the majority of them in the pharmaceuticals, and chemical subsectors.

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